Video
Despite macro tremors in 2016 that rattled global markets, private equity in Asia-Pacific had its second-best year on record. Kiki Yang, a partner in Bain's Private Equity practice, outlines three things successful general partners are doing to compete in the active private equity sector in the region.
Read the Bain Brief: Asia-Pacific Private Equity Report 2017
Read the transcript below.
KIKI YANG: So despite all the macro-uncertainties in Asia and the rest of the world, the private equity market in Asia actually reached the second-best year on record last year, $92 billion in deal value. Many countries saw superactive deal activities.
In terms of the sectors—internet, technology, media and telecom actually continue to be the most active sector and accounted for 45% of the deal value in the region. We have also started to see actually a lot of early stage deals. And despite the fact that they're early stage, the deal sizes are quite large.
Despite such active deal activities, a lot of the general partners that we have surveyed mentioned intense competition as one of the biggest challenges for this part of the world. The dry powder in this part of region actually reached historical high levels. And in addition to that, you have institutional investors, sovereign wealth funds that are starting to do more and more direct deals. And on top of that, you have cash-rich strategic investors that are also competing for the same type of deals.
As a result, the deal multiples in Asia-Pacific actually reached historical high levels of 17 times last year. So this really dwarfs the 10-times multiple that mature markets like the the US have.
So amid such strong competition, what we have seen is that the most successful general partners do three things quite well. Number one, smarter sourcing. So this is all about actually generating proprietary deal flows and have unique insights. And the second is enhanced due diligence. What we mean by that is actually using tools like advanced analytics and operational diligence to really have this thesis-driven approach that really differentiates you from other funds.
The last thing that we have seen is creative value creation. So given the slowdown of the macroeconomies in this part of the region, just to ride the growth of the economy is not going to be enough. So many funds are really adopting activism in post-acquisition portfolio management. And that could really enable them to generate differentiated returns for the LPs.
Read the Bain Brief: Asia-Pacific Private Equity Report 2017
First published in Juli 2017