Private equity (PE) activity in Southeast Asia (SEA) wrapped up 2023 with good momentum despite slow start

• US$3.9b deployed across 22 PE-backed deals in 2023 in SEA, down US$6.7b in 38 deals in 2022; PE-backed exits valued at US$3.3b from 13 deals in 2023
• Health care deals accounted for 36% of PE investments, followed by telecommunications and digital infrastructure (31%) and business services (15%)

With a tepid start to 2023 before moving into a more robust Q3, SEA wrapped up 2023 with a total of 22 deals deploying US$3.9b. This was down from 38 deals deploying US$6.7b in 2022. Health care deals accounted for more than a third (36%) of PE investments in SEA, followed by telecommunications and digital infrastructure (31%), and business services (15%). As well, there were 13 PE-backed exits valued at US$3.3b in 2023.

The slowdown in the pace of PE activity in SEA is similar to the trend seen across Asia-Pacific, where the number of funds closed in 2023 (71 funds raising US$35b of capital) was the lowest since 2018. In all, there were 99 PE investments deploying US$79.3b in Asia-Pacific in 2023.

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

The EY publication also highlighted that while fundraising was slow in 2023, there was a lot of dry powder focused on the region. Specifically, private credit is expected to continue to gain momentum as an asset class, as well as in infrastructure and real estate.

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

“2023 was a slower year for fundraising as well as exits. The two are somewhat linked as a slower return of capital to limited partners resulted in a lower level of commitment to new funds raised. We expect to see higher exit activity in 2024 with secondaries being a popular exit choice.

“SEA was affected by macroeconomic headwinds in 2023, with higher-for-longer interest rates and inflation resulting in lower demand for exports. However, GDP rates remain strong. Further, SEA's young workforce and growing middle class will continue to generate demand for innovative solutions, providing opportunities for PE portfolio companies as well as PE investments for companies seeking funding. Looking ahead into 2024, sectors such as consumer, health care, education and business services will likely see more activities.”

Key themes for PE investments in 2024

With PE deal activity expected to increase in 2024, the EY publication highlights that SEA’s PE landscape will be led by the following themes:

• Technology and artificial intelligence: Besides reshaping various sectors in SEA, it is creating significant demand for digital infrastructure
• Transition to a low carbon economy: Creating investment opportunities in the energy and other related sectors
• Aspirational consumer: Driving demand for consumer products, services, better quality health care, accessible financial services and high-quality education
• Fragmented business services landscape: Consolidation across various verticals to continue
• Reshaping of the global manufacturing landscape: Companies are looking for supply chain resilience, and are seeking out alternative supply chains and expanding their suppliers. Many are considering SEA as an alternative supply base.

Pais concludes:

“While overall deal activity slowed down in 2023, to navigate this period of dislocation, investors should look into investing in good assets at attractive valuations to emerge from the current downturn stronger than before.”

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