SINGAPORE – Mar 25, 2024 – An unsettling mix of macroeconomic conditions and uncertainty has led to yet another year of slowdown in Asia Pacific private equity (PE) markets. Deal value fell to $147 billion, and fund-raising declined to its lowest level in a decade, according to Bain & Company’s Asia Pacific Private Equity Report 2024 launched today.

Consistent with the industry globally, the region’s deal value slid 35% from the previous five-year average to the lowest annual level since 2014. The volume of deals was 30% lower than the 2018-2022 average.

Economic uncertainty affected most markets including Australia-New Zealand, China, Southeast Asia and India, where deal value fell 63%, 58%, 47% and 41% respectively vs. the previous five years. All four markets reported fewer mega deals (over $1 billion) than in prior years. South Korea fared slightly better as deal value fell by 20% compared with the prior five-year average, increasing its share of the region’s deal value.

Japan was the only market to buck the trend, where deal value rose 183% over the prior five-year average, making it the region's leading deal market for the first time. Mega deals were the largest factor behind Japan’s surge in deal value, helping boost deal value to 30% of the Asia Pacific total, up from 7% over the previous five-year average.

“While the rest of Asia Pacific grappled with the fear of slowing economic growth, persistently high interest rates, volatile public stock markets and ongoing geopolitical tensions, investors found comfort in Japan’s deep pool of target companies with performance improvement potential, its stable regulatory environment, and persistently low interest rates,” said Sebastien Lamy, co-head of Bain & Company’s Asia Pacific PE practice, who is based in Tokyo.

For the first time since 2017, buyouts overtook growth deals and represented 48% of Asia Pacific’s total deal value while growth deals represented 41%. The shift was partially due to fewer deals in both the technology sector and in markets where growth deals were historically dominant including Greater China, India and Southeast Asia.

While the technology sector continued to dominate deals in Asia Pacific, it made up only 27% of total deal value in 2023, down from a five-year average of 41%. Energy and natural resources was the only sector to record an increase in deal value and deal count as PE funds are increasingly focused on energy-transition related assets. Advanced manufacturing and services deal value accounted for 26% of the total, up 8% over the previous five-year average. The increase stemmed primarily from the $16 billion buyout of Toshiba.

Tough market conditions pushed some investors to the sidelines in 2023. The number of active investors in Asia Pacific fell 25% compared with 2022 and the share of deal value contributed by the region’s top 20 funds increased to 47%, up significantly over the prior five-year average of 31%. Previously the domain of global general partners (GPs), the mix of investor types in the list of top 20 funds shifted as government-affiliated funds were more active in larger deals.

Exits plunged to $101 billion, falling 26% vs. the previous five-year average and a 51% decline from the record-breaking level in 2021. Only 22% of GPs surveyed by Bain made successful exits as planned while 30% made no exits at all. A troubled macro-economic environment and underperforming and unpredictable IPO markets were main reasons for the tough exit environment.

Asia Pacific-focused funds raised $100 billion, a 26% fall vs. 2022 and a 60% drop vs the prior five-year average. Investors raising new funds continued to shift their focus away from Asia. The global share of Asia Pacific-focused private capital funds fell to 9%, down sharply from an average 23% over the last decade.

PE returns were a bright spot in 2023, confirming that PE is still an attractive investment class, far outperforming public markets over 5-,10-, and 20-year horizons. At year-end, despite the difficulty in fund-raising, the estimated level of dry powder remained consistently high. However, about one-third of undeployed capital in the region has been committed for four years or longer, putting GPs under pressure to deploy it.

To adapt to a challenging market, GPs are changing the way they work. More than two-thirds of GPs said they have been increasing their focus on portfolio management, and more than half are working harder on exit planning.

“The outlook for exits in 2024 in Asia Pacific remains uncertain, but successful funds are not waiting for markets to bounce back. They are paving the way for sales that meet their target returns by using strategy reviews to highlight the potential value of deals to buyers. This approach can help reduce the inventory of aging assets and return cash to limited partners through 2024, even if the overall exit market remains depressed,” said Lachlan McMurdo, Bain & Company partner and co-author of the report, based in Melbourne.

Despite difficult exit conditions, PE funds that developed a pre-sales strategy and compelling equity story for their portfolio companies were able to attract buyers and exit successfully, according to Bain’s survey.

In a turbulent year for PE, many leading funds started to explore alternative asset classes, including infrastructure and private credit, as a key source of growth. Both asset classes have room to grow in the region. While diversification is challenging, those who get it right build needed capabilities and invest close to their core business.

# # #

Media contact: Ann Lee (Singapore) - ann.lee@bain.com

About Bain & Company

Bain & Company is a global consultancy that helps the world’s most ambitious change makers define the future.

Across 65 cities in 40 countries, we work alongside our clients as one team with a shared ambition to achieve extraordinary results, outperform the competition, and redefine industries. We complement our tailored, integrated expertise with a vibrant ecosystem of digital innovators to deliver better, faster, and more enduring outcomes. Our 10-year commitment to invest more than $1 billion in pro bono services brings our talent, expertise, and insight to organizations tackling today’s urgent challenges in education, racial equity, social justice, economic development, and the environment. We earned a platinum rating from EcoVadis, the leading platform for environmental, social, and ethical performance ratings for global supply chains, putting us in the top 1% of all companies. Since our founding in 1973, we have measured our success by the success of our clients, and we proudly maintain the highest level of client advocacy in the industry.