HANOI (The Straits Times/ANN): Private equity investors with billions of dollars to spend are now keenly eyeing promising opportunities in key sectors across South-east Asia, including healthcare and technology. This comes after such investments and other deal flows fell to a five-year low in 2023.
The region’s growing population, increasing affluence and supportive regulatory policies have caught the attention of some of the biggest players in global finance.
An executive at the giant US investment firm KKR told The Straits Times that the company’s investment activity in the region will be ramped up further in 2024.
“In South-east Asia, each country has its own unique qualities, but the long-term fundamentals that drive growth are the same,” noted Mr Prashant Kumar, partner and head of KKR’s South-east Asia private equity business.
“These include favourable demographic trends with a large, young and growing population, fast-growing middle class, increased urbanisation, technological disruption and a steady rise in domestic consumption.”
Singapore, Vietnam, Indonesia, Malaysia and the Philippines – with a combined population of around 530 million people – are benefiting from these factors, resulting in attractive investment opportunities, he added.
“We will consider all sectors, including priority sectors such as technology, healthcare, consumption, and manufacturing and supply chain logistics,” Mr Kumar said.
KKR’s commitment to the region can also be seen in the recent successful closure of its US$6.4 billion (S$8.6 billion) KKR Asia Pacific Infrastructure Investors II fund – the largest of its kind in the region.
The New York-based firm said the new fund had already allocated more than half of the capital across 10 investments.
KKR is known in Singapore for its investment in retail group V3, which owns luxury brands such as TWG Tea and Bacha Coffee, online property platform PropertyGuru and Singtel’s regional data centre business. It has also invested in Vietnam’s biggest eye hospital chain Medical Saigon, Philippines’ largest private hospital group Metro Pacific Hospitals, and Malaysian subsea telecommunications cable services provider OMS Group.
KKR managed US$528 billion in assets and had US$99 billion in available capital for investing as at Sept 30, 2023.
Blackstone, the world’s largest alternative asset manager with US$1 trillion in assets under management, is also looking at opportunities in South-east Asia.
The American firm will be focusing on sectors including technology, healthcare, consumer and financial services. Some of its deals in the region have included acquiring Singapore precision components maker Interplex for US$1.6 billion in 2022 and selling IBS Software Services for US$450 million to rival buyout firm Apax Partners in 2023, noted Dealogic.
A report from law firm Norton Rose Fulbright and financial data company Mergermarket noted that deal-making in Asia is expected to increase markedly in 2024, driven by factors such as competitive valuations and the region’s generally less onerous regulatory environments.
The Jan 30 report showed artificial intelligence has become a popular target for dealmakers, with more than half of large private equity firms surveyed looking to buy such businesses.
The widely expected cut in interest rates in 2024 would mean a more stable funding environment, making it easier for dealmakers to price, execute and plan, said Mr Tom Kidd, a partner at global consultancy Bain & Company.
Mr Kidd believes the deal-making market is unlikely to repeat the surge seen in late 2020 and the record-breaking year of 2021, but he remains cautiously optimistic.
“There is more certainty on macro factors such as interest rates than a year ago, and funds are under pressure to generate cash for investors via exits. That should help support an uptick in deal activity,” he said. “However, there is a recognition that rates are likely not going back to the lows we saw a few years ago,” he added.
“That, of course, makes the deal maths harder for traditional buyouts and makes it more important for funds to be disciplined on the prices they pay and have a clear thesis on value creation for the assets they end up buying.”
Mr Kidd added that South-east Asia, in particular Vietnam and the Philippines, is witnessing a broad-based interest from some of the world’s biggest alternative investment managers, noting that deal drivers will be in healthcare, infrastructure and the consumer space.
Private equity and venture capital investments in Asia-Pacific, excluding Japan, dropped 30 per cent from 2022 to US$25.08 billion in 2023 – the lowest annual total in at least five years, noted S&P Global Market Intelligence.
Deal counts also tumbled to a five-year low, falling to 210 in 2023 compared with 221 in 2022.
The decline in private equity investment activity in the region can be attributed to rising interest rates and cooling private equity activity in China, said Mr Ambarish Srivastava, associate director of private equity and consulting at research and analytics firm Acuity Knowledge Partners. He expects private equity firms to target digital technology, financial services, infrastructure and the retail and consumer sectors in 2024.
Mr Luke Pais, Asia-Pacific private equity leader at EY, added that a stronger deal pipeline is starting to take shape in the Asia-Pacific amid a significant amount of private capital available for investing, estimated at US$486 billion, waiting to be deployed in the region. - The Straits Times/ANN