Asia private equity 2022 deals down 44%; uncertainty ahead

Asia-Pacific’s private equity market fell last year – as investors’ risk appetite fell in the face of inflation and geopolitical tensions, according to Bain & Company.

Total deal value for the region fell 44% to $198 billion in 2022, the global management and consulting firm said in a Tuesday report. That compares with $354 billion in 2021, the analysts said, adding that nearly 70% of fund managers surveyed expect the negative trend to continue into 2024.

Persistent macroeconomic uncertainty along with rising costs and deteriorating corporate performance dampened investor sentiment, Bain said in its Asia Pacific Private Equity Report 2023.

“Investors, sensing a new era of slower growth, rising inflation and greater uncertainty, took time to recalibrate their strategies, realizing that what worked well in the past may not be the right approach for 2023 and beyond,” a group authors from Bain’s Private Equity practice including Kiki Yang said in the report.

“If the conditions — macroeconomic uncertainty, poor corporate performance and a slowdown in deal activity — that we advise in 2022 persist, valuations could continue to contract as fund managers adopt a wait-and-see attitude,” Bain wrote.

Contract value in Greater China fell 53% as investors grappled with the nation’s zero-Covid policy, it said, leading to declines in the larger region. China and India accounted for a $35 billion drop in total deal value for large growth deals for the year, Bain said.

While internet and technology remained Asia-Pacific’s biggest investment sector, it also saw a decline from the previous year, which marked the lowest level since 2017, the firm said.

“For more than a decade, the Internet and technology sector has attracted the largest share of private equity capital in the Asia-Pacific region. However, the share of deal value in 2022 fell to 33% from 41% the previous year,” Bain authors wrote in the report.

“The traditional strongholds of Internet and technology deals – Greater China, India and Southeast Asia –
all experienced sharp declines,” Bain said, adding that deal value in the Greater China Markets sector fell 62% year-on-year.

Within the technology sector, cloud services had the largest deal value, with consumer technology businesses such as e-commerce and online services seeing deal value fall by about 70% compared to a year ago.

While macroeconomic conditions dampened investor sentiment in private equity deals across the region, Bain saw an increase in the number of environmental, social and corporate governance (ESG) deals.

“In the energy and natural resources sector, investments in utilities and renewable energy accounted for 60% of deal value, reflecting the rise of environmental, social and corporate governance concerns as an investment priority,” Bain said.

The number of utility and renewable energy deals increased 47% compared to a year ago, the report said, noting that Australia’s Macquarie Group’s offshore wind business Corio Generation secured a roughly $1 billion investment from investor Ontario Teachers’ Pension Plan.

General partners surveyed by Bain say they will continue to hone ESG-related investments in the coming years, it said.

“Half of the GPs we surveyed plan to significantly increase their efforts and focus on ESG over the next three to five years, up from 30% three [years] ago,” Bain said.