Q1 of 2018 saw a record high in investment activity in Southeast Asia. Overall PE deal value completed across 36 deals closed was around US$1.3 billion, According to Ernst and Young(1)
Signapore dominated the PE and VC investments, contributing 56% to the aggregated deal value, followed by Maylaysia and Indonesia, each contributing 26% and 145, respectively.
EY Equity Briefing Southeast Asia September 2018 noted that as investors continue their expectations of increased economic growth in the region with rising investment in technology and the burgeoning middle class, excluding large-cap deals, the aggregate investment in small- and mid-cap deals increased by a significant 87% year on year, reaching US$1.3 billion, compared to US$709 million during the same year in Q2 of 2017.
In terms of deal value, the two key sectors driving PE and VC investments in Q2 were consumer products and retail (30%) and technology (25%). Technology continued to drive momentum in terms of deal volume, garnering 19 out of 36 deals completed in the quarter.
EY reports that two of the largest investments in 2Q18 were CVC Capital Partners’ investments in Munchy’s Group, the snack food manufacturer, in Malaysia for US$250m; and PT Garudafood Putra Putri Jaya, the snack maker, in Indonesia for US$150m.
PE Exits and Fundraising
The second quarter saw a decline in PE with four deals valued at US$443m, a year-on-year decrease of 28%. This was a stark contrast to Q1 of 2018 which saw a significant increase in exit value resulting from the completion of two large buyouts that were secondary transactions. EY comments that with the growing number of PE assets coming to the end of their investment life, exit activity is expected to remain healthy over the next 12 months.
Despite fundraising being lower than the record levels in previous years, the PE landscape has remained robust. EY reports six Asia-Pacific domiciled PE and VC funds with a focus on Southeast Asia that reached their final close, raising an aggregate US$942m compared with 11 funds closed in Q2 of 2017 raising an aggregate US$1.4b. On the other hand, VC fundraising saw a significant upswing of more than 70% from H1 of 2017 to H1 2018 (US$701m), driven by three funds that raised more than US$100m each.
Increasingly pivotal role of digital
EY notes that digital technologies are dramatically impacting on the ways that PE firms organize and execute both at a corporate level and in the way they drive value across their portfolios. EY notes that regardless of their sector specialization, geography, strategy or size, one of the most significant value drivers for PE firms is facilitating investees to fully embrace a digital mindset that permeates all aspects of their business.
PE ecosystem with its varying levels of sophistication means that PE investment starts with a full assessment to understand where companies fall within the spectrum and what resources they’ll need to collect, harness and utilize their data. This has seen an increasing need to involve digital specialists to oversee operating resources and provide their expertise during the diligence.
The report lists some of the ways that PE firms are helping companies navigate the region’s rapidly changing investment landscape. These include:
- Defining and articulating a digital strategy
- Developing an enhanced customer experience
- Revamping and digitally enabling supply chains
- Integrating their front-office systems with back-office information technology (IT) framework
- Putting into place robust cybersecurity measures
- Digitally enabling the finance function
- Acquiring and implementing new technologies
Digital technologies continue to have a significant impact on PE and VC investment. While data analytics are a central feature, it is in actual fact just one component with robotic process automation (RPA), artificial intelligence (AI), the internet of things (IoT) and other emergent technologies all making their way into the PE ecosystem.