Press release

More buyouts expected in Greater China’s private equity market as industry undergoes transformation over next five years

More buyouts expected in Greater China’s private equity market as industry undergoes transformation over next five years

  • April 18, 2023
  • min read

Press release

More buyouts expected in Greater China’s private equity market as industry undergoes transformation over next five years

SHANGHAI – April 18, 2023 – Greater China’s private equity (PE) market could see transformational changes over the next five years as buyout deals are expected to outgrow other asset classes, according to Bain & Company’s Greater China Private Equity Report 2023 launched today.

Faced with strong macroeconomic headwinds, PE investments fell to an eight-year low. Deal value in Greater China’s PE market fell 53% to $62 billion in 2022 compared to the previous year. Average deal size was at $82 million, the lowest since 2013, while deal count shrunk 38% year-on-year.

According to Bain’s Asia Pacific Private Equity Report 2023 released last month, Greater China and Southeast Asia saw the greatest fall in deal value in the region at 53% and 52%, respectively. Deal value in Australia-New Zealand, Korea and Japan dropped 48%, 39% and 28%, respectively, while India declined 25%.

“While buyout deals currently represent only 9% of Greater China’s total deal value, we expect them to accelerate over the next five years. This is driven by multiple factors including increasing amount of assets held by private equity funds entering the exit time window, and the increase of MNC carve-outs under the current geopolitical situation.” said Hao Zhou, head of Bain & Company’s Greater China PE practice, who is based in Hong Kong.

Although growth deals continued to dominate and account for 74% of Greater China’s total deal value in 2022, Bain’s report highlighted several factors leading to the trend of more buyouts in the mid-term including an increase in carve-outs in China’s multinational companies due to geopolitical tensions; PE-owned companies have risen 13 times between 2012 and 2021, creating more opportunities for secondary sales; and entrepreneur/family-sourced buyouts have grown by 2.5 times between the periods 2012-2016 and 2017-2021.

“The window of Chinese companies transitioning from first generation founders to second generation has started and this could prompt more buyout opportunities. In addition, more privatization deals may be possible if stock prices do not recover as expected,” said Zhou.

An uncertain business outlook and lower ratings for public companies helped push multiples down to 16.7x from 17.9x (median EV/EBITDA) a year earlier. As deal exits plunged further in 2022, a result of inactive trade sale, fundraising value of Greater China-focused funds fell 68% year-on-year to a new low in 2022.

“Greater China’s PE market has traditionally been led by domestic general partners (GPs). Amidst uncertain macroeconomic conditions in 2022, domestic GPs were the most active players, especially the RMB funds,” said Beijing-based partner Lucia Li.

Domestic GPs were responsible for 37% of total deal value in Greater China in 2022, four percentage points higher than the 2016-2021 average. Within the group, RMB funds grew six percentage points to 24% of total deal value, making them the most active players in Greater China’s PE market last year. In contrast, USD funds mostly adopted a ‘wait and watch’ approach.

“Similarly, global and regional GPs took a more cautious strategy declining their participation by seven and three percentage points, respectively, in 2022 compared to the 2016-2021 period,” added Li.

While the internet and tech sector continued to hold the largest share of private equity capital in Greater China, the sector’s deal value fell 62% year-on-year, led by the cloud services (down 88%) and software (down 59%) subsectors. The traditional strongholds for internet and tech deals—Greater China, India, and Southeast Asia— all experienced sharp declines in 2022. However, in Greater China, semiconductors & components helped pick up some slack as the government doubled down on national security.

In line with the regional trend, advanced manufacturing and healthcare recorded an increase in their share of deal value in 2022. The rise of advanced manufacturing sector is mainly driven by electric vehicle value chain, riding on the continued policy tailwind to push for sustainability. Also, pharma and biotech continued to be the most attractive subsector within healthcare and gained more traction with private equity investors.

Based on Bain’s GP and limited partners survey conducted in December 2022, macroeconomic softness was the most critical concern. Going forward, China’s 2023 macro outlook will primarily depend on its domestic consumption recovery. Post Covid policy lift in early 2023, the Chinese market has observed early signs of recovery. Consumer Confidence Index (CCI) and Purchasing Manager Index (PMI) both picked up in Q1 2023, although the recovery back to pre-Covid levels remains uncertain.

Despite that, Bain’s analysis shows that even in a downturn, companies can accelerate growth and generate superior returns. Greater China’s PE funds should follow the following strategies.

The first is a near-term focus on portfolio to drive cash generation and cost reduction in supporting functions to sustain deal returns. Second, shift investment thesis from topline growth to much broader themes such as consolidating series of smaller players to create a significant player and identify MNC business carve-out opportunities. Finally, build deep sector expertise with a focus on company specific insights and implement true value creation over doing buyout deals. 

Editor's Note: For more information or interview requests please contact:

Bain & Company

Ann Lee

Tel: +65 6228 2960


Jasmine Zhao

Tel: +86 021-2211 5819 or +86 134 825 57699


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