EY: Considerable increase in private equity investment across SEA

KUCHING: The third quarter of 2016 (3Q16) saw a considerable increase in the amount of capital being invested across Southeast Asia (SEA) by private equity (PE) players.

The overall value of the 32 PE deals completed in 3Q16 was US$1.91 billion, outstripping the total US$1.56 billion invested in the region in the first half of the year.

However, the majority of the capital came from four transactions, according to the EY Private equity briefing: Southeast Asia (December 2016) report.

The quarterly briefing offers a roundup of the PE deals and capital activities across major sectors in the quarter.

While PE firms in SEA have been focused on Malaysia, Singapore and Indonesia historically – accounting for over 85 per cent of all PE investments in the past five years – PE firms are diversifying and exploring into emerging markets such the Philippines, Thailand and Vietnam.

Investments into frontier markets such as Cambodia, Laos and Myanmar remain limited for now.

“The Philippines, Thailand and Vietnam, which have been dominated by local funds to date, are being actively targeted by regional PE houses currently. As these economies continue toevolve, the number of opportunities of sufficient size is increasing.

“However, political instability remains one of the key concerns for investments,” Luke Pais, EY Asean merger and acquisition (M&A) and Private Equity leader, said.

“For the frontier markets, investments are still focused on building infrastructure such as banking and communications currently. That said, many PE players still view these markets as part of their long-term growth story.”

The report revealed that US$1.3 billion, or 85 per cent of the total capital, invested across SEA in 3Q16 are into two ride-hailing applications. The common theme of these two investments is a focus on Indonesia.

The market for ride-hailing applications in Indonesia is estimated at US$ 15 billion, signalling significant growth opportunities. Further, with the potential for diversification into food delivery and logistics, this market segment looks to increase further.

“These two investments highlight the fast evolution of the technology sector in SEA,” Pais said. “Given that SEA trails markets such as Japan, Korea and China in the technology curve, and with the liquidity needs of companies, there is a strong potential for PE investments in technology- based business models in the region.”