Press release

Asia-Pacific private equity deal market weathers growing global turbulence to post a record year in 2015

Asia-Pacific private equity deal market weathers growing global turbulence to post a record year in 2015

Bain & Company survey of more than 100 regional private equity executives reveals trends that will shape 3-5 year deal outlook

  • March 31, 2016
  • min read

Press release

Asia-Pacific private equity deal market weathers growing global turbulence to post a record year in 2015


Bain & Company survey of more than 100 regional private equity executives reveals trends that will shape 3-5 year deal outlook

Singapore – March 31, 2016 – Clouds cast long shadows over Asia-Pacific's private equity (PE) market in 2015, with falling oil prices, slowing global economic expansion, fluctuating currency, and a staggering $5 trillion sell-off in China between June and August.  Despite the growing turbulence, the region's PE industry posted one of its strongest years on record, including the highest year ever in terms of deal and count.  Yet, the obvious question remains:  Can Asia-Pacific's break-out momentum over the last two years continue? 

According to Bain & Company's third annual Asia-Pacific Private Equity Report 2016

  • Deal value rose a staggering 44 percent last year, setting an all-time record of $125 billion – about twice the average of the previous five years.  After surging 194 percent in 2014 (following a worrisome two-year decline), deal value in Greater China grew another 56 percent last year to $69 billion, accounting for about half the region's total. India and South Korea also posted record deal flow, while activity ebbed in Southeast Asia and Japan. 
  • Deal count shot up 34 percent to 955, breaking through the 900 mark for the first time ever.  For the second year in a row, Greater China (China, Hong Kong and Taiwan) led the charge in both value and deal count. 
  • Average deal size set a new record, ballooning to $131 million, 45 percent higher than the five-year average.  
  • Across the region, exit activity at $88 billion remained robust, even in the face of extreme volatility in the equity markets.  Greater China drove more than half of the exit value in the region, spurred by several large-scale IPOs. 

"Last year was an exceptional year for deal-making.  By comparison, 2016 will likely be much softer," said Suvir Varma, who leads Bain's Private Equity Practice in Asia-Pacific.  "As the macro story across the region deteriorates, PE is wading into unfamiliar territory – a slower growth environment that will make it much more difficult to find good companies, improve their performance and exit them at market-beating returns."

2015 PE Trends
Bain found that a surge in megadeals (larger than $1 billion in value), particularly those in China and South Korea, accounted for 43 percent of total transaction value across the region, more than double the value of a year earlier.  Behind this surge were:  

  • Public-to-private buyouts, which soared to $17 billion in value – more than three times the five-year average – and made up 14 percent of total PE deal value in 2015. 
  • Strong activity among large institutional investors and sovereign wealth funds (SWFs), which have long shown keen interest in the Asia-Pacific PE market. SWFs and institutional investors co-invested with traditional PE funds in 74 transactions representing $36 billion in value last year.

In terms of sector trends, the Internet sector was by far the hottest area of focus in Asia-Pacific in 2015.  Companies offering Internet-based solutions are exploding, generating a groundswell of interest among PE funds looking for growth. Investors across the region plunged a record $36 billion into 371 Internet-related deals in 2015 and another $15 billion in 141 technology companies.

The Opportunities Ahead
Of particular note, this year's report includes results from a Bain survey of 125 private equity executives in Asia-Pacific on their 3-5 year industry outlook. Respondents point to China's economic deceleration as the true test for the PE industry's resilience and creativity in the coming year.  Market turbulence in the Asia-Pacific region, characterized by slower growth, new economic drivers and greater regulatory uncertainty, will also heavily influence the current PE landscape and challenge general partners' (GP) ability to decrease their risk while still realizing strong returns.

"How the PE market unfolds will differ based on where in Asia-Pacific one is looking" said Varma. "The stories won't be the same across geographies and sectors, which will require funds to abandon their one-size-fits-all strategies to identify profitable opportunities."

As volatility and competition mount across the region, Bain's survey revealed an increasing number of GPs reacting to the changing landscape in a variety of ways: 

  • Broadening focus – A trend toward geographic and asset class expansion has been building for several years as firms try to expand their scope to limit their risks. Regional Asia-Pacific made up 44 percent of closed funds between 2013-2015 – up from 23 percent between 2009-2012.  About a third of the GPs in the survey said they invest in non-traditional asset classes and 45 percent indicated they would be broadening their scope to include such investments over the next five years. As appealing as diversification might seem in an increasingly challenging environment, however, it can also pose a high degree of risk, especially for asset class expansion which typically offers fewer synergies.  
  • Co-investing with LPs – Co-investments are on the rise in the Asia-Pacific region and unlikely to go away.  Last year, co-investment deals made up nearly $36 billion of the total $44 billion deal value that involved LPs – a spike from just about half a third of 2014's $12 billion value.  Nearly 95 percent of GPs expect the trend to continue or stay broadly the same in 2016.
  • Control – Buyout deals are gaining steam in the region as PE firms seek more control over portfolio companies. According to Bain's survey, 75 percent of GPs said they expect buyouts will make up more than 80 percent of their portfolios over the next two or three years versus 50 percent for growth deals. In parallel, GPs also expressed their intent to gain more control, even when they sign growth deals with minority stakes. PE funds expect that almost 50 percent of the portfolio companies they acquire with a minority stake will give them the ability to participate in critical company decisions within the next 2-3 years, versus 39 percent today. 
  • Activism - As growth ebbs, it will become proportionally harder to create value without making significant changes to a portfolio company's operations, management team and strategy. The power to exert such influence has often been missing in the Asia-Pacific region.  Although 58 percent of the GPs in the survey said they put in place robust value creation plans for 80 percent of their portfolio companies, only 14 percent said they believe they are executing successfully on those plans.

Thriving amid uncertainty
Looking at the top funds in a difficult macro environment, Bain finds that the winners in Asia-Pacific share three broad characteristics: 

  • They have storm-proofed their portfolios by dialing up their focus on portfolio activism, investing heavily in the people and capabilities needed to both maximize the value of their highest-potential companies and generate the most compelling growth stories upon exit. 
  • They are sourcing from a position of strength by targeting the most resilient sectors, sharpening due-diligence to best anticipate potential downside risk, and devising early, robust strategies for margin improvement, incremental revenue growth and exit planning. 
  • They are reorganizing internally to devote more talent and resources to fixing companies. They are also adding depth to investment committee processes by including specialists and others in the portfolio review process, while creating stringent guidelines to focus resources where it matters most.

"PE funds will need to be well equipped to thrive in tumultuous times," said Varma. "The most successful of the pack, regardless of geography, share one key trait:  they quickly transition from thinking as acquirers to acting like value creators. The clarity of their insights, the quality of their due diligence, and the discipline with which they price assets all represent the first steps in mobilizing the right value-creation strategy and executing on it."

Editor's Note: For a copy of the report or to schedule an interview with Suvir Varma, contact: Dan Pinkney at or +1 646 562 8102

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