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Total private equity deal value in Asia-Pacific fell last year to its lowest level since 2014, according to consultancy Bain & Company, as fundraising fell to a 10-year low amid slowing growth, high interest rates and volatile public markets.
However, Japan was an outlier, with deal values jumping 183% in 2023 from a year earlier, making it the largest private equity market in Asia-Pacific for the first time, according to Bain’s 2024 Asia-Pacific Private Equity Report, published in Monday.
Japan is an attractive investment because of the large number of target companies with a “significant pool for performance improvement” and the pressure of corporate governance reform on Japan Inc to divest non-core assets, Bain said.
Overall, deal value in the Asia-Pacific region fell more than 23% to $147 billion compared with a year earlier. It’s also 35% below the 2018-2022 average (a rate of decline consistent with the global recession) and nearly 60% below the peak of $359 billion in 2021, Bain said.
Exits fell 26% to $101 billion in 2023 from a year earlier, of which 40% came through initial public offerings. Greater China accounted for 89% of Asia-Pacific IPO exit value, with the vast majority of shares taking place in Shanghai and Shenzhen. Excluding the Greater China IPO, the total exit value in the Asia-Pacific region was $65 billion.
“Prospects for a 2024 exit remain uncertain, but successful funds don’t wait for markets to recover. They pave the way for sales that achieve profitability targets by using strategy reviews to highlight the potential value of deals to buyers,” Lachlan McMurdo, co-author of the firm’s annual report, said in a statement.
“This approach could reduce aging inventory and return cash to limited partners through 2024, even if the overall output market remains depressed,” he added.
Many leading private equity funds have turned to exploring alternative asset classes such as mid- to high-yield infrastructure operations, including renewable energy storage, data centers and airports, Bain said.
Here are some highlights from the report:
- Buyouts accounted for 48% of total deal value in Asia-Pacific last year, surpassing the value of “growth deals” – involving companies that expand rapidly and often disrupt industries – for the first time since 2017.
- Despite the shrinking investor pool, Bain said private equity returns are still more attractive than public market returns over five, 10 and 20-year horizons.
The timing of the recovery is still unclear, although there were signs of some improvement toward the end of last year, Bain said. When the recovery really takes hold, disruptive technologies such as generative artificial intelligence will be among the emerging areas that have “great promise,” Bain added.
Japan, India and Southeast Asia are among the Asia-Pacific markets seen as favorable for private equity opportunities in the next 12 months, Bain said, citing Preqin’s 2023 Investor Survey.