Press release

Positive cash flow returns kept Asia-Pacific's private equity deal market buoyant amid global, regional uncertainty in 2016

Positive cash flow returns kept Asia-Pacific's private equity deal market buoyant amid global, regional uncertainty in 2016

According to Bain & Company’s eighth annual private equity report, firms have to get smarter about how to differentiate themselves in a challenging fund-raising environment

  • March 16, 2017
  • min read

Press release

Positive cash flow returns kept Asia-Pacific's private equity deal market buoyant amid global, regional uncertainty in 2016


Even as the market delivered its second best year on record, Bain & Company – in its latest annual report on private equity in the region – cautions that sources of value are shifting, forcing funds to flex new muscles

Singapore – March 16, 2017 – The private equity (PE) market in Asia-Pacific (APAC) showed remarkable resiliency last year. Despite geo-political uncertainty at home and abroad, the region delivered its second best year on record, based on deal value, behind unprecedented results in 2015. However, even as the market continues its strong run, the days of ‘buy low, sell high’ have ended in APAC. Shifting profits and compressing returns are pushing funds to identify new sources of value with a focus on cost and capital efficiency and M&A opportunities.

Private Equity in APAC: By the Numbers

Bain & Company’s latest annual Asia-Pacific Private Equity Report found that investment momentum eased in 2016 due to a drop in the number of megadeals and softened deal activity. Deal value slowed but remained solid, decreasing to $92 billion – down from $124 billion in 2015. Deal count also dropped to 892, after peaking at more than 1,000 the year prior. The market continued to benefit from investor interest in Internet-focused opportunities, mostly in China and India, which comprised more than one-third of deals last year. In parallel, government and institutional investors remained an important part of the private equity landscape, driving 57 percent of deals worth $1 billion or more, as opposed to 18 percent for global buyouts. Yet, Asia-Pacific funds are still sitting on an ample supply of dry powder, which has remained largely flat.

After two years of vigorous activity, exits tailed off in 2016, partly due to a weak equity market in China that hobbled IPOs. In other APAC countries, the drop was a function of few remaining large assets that were ripe to sell. This eased exit value in the region from an all-time high of $115 billion in 2014 to a historically normal level of $74 billion. India, on the other hand, was fertile ground for exits last year, as was South Korea and Southeast Asia, thanks to a handful or large exits.

“After a record-setting 2015, we anticipated last year would be a much tougher deal-making environment – one that would make it more difficult for PE funds to generate market-beating returns,” said Suvir Varma, who leads Bain’s Private Equity Practice in Asia-Pacific. “Despite persistent challenges, PE firms rose to the occasion and delivered impressive results – the second best on record. They now face the task of sustaining this positive momentum amid another year of uncertainty ahead.”

The Hunt for New Sources of Value

Deal multiples reached new heights in APAC, outpacing levels in the U.S. – 17x vs. 10x, respectively. This, together with tightening interest rates squeezed traditional profit sources, causing PE firms to rely far less on traditional levers and look to new sources of value.

Bain surveyed about 120 general partners (GPs) and direct investors from across the region and found that about a fifth (22 percent) said they considered cost and capital gains to be the most important source of returns for deals exited five years ago; 6 percent cited M&A. Looking ahead five years, these factors are expected to increase dramatically in significance, with 37 percent of GPs pointing to margin efficiency and more than 20 percent to M&A. On the other hand, most respondents anticipated multiple expansion and leverage to both to go down.

Revenue growth, while still the most significant factor, is expected to plateau in the next five years.

“Wringing greater value from PE investments is much more of a priority than it has been in the past. It’s also not as straightforward as it once was,” said Kiki Yang, who leads Bain’s Private Equity Practice in Greater China. “Funds that will thrive are those that understand they must exercise an entirely different set of muscles to win the best deals and unlock new sources of value.”

According to the survey, more than half of GPs said the top factor for success in this new environment is a plan for creative value creation. Yet, many firms admit that while they have increased their focus in this area, they need to execute more consistently. Nearly two-thirds of respondents said they had developed a value creation plan for more than 80 percent of their portfolio companies, but only 19 percent said those plans were implemented successfully and yielded the intended results.

GPs also cited a differentiated view on companies and sectors (46 percent) through more thesis-based due diligence, which produces insights that enable them to both win deals and realize a profit.

Finally, 36 percent of GPs said exclusive access to targets via smarter sourcing is essential to ensuring deal success. However, fierce competition is making this increasingly more difficult and few firms in APAC – less than one-third – believe they are operating at full potential on sourcing.

One Size Does Not Fit All

While the PE market generally performed well across APAC, results differed greatly by country:

PE firms in Greater China have a large pool of companies in which to invest, and this region remains the primary market in the Asia-Pacific PE landscape. Investments reached $49 billion in 2016, down compared to last year but still 30 percent above its five-year average. However, clouds are gathering: slowing growth, corporate debt and steep valuations made it difficult to maintain a strong momentum.

PE in India had another strong year. Deal value was down only slightly from 2015 – $19 billion to $15 billion last year – but up versus its historical average. Exit momentum remained active, and value was up 114 percent from its five-year average, thanks to a balanced sector focus and strong growth prospects. Additionally, there was increased interest in PE across the country, but disappointing returns, high valuations and mounting competition have tamped down investments.

Southeast Asia’s PE markets steadily improved with a larger pool of targets and more robust GP networks. Deal value reached $6.8 billion, up 14 percent from its five-year average. However, the region is still hampered by high pricing and heavy competition, coupled with local macro challenges.

Supported by its largest ever PE deal, Japan had its best year since 2007 with $10 billion PE investment value, up 53 percent from its historical average. If non-core carve-outs keep fueling deal flow, the limited number of large transactions and increased competition could pose a challenge for the market.

PE in South Korea has benefited from robust deal flow, cash-outs and non-core divestments, but continues to battle steep pricing and intense competition for deals. The dearth of mega-deals also hurt performance. Deal value plunged to $6 billion in 2016, 29 percent below its historical average.

Australia is ripe with plenty of PE capital available, as well as secondary opportunities, but the availability of large quality targets is dwindling, contributing to a subdued market. The country is also fending off China-led competition and high prices. Deal value was cut in half – from $10 billion in 2015 to $5 billion last year, 36 percent below its five year average.

Editor’s note: To receive a copy of the report or arrange an interview with Suvir Varma or Kiki Yang, contact: Nick Worley at or +852 -2978-8830.

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