Southeast Asia Roars Back
The tiger economies of ASEAN are once again attracting strong interest from private equity investors.
The tiger economies of Southeast Asia are re-earning their stripes among international investors. Twenty-five Southeast Asia-focused private equity funds reached a final close in 2014, securing a total of $13.4B—a six-year high. The average fund size grew from $398M in 2013 to $609M in 2014, demonstrating increased investor confidence in funds aimed at the region. And the momentum has continued this year, with $2.1B raised in the first quarter of 2015.
There are several trends influencing the growth of private equity in Southeast Asia. “This is the targeted year of implementation for the ASEAN Economic Community free-trade pact, and that’s generating a lot of buzz,” says Ee Fai Kam, a Singapore-based senior research analyst with private equity research firm Preqin. “It allows for the free movement of goods, services, labor, capital, and investments. Additionally, Indonesia had a positive change in government last year and is a very large market.”
And then there is the demographic story. Across the region, the population is young, the middle class is growing fast, and urbanization is moving at a rapid pace.
The hub of PE action in Southeast Asia is in Singapore, which is attractive for its stable legal climate, pro-business tax environment, and government incentives for growing companies. About 70 percent of capital raised over the last decade by Southeast Asian managers was raised by Singapore-based GPs.
Blackstone opened a Singapore office in October 2013 and KKR has also established operations there. KKR completed the $1.4B buyout of SGX-listed Goodpack in September 2014 and Blackstone invested $800M in Malaysia-based Tamarind Energy in July. Those deals were among the largest in the local market last year.
Beyond Singapore the Southeast Asian market is diverse. There is Indonesia, the region’s largest economy and the world’s fourth most populous nation. There is the Philippines, the fastest-growing ASEAN economy. And there are what Mark O’Hare, CEO of Preqin, calls the “frontier” countries like Myanmar, which The Wall Street Journal termed “not for the faint-hearted.”
“You have diverse markets in the region, from the really sophisticated and developed to the tiny frontier markets,” O’Hare says. “You have under-the-radar markets with economies that are developing very rapidly. This makes for a wide range of opportunities for investors.”
On the one hand there are firms like KKR and Blackstone doing mega-deals in Singapore. On the other there are small funds focused on the “first wave” of opportunity like Leopard Capital, which has offices in Thailand and Cambodia, as well as Haiti.
LPs interested in the region have a choice: go with a heavy hitter or a regional player. “The big-name funds bring multinational experience in adding value but they lack local knowledge,” O’Hare says. “The local managers have better knowledge about local cultures, regulations and legal frameworks but many of these funds have quite limited track records. The landscape here is still emerging.”
Company owners are also maturing. O’Hare notes that many of the deals done in Southeast Asia are non-control deals—growth capital deals and minority stakes rather than majority buyouts. A typical deal is a family business that wants to grow and expand regionally. The family wants funding but wants to retain control and must be convinced that private equity is a good idea in the first place.
As the investment numbers demonstrate, company owners are quickly learning the value of private equity. “Southeast Asia is being viewed by investors with a lot of optimism these days,” O’Hare says.
The tiger economies of Southeast Asia are once again attracting strong interest from private equity investors, according to data from Preqin.
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