Pick up in private equity activity across Southeast Asia in Q3 2023 amid headwinds

• US$1.8b deployed across 18 PE-backed investments in Q3 2023, with deals centered on the technology, consumer and infrastructure sectors
• PE-backed exits valued at US$1.3b from 5 deals in Q3 2023, up from US$895m from 7 deals in Q3 2022

After a relatively quiet few quarters, private equity (PE) activity is starting to find its footing. In Q3 2023, Southeast Asia saw a total of 18 PE-backed deals worth US$1.8b, compared with 18 deals worth US$1.2b in the same period last year. In Q3 2023, PE-backed investments centered on the technology, consumer and infrastructure sectors, which together garnered approximately 40% of deal volume. In terms of PE-backed exits, there were five deals valued at US$1.3b in Q3 2023, compared with seven deals valued at US$895m during the same period in 2022.

This is according to the EY Quarterly Private Equity Update: Asean (Q3 2023), which provides a roundup of the PE deals along with capital activities across major sectors in Southeast Asia from July to September 2023.  

Mr. Luke Pais, EY Asia-Pacific Private Equity Leader says:

“Over the upcoming quarters, we expect that corporates in Southeast Asia will continue to face headwinds amid global disruption, and this is likely to spur M&A activity. Looking ahead, M&A activity across Southeast Asia will likely be shaped by the following key trends: the continued build-out of digital infrastructure across the region; realignment of the global supply chain as companies seek to shore up their supply chain resilience; acceleration of energy transition; conglomerates and multinationals reshaping their portfolio in the region; and PE portfolio exits. Given the amount of dry powder in PE hands, we expect PE activity to continue to gain momentum.”

PE firms focusing on performance of portfolio companies

The report also highlighted a separate EY global survey of a representative sample of PE investors across geographies and fund sizes. Two-third of respondents expect deal activity to accelerate further over the next six months; just 13% expect a decline.

Notably, the global survey found that PE firms are focusing on the performance of the portfolio companies. While PE firms execute across the full range of value creation levers, given today’s operating environment, cost, liquidity and working capital initiatives are taking priority. Specifically, 80% of the PE professionals surveyed indicated they’re paying more attention than usual to helping companies get visibility of cash and liquidity needs; and 70% of PE firms are paying more attention to cost takeouts than usual. For those firms, a thoughtful approach that keeps costs under control while keeping growth drivers intact is imperative.

Pais says:

“Portfolio companies that can better manage their cost and liquidity are better positioned from a resiliency perspective. At the same time, they can deploy excess cash to fund acquisitions, repay debt, invest in talent or fund business transformation at a time when many of their competitors are on the back foot.

In the year ahead, we expect PE activity to be broader in scope, with consumer, health care, education and business services being areas of focus. Private credit appears to be gaining popularity with new funds operating in the region. There is also a significant pipeline of exits and we expect 2024 to be an active exit year.”

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