Grant Thornton Hong Kong's latest Asia Private Equity Perspectives 2024 notes that investors are cautiously optimistic about the outlook for the Asian private equity industry in 2024.
While the private equity market continues to face challenges such as high interest rates, persistent inflationary pressures, heightened geopolitical tensions and ongoing global economic uncertainty, private equity activity is expected to recover with the rise of AI and the backlog of deals that have previously been backlogged. The near-end of the global monetary tightening cycle will boost debt markets and reduce borrowing costs. However, the private equity industry is still facing difficulties in exiting mature investments amid the current macroeconomic headwinds, so private equity** acquisition of controlling stakes in companies may continue to adjust.
Mr. Tang Biao, Head of Forensic Investigation Services of Grant Thornton Consulting"The M&A market in Asia Pacific fell sharply in 2023, continuing the downward trend seen in 2022. However, the rapid development of artificial intelligence (AI) and the emerging Southeast Asian market have also presented significant opportunities, leading to recent signs of recovery in the Asian private equity market. Asian private equity firms are looking for new capital** in an attempt to attract Middle Eastern investors who are diversifying their portfolios. ”
Mr. Tang added, "We expect the valuation gap between buyers and sellers to continue to narrow in 2024, which will help transactions become active. One of the strategies commonly used by private equity firms to close the valuation gap is an earn-out agreement, in which the seller must wait for the acquired company to reach a certain future profitability target before the buyer can pay the corresponding consideration, in order to protect the seller's minimum selling price. Add-on acquisitions are another increasingly common deal structure designed to bridge the talent and technology gaps of larger portfolio companies and promote synergies between new acquisitions and existing investees to create further value in a tight financing environment. ”
While the private equity sector as a whole has seen a downturn in 2023, the technology,** and telecommunications sectors remain at the top of the list of all sectors in APAC, largely driven by artificial intelligence. 2023 is a year of breakthroughs in AI technology and applications.
Private equity firms are betting on the industry's gold rush given the bright future of AI and its impressive profit potential. But due to increasing competition in the AI space and the difficulty of identifying clear winners, investors must perform rigorous due diligence to reduce risk and enhance returns. ”
Mr. Tang Biao"Artificial intelligence is not only providing tremendous growth opportunities for private equity firms, but it is also changing the landscape of the private equity industry. AI accelerates risk assessment and the process of finding deal opportunities, as well as enhancing investment strategies and improving the efficiency of investment managers. While early adoption of AI by private equity firms can lead to competitive advantage and better grasp the opportunities for value creation, it is also important to balance the benefits and risks of AI technology. ”
Japan remains the most popular Asian country for private equity investors in 2023, followed by Australia and India. The continued monetary policy support of the Bank of Japan (BOJ) and the resulting depreciation of the yen have made valuations attractive for Japanese companies. The long-awaited reopening and reopening of the economy, the resumption of auto production after a semiconductor shortage, and the strengthening of corporate governance reforms by the Tokyo Stock Exchange** have all contributed to the buoyancy of private equity dealing.
India's rapidly expanding economy and booming economy are increasingly attracting investors. India has overtaken China as the world's most populous country, and is also a major beneficiary of the global trend of reducing its dependence on China and extending to other countries.
Mr. Tang Biao"Investors are attracted by India's booming tech sector, young population and fast-growing consumer market," he said. Multinational private equity firms are expanding their teams in India to tap into this huge emerging market. Other Southeast Asian countries, such as Vietnam and Indonesia, are becoming increasingly attractive to investors looking for opportunities outside of China due to their relatively low production costs and increasing labor productivity.
In addition, Singapore is increasingly favored as a private equity hub as investors look to hedge against rising geopolitical risks. Strategically located in the heart of Southeast Asia, Singapore is an ideal gateway to the Southeast region to capture growth opportunities. ”
Deals in the industrial and chemical, pharmaceutical, healthcare and biotechnology sectors remain relatively buoyant in the turbulent economy of 2023. In Asia Pacific, the industrial and chemical sectors are mainly driven by the fast-growing electric vehicle market, while strong demand for high-quality public and private healthcare services, as well as** supportive policies for the industry, continue to generate investor interest in the pharmaceutical, medical and biotechnology sectors.
Mr. Tang Biao said"In the Asia-Pacific region, strong domestic demand and vigorous economic growth, as well as the rapid expansion of the electric vehicle manufacturing chain, continue to stimulate investment in the industrial and chemical sectors. The healthcare sector has benefited from favorable policies and growing demand, making it one of the most active M&A sectors in the Asia-Pacific region. However, heightened tensions between China and the United States remain one of the biggest stumbling blocks for private equity deals. In a high-interest rate environment, buyers are looking to buy equity stakes in companies at lower valuations, but sellers are reluctant to accept under-priced**, leading to valuation gaps and stifling deal activity in the private equity market. ”