PRIVATE equity (PE) and venture capital (VC) activity in South-east Asia during the second quarter of 2018 remained robust, with about US$1.3 billion pumped into 36 deals.
Singapore-based deals contributed to more than half of the aggregated deal value, according to an EY report released on Tuesday. The country witnessed 20 deals with a total value of US$739 million.
The top deal came from the US$312.0 million privatisation of crane supplier Tat Hong Holdings by Standard Chartered Private Equity and the family of chief executive Roland Ng. Second on the list was the US$85 million close of Carousell's Series C round led by Rakuten Ventures and EDBI, the corporate investment arm of Singapore's Economic Development Board.
PE and VC deals in Malaysia accounted for 26 per cent of total deal value, followed by Indonesia contributing 14 per cent. In particular, Indonesia's PE and VC investments jumped 86 per cent from a year ago, rising to US$186 million.
Top deals in both countries were closed by CVC Capital Partners: a US$250 million investment in snack food manufacturer Munchy's Group in Malaysia, and another US$150 million in snack maker PT Garudafood Putra Putri Jaya in Indonesia.
EY said that overall, excluding large-cap deals, the aggregate investment in small and mid-cap deals in Q2 2018 leapt 87 per cent year on year as investors continue to bet on higher economic growth, rising investment in technology and a growing middle class.
Key sectors drawing investment were consumer products and retail, as well as technology. Four PE exits were recorded during the quarter, with a value of US$443 million, excluding an undisclosed amount from a deal between Navegar and Fullerton Health for a stake in Intellicare Group. The report noted that there remains limited disclosure around exits in the region, with a number of deals going unreported and therefore not captured by the analysis.
Luke Pais, EY Asean M&A and private equity leader, said: "With the growing number of PE assets coming to the end of their investment life, we expect exit activity to remain healthy over the next 12 months."
Meanwhile, fundraising in Q2 saw a decline. Six Asia-Pacific domiciled PE and VC funds - with South-east Asia as an investment destination - reached their final close, raising about US$942 million. In contrast, 11 funds closed in Q2 2017 raised about US$1.4 billion. Despite this, the average size of funds closed garnered a 24 per cent increase to US$157 million from a year ago.
The largest Asia-Pacific domiciled fund that closed in Q2 was Dymon Asia Private Equity Fund II. It raised US$450 million for investments across a range of industries primarily in Singapore.
For the first half of 2018, an increasingly competitive environment dragged overall fundraising down to US$1.8 billion from US$4.8 billion in H1 2017. But VC fundraising saw an upswing of over 70 per cent to US$701 million, lifted by three funds that raised more than US$100 million each.
Marc Lansonneur, head of managed solutions and investment governance at DBS Bank, said that PEs in Asia are facing competition from major US and European PE firms that have built up their presence in the region and hence are able to raise funds more aggressively across all sectors such as real estate, technology and healthcare. This gives Asia-based institutional and private investors easier access to PE or VC deals in other markets.
"Though the appetite from private investors for private placements and non-public listed assets is fast-growing, there is also a growing perception that valuations of certain PE deals may be inflated - in particular Asian assets. Investors are therefore looking at other markets such as Europe and US," Mr Lansonneur told The Business Times.
In contrast, VC funding has seen a "record year, particularly in the US". As VCs are involved in the earlier stages of a company's life, valuations may be less inflated than PE deals and pre-IPO deals.
"Although VC investments face more risks of company failure, its rewards could be significant - and risk/rewards are paramount criteria for investors. Brisk development of entrepreneurship and the emergence of Asian startups in areas such as healthcare and fintech have also offered new opportunities to VC investors," added Mr Lansonneur.