Private equity (PE) investors in Asia Pacific braced for a difficult year in 2020 as two years of record investment in the region had ended in 2019 with a sharp decline in deal value, exits, and fund-raising. However, no one was prepared for Covid-19. Shocked by the fallout, investors recoiled at first but many quickly jumped back into the market, especially in China, India, and Japan, lifting deal value across the region to a record high of $185 billion, up 19% from 2019 and 23% over the previous five-year average.
The environment remains challenging: exits hovered close to a 10-year low and fundraising tumbled again. According to Bain's 2021 Asia-Pacific private equity survey, conducted with 162 senior market practitioners, the top concerns for General Partners (GPs) surveyed include high valuations, increased competition and the ongoing impact of Covid-19.
These are among the findings from Bain & Company's 2021 annual Asia-Pacific Private Equity Report, released today.
"It's been a rollercoaster year for private equity in Asia," said Kiki Yang, co-head of Bain & Company's APAC Private Equity practice. "But while dealmaking ended the year on a high, Covid-19 has not gone away, and building portfolio resilience will be a crucial skill for leading investors."
Dealmaking
Dealmaking was the bright spot in 2020, reaching a fresh peak of $185 billion. After a sudden halt in the first quarter, activity picked up especially in China and India. This robust dealmaking helped Asia-Pacific assets under management rise to 28% of the global PE market.
China's total deal value rose to $97 billion, up 42% from 2019 and 22% higher than the previous five-year average. Meanwhile, India continued to increase its share of deal activity in the region. Deal value rose to $38 billion, up 64% over the prior five-year period. The growth came partly from an extraordinary series of 10 private equity investments totaling almost $10 billion in technology multinational Jio Platforms, and seven investments in Reliance Retail.
While deal value grew in Japan and Australia–New Zealand from the previous five-year averages, South Korea's deal activity was on par with previous years. Travel restrictions affected deal activity significantly in Southeast Asia, where deal value declined 16% over the previous five-year average.
Throughout the region, investors are targeting fast-growing companies with digital business models and platforms that were boosted by the switch to virtual work, education, and retailing. These digitally accelerated sectors include e-commerce, e-learning, digital healthcare, online booking services, online entertainment, and digital payments and financial services.
Exits
Following a breathtaking fall to a 10-year low in 2019, the number of exits was flat last year. Exit deal value totaled $70 billion, down 24% year-on-year and 40% from the previous five-year average, as PE managers waited for better times to sell portfolio companies. Of the GPs we surveyed, more than 70% of GPs surveyed say the exit environment was more challenging than in 2019, pointing to Covid-19 as the principal cause for a weak exit environment.
One bright spot was the initial public offering (IPO) exit channel. IPOs dominated the exit market, making up more than 60% of exits by value, almost double the previous five-year average. China accounted for 86% of the region's IPOs and the majority were healthcare and technology companies.
The value of the companies held in PE portfolios, or unrealized value, continued to climb, reaching $1.04 trillion, up 33% year-on-year. GPs' inclination to wait for better exit conditions has created an exit overhang, which will increase pressure on fund managers to accelerate exits in coming years.
Fundraising
Fund-raising slowed in 2020, overshadowed by a poor exit environment. Funds focused on Asia-Pacific raised $90 billion, down 32% year-on-year, 53% from the prior five-year average, and 64% from the peak year of 2017. The number of funds that closed fell to 356, down 76% from the 2017 peak. By contrast, global PE fund-raising declined only 11%. Asia-Pacific's&n...
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