Private equity briefing: Southeast Asia

Transcription

1 Private equity briefing: Southeast Asia June 2015 Private equity briefing: SEA 1

2 This quarterly briefing offers you a roundup of the private equity deals and capital activities across major sectors in the quarter and trends that are shaping investment decisions today. It distills the perspectives of our team of subject-matter professionals in the region into pertinent insights to keep you ahead in navigating the private equity landscape. Private equity briefing: SEA 2

3 Contents 01 Outlook 02 Investments 03 Exits 04 Fund-raising 05 Sector in focus: education Our services: Corporate Finance Strategy Private equity briefing: SEA 3

4 01 Outlook The first quarter of 2015 has seen private equity (PE) activity continue where it left off in 2014, with deal volumes remaining high. This level of activity is expected to increase further with PE houses aggressively pursuing both investments and exits. There was a total of 33 PE deals executed in 1Q15, 43% higher than the same period in 2014, while the overall value was also considerably higher at US$672m compared with US$263m in This particularly positive outlook is set to continue in Technology sector activity on the rise The first quarter saw the continued rise of PE and venture capital (VC) investment into technology companies. In 1Q15, 22% (seven deals) of the total number deals involved the technology sector, continuing the trend that started in 2014, which saw 34 of such deals across the year. The majority of these deals were sub-us$5m investments. This increased activity is not surprising, given the significant number of technology funds that have established a presence in the region, particularly in Singapore, over the past 24 months. These funds have taken the form of both new and established global funds looking to take advantage of the Southeast Asian market. Another key trend is the increasing number of US$100m-plus investments. In the past 12 months, technology companies such as GrabTaxi, Garena and Lazada have attracted worthy levels of investments, and this looks to increase in the forthcoming months. Clearly, now is the time for PE and VC investments into the technology sector. Funds looking to get ahead need to act quickly to establish a strong reputation in the technology sector so as to build their portfolio and gain a foothold in the market. Funds that stall will likely struggle to compete with their more successful counterparts and new market entrants. Private equity briefing: SEA 4

5 Heightened competition Dry powder across Asia is understood to be in the excess of US$100b, with Southeast Asia remaining as one of the key target geographies. With investors pouring in cash, there is increasing pressure on PE houses to invest capital, resulting in considerable competition for prize assets. The abundance of capital is resulting in the willingness by PE houses to increase the multiples paid for investments, particularly in an auction process, with valuations further supported by the current low-cost debt environment. As a result, PE houses are spending considerable efforts to identify off-market deals. EY s 2015 global private equity survey, which surveyed 256 CFOs and investors, has highlighted that globally and regionally, PE houses are preparing for an influx of capital into Asia-Pacific, which will only serve to heighten the level of competition. For PE funds to succeed, they need to focus on differentiation, whether by geography, sub-sector, people or branding. Innovative strategies including partnerships, carve-outs and roll-ups will increasingly play a part in the success of deals. It is also important to focus on value creation, and this is where specialist portfolio managers and advisors can provide investment professionals with deep insights. The outlook for 2015 remains very exciting. We expect a continued increase in PE deals across Asia, particularly Southeast Asia. Luke Pais Asean Leader, M&A Private equity activity has got off to a confident start in If the first quarter is anything to go by, the new investment theme for 2015 is the rise of tech. Private equity briefing: SEA 5

6 02 Investments The first quarter of 2015 saw the continued increase in the number of investments, with a total of 32 deals. Despite the large number of deals, the total reported amount of investments was only US$209m, as the values of 26 deals were not disclosed. The consumer sector, which saw seven completed deals, continues to dominate PE investments. One of the most notable deals was KV Asia s investment into Aalst Chocolate in March. The first quarter also saw a significant number (seven deals) of technology deals, which includes Garena and 99.co. Garena, Singapore-based online gaming platform, completed a new round of funding led by The Ontario Teachers Pension Plan, while Singapore property site 99.co, raised an additional round of funding led by Sequoia Capital. The sizes of both deals were not disclosed. Investments have remained focused on the small and mid-market and into companies based in Singapore (14) and Indonesia (13). Figure 1: Investment activity 2, Deal value (US$m) 1,600 1, Deal count 0 Q Q Q Q Q Q Q Q Small Mid Source: Thomson One, Dealogic and Mergermarket Private equity briefing: SEA 6

7 Table 1: Top investments in 2015 (annual) Investment date Company Country Sector Value (US$m) Investor Feb 15 HydrEq Lte Ltd Singapore Power and utilities 87.0 Equis Fund Jan 15 Masterskill (M) Sdn Bhd Malaysia Education 34.2 Creador Capital Group, undisclosed fund Mar 15 PT Nirvana Wastu Pratama Indonesia Real estate 33.4 Warburg Pincus LLC Mar 15 Bank Index Selindo PT Indonesia Banking and capital markets 24.0 Creador Capital Group Mar 15 Bank Mayora PT Indonesia Banking and capital markets 22.0 International Finance Corporation Source: Thomson One, Dealogic and Mergermarket Purandar Rao Singapore Head, Transaction Advisory Services There continues to be a significant influx of capital that private equity in the region have at their disposal. This results in increased competition, with prize assets demanding premium prices. To differentiate themselves, PE houses are pursuing investments such as roll-ups where they can deliver considerable value in integration and expansion across the region. Fragmented sectors such as education, health care and logistics present real opportunities. 7

8 03 Exits Exit activity remained low in 1Q15, with only one deal recorded. A number of exits continue to be executed but go unreported. The one deal that was reported is TPG Capital s and Northstar Pacific Partners partial exit from their investment in Bank Tabungan Pensiunan Nasional in a US$463m-deal with Sumitomo Corporation. This deal reflects the continued trend of banking and capital markets providing the larger exits in the region. It is becoming evident that a number of PE houses are holding on to investments for a period longer than initially anticipated in order to generate the money multiple required. This creates additional risk for PE when undertaking investments, since there is an increased likelihood that these investments will incur a change in the business cycle during the holding period. Driven by this and the ever-increasing amount of dry powder, a rise in the level of secondary buy-outs in Southeast Asia in the coming years is expected. Figure 2: Exit activity Deal value US$m 2,000 1,500 1, Q Q Q Q Q Source: Thomson One, Dealogic and Mergermarket Q Q Q Small Mid Large Deal count Deal count Joongshik Wang Asean Leader, Corporate Finance Strategy Due to mixed views on asset valuation in Southeast Asia, various scheduled exits have been discussed but delayed. One of the important momentums for deal exits will be driven by strategic investors who are less price-sensitive but look for longterm synergies. 8

9 04 Fund-raising The first quarter of 2015 saw a resurgence in the level of funds being closed. There were four funds closed at a total commitment in excess of US$5b. This level of activity in the opening quarter of 2015 is consistent with what has been observed in previous periods as fund-raising activity peaks in the first half of the year. The largest fund closed was Baring Asia VI, raising a staggering US$4b. This was the largest private equity fund ever raised by an Asia-based PE firm, with investors having to be scaled back from the first close due to the excess demand. This reflects the high investment interest into Asia, and increasing recognition by investors on the value of regionally based funds. Figure 3: PE fund-raising with Southeast Asia focus US$m 8,000 6,000 4,000 2, Count 0 Q Q Q Q Q Q Q Q

10 Table 2: Top funds closed with Southeast Asia focus in 2015 (annual) Fund name Manager Type Commitments (US$m) Closed Industry focus Baring Private Equity Fund VI Baring Private Equity Asia Growth 3,998 Feb 15 Diversified Equis Asia Fund II Equis Funds Group Infrastructure 1,000 Feb 15 Energy and infrastructure Baring Private Equity Asia Real Estate Fund Baring Private Equity Asia Real estate 365 Mar 15 Property Equis Direct Investment Fund Equis Funds Group Infrastructure 300 Feb 15 Energy and infrastructure Source: Preqin Geophin George Partner, Transaction Advisory Services The private equity landscape in Southeast Asia continues to evolve. Increased competition is making it harder for PE houses to close deals while ensuring they outperform the market. Driven by this, investors now seek to invest in PE houses with real sector or geographical insight. This is evidenced by the increase in pure-play tech venture capitalists that have entered the market and the ongoing success that regional headquartered funds are having in raising capital. 10

11 05 Sector in focus: education Increase in investor interest Over the last decade, there has been an exponential increase in investor participation in education, from 101 deals in to 788 deals in Deal activity over the past 24 months include the acquisition of TSL Education by TPG, World Class Learning by Nord Angelia, as well as Cambridge Education Group by Bridgepoint. In Southeast Asia, recent notable transactions in the education sector include Knowledge Universe-Busy Bees/OTTP, Tenby Schools-Ekuinas, BIS Vietnam-Nord Anglia, and The Learning Lab-Advent International. Appeal of the education sector The characteristics that appeal to investors include: 1) Strong demand underpinned by significant resilience 2) Real value creation as price point increases often track ahead of inflation 3) Long-term revenue visibility 4) Strong business economics 5) High barriers to entry Figure 4: Completed M&A activity, emerging private education markets, n = n = n = n = Asia-Pacific Europe India ANZ SEA LatAm Africa MENA 11

12 Key themes for investors Platform play Successful education platforms generate revenue and profit scale by rolling up smaller institutions. Significant value can be generated through sharing of best practices across institutions. Platforms outgrow single institutions due to scale and competitive advantage accrued from scale in student acquisition and marketing. Multi-geographic focus A portfolio of education assets across geographies to mitigate any impact of country-specific macroeconomic, regulatory and competitive risk should be considered. Successful platforms have globally diversified portfolios. Premium price points Premium-priced higher education and K-12 assets generate 30 40% EBITDA margins. Certain education companies depend on a small proportion of highly profitable premium schools to generate a disproportionate share of EBITDA. Business: top-line initiatives, operational best practices. Financial: five characteristics of education, scarcity of scale assets, premium for entry. Value-creation drivers Karan Khemka Managing Director, Pathenon-EY The education sector offers investors opportunities to benefit from the demand for quality education by the middle class. Typically, demand for private education grows at a multiple of GDP growth and can be very predictable. 12

13 06 Our services: Corporate Finance Strategy Our Corporate Finance Strategy team supports PE clients across the deal cycle. We help clients enter new markets and industries, perform commercial due diligence on targets and create value in their portfolio companies. The two key pillars of our value proposition: sector know-how and unmatched platform Our team in Singapore comprises 25 seasoned global strategy consultants with deep knowledge in consumer goods, natural resources and financial services. Within these industry segments, we have detailed understanding of the Southeast Asian market landscape and a strong network of contacts. Collectively, we have conducted more than 100 commercial due diligence projects in the region. At the same time, the EY platform gives us access to extensive cross-border experience with approximately 30,000 consultants operating in 140 countries with outstanding functional capability across geographies. Our platform allows us to span strategy and operations seamlessly. The Parthenon-EY edge In September 2014, The Parthenon Group a global strategy consultancy with 300 professionals in offices in Boston, London, Mumbai, San Francisco, Shanghai and Singapore joined EY s Corporate Finance practice. Parthenon-EY is a leading advisor to the global education sector, and has completed more than 150 sector projects each year across 80 countries. Parthenon-EY advises at the C-suite or Managing Partner level of the largest operators and investors in the education sector. Over the last two years, Parthenon-EY has advised on the largest transactions in the education sector, which saw capital investment of over US$5b. Key driver for superior investment returns in Southeast Asia One of the largest areas of value creation for PE is operational improvement. A value creation thesis and plan is key to successful PE investing in Southeast Asia. Our experience suggests that advisors who have proven to deliver value should be involved very early on in the life cycle of a portfolio investment. Our value creation capabilities cover key operating areas, namely revenue enhancement, margin improvement and capital efficiency. Our typical results target 3 5% revenue growth, 8 15% EBITDA increase and 4 7% cash flow release, giving a rapid payback period on our fee investment for clients. Our capabilities Focus: Deliver value creation services across the PE investment life cycle Dedicated PE experience: Dedicated team comprising former PE operating partners, seasoned operating executives and management consultants Broad functional knowledge: Capabilities in strategy, M&A and all core operating functions; experience in revenue enhancement, cost reduction, human capital and change management Deep sector experience: Primary focus in oil and gas, consumer, industrial, and health care; ability to tap into sub-sector specialists Accelerated approach: Customized approach that is highly responsive and provides accelerated realization of benefits Global capabilities: Dedicated team that has extensive cross-border experience with access to more than 30,000 consultants operating in 140 countries with deep industry and functional know-how 13

14 Contact us Service line contacts Country contacts M&A Indonesia Luke Pais Corporate Finance Strategy Vikram Chakravarty Transaction Support Purandar Rao Transaction Tax Eng Ping Yeo Valuation & Business Modelling Andre Toh Ching Lee Joongshik Wang Geophin George Darryl Kinneally Wouter van Groenestijn David Rimbo Malaysia George Koshy Philippines and Guam Renato Galve renato.j.galve@ph.ey.com Singapore Purandar Rao purandar.rao@sg.ey.com Geophin George geophin.george@sg.ey.com Sahala Situmorang sahala.situmorang@id.ey.com Preman Menon preman.menon@my.ey.com Luke Pais luke.pais@sg.ey.com Sanjeev Gupta sanjeev-a.gupta@sg.ey.com Karan Khemka Joongshik Wang karan.khemka@parthenon.ey.com joongshik.wang@sg.ey.com Thailand Ratana Jala Piyanuch Nitikasetrsoonthorn ratana.jala@th.ey.com piyanuch.nitikasetrsoonthorn@th.ey.com Vietnam Anthony Duong tony.duong@vn.ey.com Global contacts Global Jeffrey Bunder Michael Rogers jeffrey.bunder@ey.com michael.rogers@ey.com

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16 EY Assurance Tax Transactions Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. About EY s Transaction Advisory Services How you manage your capital agenda today will define your competitive position tomorrow. We work with clients to create social and economic value by helping them make better, more-informed decisions about strategically managing capital and transactions in fast changing-markets. Whether you're preserving, optimizing, raising or investing capital, EY s Transaction Advisory Services combine a unique set of skills, insight and experience to deliver focused advice. We help you drive competitive advantage and increased returns through improved decisions across all aspects of your capital agenda 2015 EYGM Limited. All Rights Reserved. EYG no. FR0164 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax, or other professional advice. Please refer to your advisors for specific advice. ey.com 16