Home Private Equity PE Activity in SEA Wrapped Up 2023 With Good Momentum

PE Activity in SEA Wrapped Up 2023 With Good Momentum

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  • 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.
  • Healthcare, telecom and digital infrastructure in Indonesia are seen as more resilient sectors to invest in relative to the technology sector.
  • Health care deals accounted for 36% of PE investments followed by telecommunications and digital infrastructure (31%) and business services (15%).

JAKARTA, 29 February 2024. 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 Private Equity (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.”

Strategic Insights for Navigating the Shifting PE Landscape in Indonesia

In regard to PE investment in the tech sector, the less-than-ideal stock market performance of some of Indonesia’s largest tech companies last year may have created some apprehension among PE firms to invest in the space. For PE players, industries such as healthcare, telecom and digital infrastructure in Indonesia are seen as more resilient sectors to invest in relative to the technology sector, which for the past few years had emerged as a prominent target for private equity investments.

Oki Stefanus, EY Indonesia Strategy and Transactions Partner, says:

“The factors affecting the slowdown in Indonesia is reflective of patterns seen across Southeast Asia and the Asia Pacific region, primarily driven by macroeconomic challenges, extended periods of high interest rates, and inflation. An additional factor in the Indonesian market, particularly over the past year, was the looming presidential election. Given how influential the impact of a new president will be on the business and investment landscape in Indonesia, some investors have adopted a wait-and-see approach to their investment in Indonesia in 2023.”

Following the so-called tech winter and the unfavorable performance of tech listings in Indonesia, PE firms have been more judicious and selective in making their investments. The growing interest in sectors like healthcare and digital infrastructure indicate a shift in PE investors refocusing on proven industries that are typically driven by prudent businesses and solid fundamentals. 

Oki, adds:

“We have observed profound interest from PE firms in healthcare, particularly in the acquisition of assets like hospitals, pharmaceuticals, and clinics, which is mainly driven by the high demand in that industry. Another sector that is expected to sustain PE deal activity is the consumer goods sector, primarily due to the sheer size of the Indonesia’s consumer market and the economy’s growing reliance on domestic consumption.”

The new energy sector, associated with the low carbon economy, has seen a handful of deals in industries like Electric vehicle, solar panels and climate-tech in Indonesia. While these businesses could represent exciting opportunities for PE firms, many of these industries are nascent in the Indonesian context at the moment. They still require high capital expenditure and investments to reach a proper economy of scale. However, it is expected that established private equity firms will keep a close eye on developments in this sector and may deploy more capital once these businesses reach a more notable scale.

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 vertical 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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