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Asia Pacific Private Equity Outlook Report 2013


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Accenture - Asia Pacific Private Equity Outlook Report - Feb 2013

Accenture - Asia Pacific Private Equity Outlook Report - Feb 2013

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  • 1. 9kaY%HY[aÕ[hjanYl] ]imalqgmldggc *()+
  • 2. ContentsForeword 1Executive summary 2Deal expectations 3Feature article: Spotlight on Southeast Asia 8<]Yd nYdmYlagf Yf ÕfYf[af_ )0<]Yd Ögo Yf ]pal ghlagfk *+;YhalYd Ögok Yf afn]klgj ]eYf */Challenges to private equity 34The changing face of private equity 40Feature article: Pan-regional view of privateequity endeavors 44Feature article: Making an exit 48Historical data 51Top deals table 56Methodology 58Respondent information 58About mergermarket and Remark 60Contacts 61
  • 3. ForewordAmid a sea of change in the global economy, the tide in Asia-Pacific has continued torise. Despite languid economic activity in North America and Europe, economies acrossAsia-Pacific continue to grow, still with significant potential, based largely on a growingmiddle class and rapidly improving standards of living.Private equity investors, most of whom are adept at spotting trends early and investingahead of the curve, have been active in Asia-Pacific in the last 15 to 20 years. This,matched with a growing sophistication of private equity investment in the region, hasled to a surge in new fund opportunities focused in Asia-Pacific, sponsored both byglobal private equity houses and by local firms leveraging relationships and expertisein local markets.Furthermore, both Asia-Pacific governments and potential sellers have become morefamiliar with the private equity investment model and understand the benefits that thissource of capital can bring for development. Needless to say, many are now increasinglyreceptive to private equity investment.However, challenges remain, and foremost among them as we look ahead to 2013 iscompetition from strategic corporate acquirers, many of whom are looking to Asia-Pacific as the engine to drive growth for the foreseeable future. At the same time,changing regulations in some markets around the region are changing the rules forprivate equity investors, leaving fund sponsors wary of what is to come in certainmarkets, particularly given uncertainty in the global economy.In light of these views, we have again teamed up with mergermarket to assess marketsentiment in the year ahead. Respondents to this year’s survey maintain a strongercollective viewpoint in many areas compared with last year. Most agree that Asia-Pacificshould remain a relative bright spot in the global economy. We hope that you find thisyear’s report compelling, and as always, we welcome your feedback.Ea[`Y]d :mplgfHjanYl] =imalq D]Y]j$ 9kaY%HY[a^a[=jfkl Qgmf_ 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 1
  • 4. =p][mlan] kmeeYjqPrivate equity activity continues to rise in Asia-Pacific The focus for exit opportunities is shifting gearsand Greater China will remain the most active market As compared with 2012, respondents expect fewer exitMore than 85% of respondents say private equity activity will opportunities via an IPO in 2013, particularly in Greaterincrease over the next 12 months, and by a significant margin China and India. At the same time, exits to strategic buyersrespondents believe that Greater China will host the majority of are expected to be more prevalent in every subregion acrossactivity in 2013, a result similar to last year’s survey. Southeast Asia-Pacific as cash-rich corporates look to expand into high-Asia is on the rise with nearly half of respondents expecting growth markets. Respondents also expect an increase indeal activity to expand significantly in the region. Furthermore, institutional investors looking to sell their positions with Asia-respondents believe making acquisitions, raising new capital and Pacific private equity funds on the secondary market as LPsimproving the performance of portfolio companies will represent try to liquidate some of their holdings as activity slows onthe majority of activity in 2013. exit markets.Energy, mining and utilities and consumer sectors are Institutional capital is expected to flow into Asia-Pacificexpected to see the most activity again in 2013 as sector private equity funds at a faster rate in 2013specialization becomes more important A majority of respondents believe that LP investor allocations toRespondents again expect energy, mining and utilities and Asia-Pacific private equity funds will increase over the comingconsumer sectors to attract the most interest across Asia-Pacific, 12 months. As a result, funds raising capital are expected towith a much stronger view for 2013 compared with 2012. Other meet or slightly exceed fund-raising targets, according to mostsectors across the region with high expectations for activity respondents, and country-specific funds are expected to garnerinclude industrials and chemicals and technology, media and the most investor interest, from foreign and domestic LPs alike.telecommunications (TMT). Sector specialization is becoming When making new allocations, respondents indicate a greatermore important, according to the majority of respondents. focus over the coming 12 months on asset-level due diligence processes of fund sponsors.Deal sizes on the riseDeal sizes are expected to be larger in 2013 than they were in Competition for assets is expected to heat up2012, according to respondents. What is more, respondents As investors raise new capital for private equity investment,expect valuations to continue to rise in 2013, an extension respondents expect competition for assets to be the foremostof a trend from the previous year. At the same time, some challenge for private equity investment across Asia-Pacific.respondents expect that buyers will face an impasse with sellers Aside from going head to head with other private equityover valuation, while a majority believe the valuation gap will investors, respondents expect corporate acquirers to presentremain on par with previous years, allowing enough room for the greatest competition. Sovereign wealth funds in certaindeals to close. At the same time, most respondents believe deal subregions are also expected to challenge private equityvalues will be most affected by prevailing economic uncertainties investors, but the consensus among respondents is that LPand competition for deal flow. investors lack direct investment experience to adequately contend with fund sponsors.Macroeconomic conditions and the regulatory environmentswill significantly affect deal flow in 2013 Value creation becomes an imperativeAcross Asia-Pacific and in each of Asia-Pacific’s subregions, As the private equity industry in Asia-Pacific continues tomacroeconomic conditions will have a large effect on deal flow evolve, the use of internal operating partners to drive valuein 2013, according to most respondents. Furthermore, another creation in portfolios has increased. Half of respondentslarge portion of respondents say the regulatory environment in observed growing use of these resources, many noting thatAsia-Pacific will affect deal flow, with the strongest concerns in these professionals are playing an increasingly important roleGreater China and India, though more than 50% of respondents in improving portfolio companies. The industry will change inpoint to regulatory concerns in Southeast Asia and Australasia other ways too. A majority of respondents believe private equityas well. firms will diversify their offerings, with most focusing on venture capital and infrastructure.2 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 5. ]Yd ]ph][lYlagfkRespondents are bullish on private equity activity across9kaY%HY[aÔ[ af *()+Gn]j l`] f]pl )* egfl`k$ o`Yl g qgm ]ph][l oadd `Yhh]f lg hjanYl]]imalq Y[lanalq7 2% 9kaY%HY[aÕ[ 46% 40% 12% Greater China 47% 44% 9%Southeast Asia 46% 39% 15% South Korea 37% 25% 38% India 24% 47% 29% Australasia 16% 68% 16% Japan 9% 55% 18% 18% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents =phYf ka_faÕ[Yfldq Expand slightly Remain the same Contract slightly ÉL`] [gflafmaf_ [jakak afAcross Asia-Pacific, and particularly in Greater China and Southeast Asia, nearly half =mjgh] Yf l`] dY[c g^ _jgol`of respondents expect significant expansion in private equity activity over the next 12 af Fgjl` 9e]ja[Y ak lmjfaf_months. Furthermore, 40% expect slight expansion in the region, showing that the vastmajority of respondents expect increases in private equity deal flow over the coming afn]klgj ^Yngj lgoYj 9kaY$year. India and Japan stand out as the only jurisdictions where a significant number of Yf egj] Yf egj] ^gj]a_frespondents expect a slight contraction in activity. Quite interestingly, views for 2013 hjanYl] ]imalq Õjek Yj] fgoshow a substantial increase compared with 2012, when only 16% expected a significant ]q]af_ 9kaYf eYjc]lkÊexpansion across Asia-Pacific and 30% expected activity to remain the same or contract,with the majority expecting only a slight expansion.Much of this year’s fervor for private equity activity stems from Asia-Pacific’s risingeconomic status relative to the more developed private equity investment markets inthe United States and Europe. One private equity investor sharing the view of manybelieves, “Private equity penetration in Asia is very low, which leaves significant roomfor an increase in activity.”Another private equity fund sponsor says, “Asia-Pacific continues to be the preferredlocation for private equity investors because of its growing economies and abundantopportunities. Private equity firms are expanding their reach in terms of location andsector in order to deploy more funds in anticipation of higher returns not available intraditional markets.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 3
  • 6. ]Yd ]ph][lYlagfk Expanding on opportunities in the region, another private equity fund sponsor says, “Asia-Pacific has unique opportunities that cannot be matched by any other region. Private equity firms in Asia-Pacific are not worried about adverse global market conditions and are innovating and using new strategies.” Perhaps an example is one Cayman Islands-based private equity firm, which, according to proprietary mergermarket intelligence, is targeting investors for its three latest frontier market funds, two of which are focused on Bangladesh and Myanmar. Exemplifying innovative new strategies, the firm’s Myanmar fund will invest in real estate initially, while the Bangladesh fund targets development finance institutions. From a fund investor’s perspective, one institutional investor who expects LP capital allocations for Asia-Pacific private equity to increase significantly says, “Conditions in Asia-Pacific are perfect for private equity investments, and private equity activity in the next 12 months will outperform the activity of previous years.”
  • 7. ?Hk Y[jgkk 9kaY%HY[aÔ[ j]eYaf hjaeYjadq ^g[mk] gf eYcaf_acquisitions, but increased attention is being given to raisingcapital and improving portfolio companiesO`Yl oadd Z] l`] egkl aehgjlYfl _gYd g^ hjanYl] ]imalq Õjek gn]j l`] f]pl)* egfl`k Y[jgkk 9kaY%HY[aÕ[7 EYcaf_ Y[imakalagfk 87% JYakaf_ f]o [YhalYd 75%Aehjgnaf_ gh]jYlagfYd h]j^gjeYf[] g^ 75% hgjl^gdag [gehYfa]k Restructuring/ 43% j]ÕfYf[af_ ]Zl Exiting current 42% investments Other 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondentsSimilar to 2012, making acquisitions tops the list of private equity goals for 2013,Y[[gjaf_ lg 0/ g^ j]khgf]flk$ [gehYj] oal` .+ dYkl q]Yj 9l l`] kYe] lae]$ ÉHjanYl] ]imalq Õjek Yj]raising capital seems a more palpable reality this year with three-quarters pointing to fgo ljqaf_ lg kh][aYdar]the fund-raising trail as a primary goal for private equity, compared with just 40% last gh]jYlagfYddq af l`]year. The largest jump according to respondents is in improving operations of portfoliocompanies, which also garnered three-quarters of respondent views, compared with Zmkaf]kk]k af o`a[`just 30% a year ago. l`]q afn]klÊSumming up these views, one institutional investor states, “As the fundamentalsare getting better, private equity firms are more confident in making new acquisitions,and with the economy improving, many private equity firms are committingthemselves to their existing portfolio companies and are developing them internally.”Another institutional investor says, “Private equity firms are now trying to specializeoperationally in the businesses in which they invest. They are focusing heavilyon improving the operational performance by improving systems, processes,entrepreneurialism and risk management.”One specific value-added strategy detailed in last year’s Asia-Pacific private equityoutlook report is again highlighted by a GP investor: “Private equity firms in Asia-Pacificare not leaving portfolio companies to run on their own. They are instead partneringwith portfolio company management teams, providing them with knowledge andtechnical expertise along with a global platform to help portfolio companies succeed inthe international market.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 5
  • 8. ]Yd ]ph][lYlagfk However, making acquisitions is not at the top of the agenda in every market O`Yl oadd Z] l`] egkl aehgjlYfl _gYd g^ hjanYl] ]imalq Õjek gn]j l`] f]pl )* egfl`k af qgmj hjaeYjq j]_agf g^ ^g[mk7 Greater China Southeast Asia India Australasia Japan South Korea 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Making acquisitions Improving operational performance of portfolio companies Raising new capital J]kljm[lmjaf_j]ÕfYf[af_ ]Zl Exiting current investments Other While the majority of respondents focused on Greater China, India and Australasia say making acquisitions will be the primary focus for firms in their respective subregions, gl`]j _gYdk lggc l`] lgh khgl af gl`]j eYjc]lk gj ]pYehd]$ /) g^ AfaY%^g[mk] respondents say improving operations will be a primary goal. One reason, according to an India-based GP, could be the regulatory environment. “Private equity firms are trying hard to exit investments in India, and they certainly have no intention of increasing acquisitions in India until the regulatory climate eases. Comparatively, the local private equity firms are still committed to their existing portfolios and are raising capital in order to increase operational performance by making strategic changes,” he says. Currently, Indian regulators are considering easing some of the new regulations regarding private equity, though the final outcome remains to be seen. The private equity environment in Southeast Asia is a bit different. According to one private equity investment banker, “The private equity market in Southeast Asia is not overcrowded and the valuations are lower compared to its neighbors, thus private equity firms will make many new acquisitions to expand their business when valuations are lower.” He went on to say, “Furthermore, firms in China, India and Australia will not only acquire new targets but will also allocate capital to improve the operational performance of the portfolios.”6 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 9. Greater China will witness the most activity, accordingto 70% of respondentsHd]Yk] jYfc l`] ^gddgoaf_ eYjc]lk Zq ]ph][l] hjanYl] ]imalq ]YdY[lanalq gn]j l`] f]pl )* egfl`k2 ) 5 egkl Y[lan]3 . 5 d]Ykl Y[lan]! 2% Greater China 70% 22% 6% 16% 32% 19% 17% 10% 6%Southeast Asia 4% 21% 30% 23% 15% 7% India 4% 20% 23% 18% 26% 9% Australasia 4% 3% 10% 23% 19% 41% Japan 2% 2% South Korea 12% 16% 30% 38% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents 1 (most active) 2 3 4 5 6 (least active) É;`afY ak fgo l`] hjagjalqDespite uncertainty concerning the Chinese economic growth engine and respondents’ ^gj eYfq _dgZYd Õjek$ Yfconcerns around changing regulations in China (see pages 20 and 31), the majority ;`afY oadd d]Y l`] hjanYl]of respondents, as they did last year, overwhelmingly expect the greatest amount ofprivate equity activity to take place in Greater China – perhaps due to the sheer volume ]imalq Y[lanalq fgl gfdq afg^ ghhgjlmfala]k Af ^Y[l$ l`ak q]YjÌk kmjn]q ^gmf l`Yl /( g^ j]khgf]flk ]ph][l 9kaY$ Zml ]n]f _dgZYddqÊGreater China to experience the most activity, as opposed to 60% last year. India, on theother hand, which was projected to be the second most active in 2012, fell to the thirdspot, behind Southeast Asia.One investment banker says, “China is now the priority for many global firms, andChina will lead the private equity activity not only in Asia, but even globally. The positivemacroeconomic environment of China and its high growth rate are difficult to ignore.Chinese companies are capturing global markets by storm and are emerging as majorplayers. Thus, private investors are automatically attracted.”On the other hand, a globally focused private equity investor based in Australasiasays, “Robust growth in Southeast Asia is the most attractive choice and is drawingthe interest of private equity funds. Singapore is well placed to capitalize on this trendwith its strategic location, accessibility to the rest of the region, established financialinfrastructure and attractive tax regime.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ /
  • 10. Khglda_`l gf Kgml`]Ykl 9kaYOpportunities stemming from Southeast Asia’s growing prominenceare drawing private equity players’ attention — and dollarsTo create an overview of private equity activity in Southeast Asia, buyout firm Kohlberg Kravis Roberts (KKR) arrived in Singapore,Brandon Taylor, Editor for Remark Asia at mergermarket, spoke preceded by rivals Blackstone and General Atlantic, according towith Ernst Young’s Luke Pais, MA Leader for the ASEAN; a Financial Times report.Kelvin Lee, Transactions Leader for Vietnam; Preman Menon,Director of Transaction Advisory Services in Malaysia; and Renato Private equity capital is being raised rapidly, showing no sign ofGalve, Head of Transactions Advisory Services for the Philippines. slowing, with fund managers looking to add to current funds or start new ones.While a minor blip on the radar screens of general partners (GPs)only a few years ago, Southeast Asia is fast becoming a primary “Historically, China and India have been high on limited partners’destination for private equity. Indeed, slowed economic growth in (LPs) radars, but increasingly we are seeing a shift in investmentChina and political and regulatory factors in India — two favorite strategy and a recognition of Southeast Asia as a destination forcountries for GPs — in addition to refocused attention from that shift,” says Luke Pais, MA Leader for the ASEAN. “Curiosityfunds previously chasing deals across a troubled Eurozone, have from LPs is piquing, and Southeast Asia is becoming a veryallowed the spotlight to shift to Southeast Asia, with Singapore, exciting market.”Indonesia, Malaysia, Thailand, Vietnam and the Philippinesaccounting for virtually all investment in the region. But while a viable alternative to its market-saturated neighbors, certain precautions need to be observed, first and foremost ofEconomies across the subregion are growing in the mid-to-high which is looking at Southeast Asian countries for their individualsingle digits, a trend likely to continue. The World Bank says worth and not at the region as a single entity. As Pais points out,that Malaysia, the Philippines, Thailand and Vietnam currently “These are different markets at different stages of development.showcase gross domestic product (GDP) growth rates between But to some extent, that is the attractiveness of the market.”4% and 6%. Indonesia is expected to hit 6.5% by year’s end.Growing consumer demand across Southeast Asia, spurred by A regional magnet for private equitythe region’s emerging affluent populace of some 600 million, As the gateway to the region, Singapore has seen an uptickhas created space for expansion in the consumer and in private equity activity as global firms rush to establish theirmanufacturing sectors. presence in the city-state.Now, eager to benefit from Southeast Asia’s growing Last October, KKR opened a branch office in Singapore, itsprominence, global firms are stepping up acquisition activity, seventh in the Asia-Pacific region. Since 2005, KKR has investedas well as their overall presence in the region. Last year, global US$1b in Southeast Asia through notable transactions involving Singapore-headquartered companies Avago, Unisteel and MMI. Other global buyout funds, such as TPG Capital and CVC Capital also have opened local offices in Singapore. CVC opened itsÉ;mjagkalq ^jge DHk ak haimaf_$ Yf Kgml`]Ykl Kaf_Yhgj] g^^a[] af *((/ Yf `Yk ]klYZdak`] k][lgj l]Yek focused on investment across Southeast Asia. 9kaY ak Z][geaf_ Y n]jq ]p[alaf_ eYjc]lÊ Dmc] HYak “Hong Kong used to be a former base for private equity investors targeting the region, but now they’re moving to Singapore and8 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 11. opening offices,” Pais says. “It’s not easy to sit in Hong Kong Discovering the deals and dealing with competitionand service the market from there. If you’re not in the market, Singapore may be the undisputed regional hub for private equity,actively talking to people all the time, you’re not necessarily but myriad other deals and opportunities await discovery in thegetting the first bite when deals come up.” individual jurisdictions, led by Indonesia, Thailand and Malaysia.Singapore-based hubs are quickly becoming the norm as Since 2011, Indonesia has seen 13 deals worth close tocompetition from other private equity firms and cash-rich US$900m, according to mergermarket data. The sprawlingcorporates for assets and acquisitions heats up, forcing archipelago nation’s stability and economic potential has longgeneral partners and their firms to act with haste and allocate enamored investors and is likely to draw increased focus fromgreater resources to Southeast Asia. Singapore’s regulatory major funds in the region, Pais notes.environment, specifically, is a driver for deal activity. Safeguardsfor investors and the overall ease of doing business act as Deal value in Thailand over the same time period totaled onlyadditional incentives to operating in the city-state. US$114m in two transactions. Pais says that as private equity activity increases in other Southeast Asian markets, Thailand“There’s quite a sizable amount of funds available to invest,” has become less active.Pais says. “And Singapore structures are looking attractive tointernational investors.” But with many opportunities come many challenges. Aside from 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 9
  • 12. Khglda_`l gf Kgml`]Ykl 9kaY “Right now, Vietnam is looking for capital, as the financial sector is doing quite poorly,” says Kelvin Lee, Transactions Leader forÉOal` Y `a_` d]n]d g^ kgh`akla[Ylagf$ Y Vietnam. “In the Southeast Asia region, this is one place that ljYfkhYj]fl j]_mdYlgjq ]fnajgfe]fl$ Yf dgo needs private equity more than anywhere else.” ZYjja]jk lg ]fljq$ EYdYqkaY ak gf] g^ l`] ]Yka]j ]klafYlagfk ^gj hjanYl] ]imalq afn]klgjk Economic considerations aside, one of the largest challenges for private equity investors in Vietnam is target quality. gmlka] g^ Kaf_Yhgj]Ê Hj]eYf E]fgf “There are a few gems, but unlike Indonesia, Vietnam lacks a well-run private sector, and capital is going to be needed to take some of these businesses to the next level,” Lee notes.rival private equity firms, investors must also vie with cash-richcorporates, particularly those emanating from Japan, armed Deal size and scale also limit private equity growth, as mid-sizedwith deep pockets and synergies that private equity firms cannot funds with upwards of US$500m to deploy struggle to findcontend with. companies north of the US$100m mark. Most deals fall in the US$35m–US$50m range. According to mergermarket data,However, when on the sell side, firms and fund managers are aside from KKR’s purchase of a 10% stake in Masan Consumeroftentimes able to capitalize on demand for their Southeast Corporation, a food product distributor, for US$159m in 2011,Asian assets, selling investments to strategic buyers at a hefty the only other notable deals were US-based TPG Capital’spremium. In 2011, Navis Capital Partners sold Singapore-based hmj[`Yk] g^ Y )( klYc] af HL ;gjhgjYlagf ^gj MK+/e af *((.King’s Safetywear Limited, a manufacturer of industrial safety and Temasek Holdings’ purchase of a 10% stake in Minh Phufootwear and personal protective equipment, to US-based K]Y^gg ;gjh ^gj MK*)e af *((/Honeywell International for US$345.8m. Navis purchased thecompany in 2008 for US$83.5m. That deal was preceded by A general dearth of private equity players in the VietnameseNavis’ sale of Linatext, a Malaysia-based maker of specialty market has positioned the country to become a target forrubber-based products purchased for US$31.1m, to the Weir investment in the coming years as investors look to branchGroup for US$200m.Malaysia, too, stands out as a prime destination for private ÉL`] [mjj]fl lj]f ak k]]af_ Y jYha k`a^lcapital. With a high level of sophistication, a transparentregulatory environment and low barriers to entry, Malaysia is one YoYq ^jge [gjjmhlagf lg ljYfkhYj]f[q$of the easier destinations for private equity investors outside of ^gkl]jaf_ Y egj] o]d[geaf_ ]fnajgfe]flSingapore, says Preman Menon, Director of Transaction Advisory ^gj afl]jfYlagfYd Zmkaf]kk]k Yf [j]Ylaf_Services for Malaysia. Yet, despite these conveniences, Malaysia [gfÕ]f[] Yegf_ ^gj]a_f afn]klgjkÊhas historically seen lower levels of private equity investment, J]fYlg ?Ydn]with a fairly local ecosystem of deals, a trend that is likely tochange as local businesses look outside Malaysia’s borders.Growing pains out from Singapore, Indonesia and Thailand. Sectors currentlyVietnam may not be an investor’s first choice to deploy resources experiencing only lukewarm activity could soon start to see– the nation’s weak economy and high inflation have created heated deal flow as GPs become embroiled with competitors forconsiderable disincentives — but what it lacks in economic glitter assets, particularly in the consumer goods, financial services andit more than makes up for in stability. The largely homogenous other non-exportable sectors, Lee says.population and established political regime have created a degreeof confidence and calm, giving it a needed edge over neighboring Aside from Vietnam, the Philippines awaits its share ofjurisdictions. investment. Historically, private equity firms have had a fleeting10 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 13. interest in the country, opening and closing representative is reviewing potential coal mine acquisitions in Myanmar, andoffices as needed. This was largely due to political instability, Timah, the state-owned Indonesian mining company, is preparingbut that is changing. The current trend is seeing a rapid shift to invest up to US$18m in a tin mine.away from corruption to transparency, fostering a morewelcoming environment for international businesses and creating Once economic reforms take hold and political promises areconfidence among foreign investors, says Renato Galve, Head of realized, investors will be able to fully utilize Myanmar’s uniqueTransactions Advisory Services in the Philippines. geographic position as a link between Southeast Asia and China and India. A low-cost labor force and growing manufacturingOne particular sector that could see improved activity is base are also likely to draw businesses looking for viableinfrastructure — from roads and rails to ports and power lines alternative markets to China.— which the archipelago nation finds itself incredibly lacking.According to the World Bank, the Philippines ranks as one of the While prospects abound across Southeast Asia, private equitytop destinations in Asia for private investment, ahead of regional investors’ abilities to tap these new frontiers for growth will relycompetitors Indonesia and Malaysia. As of late, however, thatinvestment has been unsteady at best, as noted by a recentFinancial Times report, decreasing from US$5.5b in 2009 ÉL`]j] Yj] Y ^]o _]ek$ Zml mfdac] Afgf]kaY$to US$1.1b in 2011. These opportunities, matched with thecountry’s stable inflation rates and political stability, stand to Na]lfYe dY[ck Y o]dd%jmf hjanYl] k][lgj$ Yfraise the Philippines’ profile for private investors. [YhalYd ak _gaf_ lg Z] f]]] lg lYc] kge] g^ l`]k] Zmkaf]kk]k lg l`] f]pl d]n]dÊOpen for business C]dnaf D]]Long the pariah of the region, Myanmar is turning away from itspolitically repressive past and embracing reform. A rapid shiftto democracy, marked by the military-led government’s politicaland economic reforms in early 2012, is seeing the country open largely on their ability to adapt and maintain a level of the rest of the world. As sanctions from the West are lifted, This is particularly true as no two jurisdictions exhibit the samepotential investors worldwide are taking note, but barriers remain regulatory environments. Risks are abundant — but so too are theto be breached before Myanmar joins the ranks of its Southeast treasures of a region ripe for private equity and foreign investors.Asian neighbors.Roads and power infrastructure are in short supply, Lee notes,and adequate laws protecting investors are needed. Mosttransactions are also still conducted in cash; credit card useis rare.“Right now it’s an early-stage story,” Pais notes. “This isparticularly true of the banking system — it needs to gear up tointernational standards and also needs international institutionsto establish a presence.”That hasn’t stopped multinationals, as interest and anticipationto enter the largely untapped market grows. A resource-richcountry, Myanmar will likely see an expansion of investment,particularly in its oil and gas sector, Pais says. Already,Indonesian companies have started their market entry: accordingto mergermarket intelligence, an Indonesia-listed coal miner 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 11
  • 14. ]Yd ]ph][lYlagfk Compared with 2012, respondents show a stronger consensus for energy, mining and utilities and consumer sector deals af *()+ Y[jgkk 9kaY%HY[aÔ[ O`a[` k][lgj k! oadd ]ph]ja]f[] l`] _j]Yl]kl Yegmfl g^ hjanYl] ]imalq Y[lanalq Y[jgkk 9kaY%HY[aÕ[7 Energy, mining 80% and utilities Consumer 72% Industrials and chemicals 51% Technology, media and 48% telecommunications Pharma, medical 45% and biotech Financial services 39% Real estate 21% Transportation 11% Other 11% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Percentage of respondents Af *()*$ -* Yf ,/ g^ j]khgf]flk ]ph][l] ]Yd ^dgo af l`] ]f]j_q$ eafaf_ Yf utilities and consumer sectors, respectively. For 2013, those two sectors maintain their lgh hgkalagfk oal` 0( Yf /* g^ j]khgf]fl na]ok$ j]kh][lan]dq =f]j_q ak kladd Yl l`] top of the agenda for many Asian nations, and private equity investors will be looking to capitalize on innovation and growth in the sector across the region. Furthermore, the Asian consumer has continued rising in terms of discretionary income and purchasing power, and financial investors see plenty of opportunity to play leading roles in this growth story. At the same time, a rising tide is lifting all vessels, and a number of sectors are also expected to attract private equity activity. One globally focused institutional investor in South Korea says, “The energy sector is enjoying unprecedented growth in Asia-Pacific, and rising demand and stable oil prices are driving the increase in private equity activity. I think in the next 12 months, private equity investment in the energy and mining sector will remain strong in response to high commodity prices. Furthermore, the pharmaceutical, medical and biotechnology sector is also receiving high levels of private equity funding as Asia-Pacific is emerging as the new location for drug development and innovation.”12 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 15. Another institutional investor in Southeast Asia adds to this, saying, “Looking at thepopulation of Asian countries and the demand for reforms in health care, I think privateequity will have great opportunities to invest in the health care sector. In many Asia-Pacific countries, spending on health care occupies a huge chunk of annual governmentspending, and thus government is planning for major reforms and innovations in thehealth care system.”Given the current economic environment, deal flow in other sectors could benefitfrom the valuation climate. As one investment banker puts it, “I think there are a lotof opportunities in retail and manufacturing, which are struggling in these marketsand have historically low valuations.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 13
  • 16. ]Yd ]ph][lYlagfk However, sector focus varies by geographic location O`a[` k][lgj k! oadd ]ph]ja]f[] l`] _j]Yl]kl Yegmfl g^ hjanYl] ]imalq Y[lanalq af qgmj hjaeYjq j]_agf g^ ^g[mk7 Greater China Southeast Asia India Australasia Japan South Korea 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Energy, mining and utilities Consumer Financial services Technology, media and telecommunications Industrials and chemicals Pharma, medical and biotech Real estate Other Transportation While the energy, mining and utilities and consumer sectors will be hot across the region, only in Greater China do these sectors occupy top spots. South Korea- and Southeast Asia-focused respondents expect industrials and chemicals to see the bulk of deal flow; expectations in Japan center on the energy, mining and utilities and TMT sectors. As Japan abandons nuclear power, the search has begun for new energy sources to meet the country’s energy needs. As one institutional investor explains, “Energy companies are looking to invest in renewable energy and other conventional forms of energy, and private equity firms are trying to explore this new opportunity in Japan.” In India, more than three-quarters of respondents believe the consumer sector will be most popular, but the TMT sector also garnered almost 60% of respondent views. One investment banker in India states, “Demand for IT services and new technologies in the telecommunications and mobile sectors have surged, and opportunities to invest in innovative companies are significant.” He continues, “Technology companies in India, China and South Korea are emerging as leading providers of new generation technologies. These technologies are in great demand, but lack access to debt finance, thus private equity investors are well placed to capture the opportunity.”14 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 17. Sector specialization is becoming more importantlg 9kaY%HY[aÔ[ hjanYl] ]imalq afn]klgjk@go aehgjlYfl ak k][lgj kh][aYdarYlagf ^gj hjanYl] ]imalq afn]klaf_af 9kaY%HY[aÕ[7 13% 49%38% Very important Somewhat important Not important ÉK][lgj kh][aYdarYlagf ak YMirroring results from our previous survey, sector specialization is important to ËemklÌ af l`] [mjj]fl ngdYlad]the majority of respondents. Slightly more respondents this year consider sector Zmkaf]kk ]fnajgfe]fl$ Yfspecialization both very important and somewhat important, perhaps a result ofgrowing sophistication in Asia-Pacific private equity. l`] Z]f]Õlk Yj] `a_`ÊOne institutional investor says private equity firms that specialize in a certain sectorhave the edge in sourcing deals and seeing them through to completion. Sectorspecialization allows these firms to identify high-potential sector players. Sectorspecialization also helps private equity firms “define a clear strategy, while keepingtheir reach broad enough to ensure they target only high-yielding and healthycompanies,” he says.Not all respondents saw a need for sector specialization. One said it was unnecessaryconsidering the general abundance of opportunities and the plethora of industry expertsand advisors. Others say specialization can act as a compass in uncertain economicwaters and against rising competition. One respondent says, “Sector specializationis a ‘must’ in the current volatile business environment, and the benefits are high. Itimproves the quality of the deal by being able to identify the right targets and by beingable to perform streamlined due diligence.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 15
  • 18. ]Yd ]ph][lYlagfk Deal sizes are expected to be larger across the board in 2013 compared with 2012, but remain in the mid-market range Af o`a[` ]Yd kar] jYf_] g qgm ]ph][l lg k]] l`] _j]Yl]kl d]n]d g^ hjanYl] ]imalq afn]kle]fl gn]j l`] f]pl )* egfl`k af qgmj hjaeYjq j]_agf g^ ^g[mk7 Greater China 28% 50% 13% 9% Southeast Asia 38% 24% 38% 6% 70% 18% 6% India Australasia 16% 32% 36% 16% Japan 27% 45% 18% 10% South Korea 24% 38% 38% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents US$15m US$15m–US$50m US$51m–US$100m US$101m–US$250m US$250m Last year, respondents expected high levels of activity below US$15m in Greater China, India and South Korea. This year, only India is expected to see strong deal flow at this level, and only according to 6% of India-focused respondents. On the flipside, very few respondents in last year’s survey expected deals above US$250m and only in Southeast Asia and Australasia. For 2013, expectations have shifted, with no respondents expecting large-scale deals in Southeast Asia in the next 12 months. Respondents thought the largest deals would continue to occur in Australasia, as well as Greater China and Japan. More interestingly, significant numbers of respondents in every subregion expect more deal flow in the US$101m–US$250m range. One Australia-focused respondent says that private equity firms are being drawn to the mid-market due to the ease of integrating and managing smaller companies and that these buys are ultimately more profitable than those for larger companies. As such, the respondent elaborates, private equity firms are changing their investment strategies, focusing on the mid- and lower-mid-market.16 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 19. Respondents expect fewer exits and more managementbuyouts than in 2012Gn]j l`] f]pl )* egfl`k$ o`Yl lqh] g^ hjanYl] ]imalq ]Yd k! g qgm ]ph][llg eYc] mh l`] Zmdc g^ ljYfkY[lagfk af qgmj hjaeYjq j]_agf g^ ^g[mk7 Greater ChinaSoutheast Asia India Australasia Japan South Korea 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Management buyout Secondary buyout IBI (21%–49%) Private investment in public equity (PIPE) Pre-IPO investments Institutional buyout (100% stake) Take private Exit IBI (50%–99%) Institutional buy-in (20%)Management buyouts are gaining the most consistent attention from respondentsacross all subregions as private equity investors look to provide capital for managementteams ready to take over ownership of the companies they run. For example, accordinglg 0* Yf /* g^ j]khgf]flk af BYhYf Yf ?j]Yl]j ;`afY$ j]kh][lan]dq$ l`] Zmdc g^deals are expected to happen via this channel.While values are down, and therefore so are expectations for exits, many respondentsstill see opportunities for secondary buyouts, which are expected in South Korea,Australasia and Southeast Asia by close to three-quarters of respondents.One such recent example was US-based Kohlberg Kravis Roberts Co.’s June 2012acquisition of a 63% stake in Genesis Care Pty Ltd., the Australia-based health carefirm operating a network of cardiology and cancer care hospitals, from Advent PrivateCapital Pty Ltd., the Australia-based private equity firm, for an approximate cashconsideration of US$352m. According to respondents, other such deals are expectedto follow. 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ )/
  • 20. ]Yd nYdmYlagf Yf ÕfYf[af_ A majority of respondents expect transaction values to rise in 2013 Gn]j l`] f]pl )* egfl`k$ o`Yl Yj] qgmj ]ph][lYlagfk ^gj hjanYl] ]imalq ljYfkY[lagf nYdm]k7 9kaY%HY[aÕ[ 13% 64% 18% 5% Southeast Asia 23% 46% 31% Greater China 16% 41% 28% 15% Australasia 11% 79% 5% 5% Japan 9% 73% 18% India 6% 29% 53% 12% South Korea 75% 25% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Af[j]Yk] ka_faÕ[Yfldq Increase slightly Remain the same Decrease slightly For 2013, more respondents expect an increase in transaction values than they did in *()* Af ^Y[l$ // g^ j]khgf]flk ]ph][l ljYfkY[lagf nYdm]k lg af[j]Yk] af l`] 9kaY% Pacific region over the next 12 months, compared with just 62% of respondents a year earlier. Over the next 12 months, the greatest overall increase in values is expected in Australasia, according to 90% of respondents, and the most significant rise in prices is expected in Southeast Asia, according to 23% of respondents, with another 46% expecting a slight increase in Southeast Asia. Fewer respondents expect major changes in Greater China and India, with over half expecting Indian valuations to remain the same. One private equity investor focused solely on India explains, “Valuations in India are not expected to rise compared to other Asia-Pacific countries because private equity investors are worried about the current regulatory environment in India.” And in fact, 12% expect valuations in India to fall over the coming 12 months. Another South Korea-focused respondent sheds some light on the landscape there, saying, “During the last two years private equity activity in Korea was rather low, and both local and international private equity firms refrained from investing in Korea. However, now institutional investors have again become active, and they are allocating more funds for private equity investments in Korea, and I think private equity valuations will increase in Korea as a result.”18 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 21. Macroeconomic conditions continue to weigh heavilyon valuationsO`a[` g^ l`] ^gddgoaf_ g qgm l`afc akYj] `Ynaf_ ka_faÕ[Yfl afÖm]f[] k! gfl`] [mjj]fl hjanYl] ]imalq nYdmYlagf [daeYl] af qgmj hjaeYjq j]_agf g^ ^g[mk7 Greater ChinaSoutheast Asia India Australasia Japan South Korea 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Macroeconomic conditions Bidder competition for target J][]fl ÕfYf[aYd h]j^gjeYf[] g^ lYj_]l L`] ÕfYf[af_ ]fnajgfe]fl Market position of target Potential IPO alternatives Public market valuationsAs was the case in 2012, respondents place a heavy emphasis on the macro-economy’sability to influence company valuations for private equity deals. Indeed, the globaleconomic uncertainty is expected to affect the valuation climate strongly in all Asia-Pacific subregions, particularly Greater China, Southeast Asia and India. In Australasiaand South Korea, the same or more respondents expect competition to influencevaluations in their respective markets, a key reason cited by more than halfof respondents in every subregion except India.In Australia, a primary reason for increased competition could be a flight to quality.As one respondent explains, “Competition for Australian assets is very high becauseAustralian assets are very safe and the financing and regulatory climate is excellentand highly developed, which significantly impacts valuations.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 19
  • 22. ]Yd nYdmYlagf Yf ÕfYf[af_ The valuation gap between buyers and sellers is largely ]ph][l] lg j]eYaf kl]Yq Y[jgkk 9kaY%HY[aÔ[ Gn]j l`] f]pl )* egfl`k$ o`Yl g qgm ]ph][l lg k]] oal` j]_Yj lg l`] nYdmYlagf _Yh Z]lo]]f hjanYl] ]imalq Zmq]jk Yf k]dd]jk7 9kaY%HY[aÕ[ 18% 54% 28% India 53% 23% 24% South Korea 25% 75% Southeast Asia 23% 23% 54% Greater China 22% 47% 31% Japan 18% 73% 9% Australasia 11% 68% 21% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Increase Remain the same Decrease According to 54% of respondents, the valuation gap between buyers and sellers across Asia-Pacific is expected to remain largely unchanged, which is almost identical to respondent views in 2012. More respondents (28%) see the buyer-seller valuation gap decreasing across the region, compared with last year when 21% expected the same. In fact, one private equity investor gives a positive view: “As the market is recovering and uncertainty is fading, valuation gaps in Asia-Pacific are narrowing, and we can expect more deals to close.” He continues, “Seller demand is right where it was, and now buyers are willing to pay more for a valuable target as the market is recovering.” Interestingly, the tables have turned in both India and Southeast Asia as the valuation gap in India is getting wider and in Southeast Asia smaller, according to more than `Yd^ g^ j]khgf]flk L`ak ak af aj][l [gfljYkl lg j]kmdlk ^jge dYkl q]Yj Af AfaY$ ,/ g^ respondents said the valuation gap in 2012 would decrease, and the outlook for 2013 is likely the result of investor caution given uncertainties in the Indian economy. At the same time, sellers have seen high valuations in the past and perhaps feel some degree of entitlement to command a premium for their businesses. One India-focused private equity investor opines, “Though the valuation gap in India is increasing, I expect a global condemnation of recent policies will lead the government to withdraw these policies, and eventually the valuation gaps will stabilize.”20 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 23. There is slightly greater appetite for leverage across9kaY%HY[aÔ[ [gehYj] oal` *()*@go em[` d]n]jY_] g qgm ]ph][l oadd Z] mk] af hjanYl] ]imalq ljYfkY[lagfkgn]j l`] f]pl )* egfl`k af qgmj hjaeYjq j]_agf g^ ^g[mk7 Greater China 19% 62% 19%Southeast Asia 31% 61% 8% India 29% 53% 18% Australasia 26% 53% 21% Japan 45% 45% 10% South Korea 75% 12% 13% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents 0%-25% 26%-50% -)%/- ÉD]n]jY_] `Yk af[j]Yk] afIn particular, respondents focused on Greater China and India expect greater use of hjanYl] ]imalq ljYfkY[lagfkdebt to finance transactions in 2013. Last year’s survey found that 55% and 60% Zml ak kladd dgo]j l`Yf l`]of respondents expected 0%-25% leverage in each market, respectively. This year, amajority of respondents believe leverage will be in the 26%-50% range, still relatively hj]%[jakak d]n]dkÊlow by global standards. One Japan-based private equity investor with an Asia-Pacificreach says, “Leverage has increased in private equity transactions but is still lower thanthe pre-crisis levels.” Another global private equity investor based in and focused onAustralasia explains, “Deals with less leverage tend to be more successful than highlyleveraged deals as they have less burden of carrying forward debt, and investors canfocus on improving the value of the acquired company.”This aversion to debt seems to be particularly true of South Korea-focused respondents,of which three-quarters anticipate debt levels placed on acquired companies to be at thelowest end of the range. 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 21
  • 24. ]Yd nYdmYlagf Yf ÕfYf[af_ 9[jgkk 9kaY%HY[aÔ[$ ]Zl eYjc]lk `Yn] klYZadar]$ Y[[gjaf_ to 63% of respondents expected to remain steady across 9kaY%HY[aÔ[ @go ogmd qgm Z]kl ]k[jaZ] l`] hjanYl] ]imalq ]Zl ÕfYf[af_ ]fnajgfe]fl gn]j l`] [geaf_ )* egfl`k7 9kaY%HY[aÕ[ 63% 12% 12% 13% Greater China 24% 24% 11% 6% 35% Southeast Asia 31% 8% 53% 8% India 55% 36% 9% Australasia 53% 5% 26% 11% 5% Japan 50% 6% 38% 6% South Korea 64% 3% 23% 5% 5% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents L`] ]Zl ÕfYf[af_ ]fnajgfe]fl `Yk klYZdar] Yf oadd j]eYaf klYZd] ]Zl ÕfYf[af_ oadd Z] egj] a^Õ[mdl m] lg j]klja[lan] [gn]fYflk ]Zl ÕfYf[af_ oadd Z] ]Yka]j lg gZlYaf l`Yf dYkl q]Yj ]Zl ÕfYf[af_ oadd Z] egj] a^Õ[mdl m] lg j]lj]f[`af_ =mjgh]Yf d]f]jk ]Zl ÕfYf[af_ oadd Z] egj] a^Õ[mdl m] lg jakaf_ [gkl g^ Zgjjgoaf_ The consensus according to respondents in all subregions is that the debt-financing environment for private equity transactions has stabilized and will remain stable. In addition to views for the entire region, a majority of respondents in India, Australasia, Japan and South Korea expect this to be the case. One institutional investor states, “The debt market has improved compared to last year. Governments understand the importance of private investments, and they are supporting private equity investors by providing access to debt. Though China is still behind some other Asia-Pacific countries, the situation has certainly improved there as well.” However, others believe that the market has stabilized but has yet to improve. A private equity investor with a pan-Asia-Pacific focus says, “Debt financing still has to improve for me to say that it is easier to obtain than last year, but I can say that in Asia-Pacific, the debt environment has stabilized and will slowly improve.”22 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 25. ]Yd Ögo Yf ]pal ghlagfkMacroeconomic conditions and regulatory changes are]ph][l] lg `Yn] l`] egkl ka_faÔ[Yfl ]^^][l gf ]YdÕgo af *()+O`Yl ^Y[lgj k! oadd `Yn] l`] _j]Yl]kl ]^^][l gf ]Yd Ögo gn]j l`] [geaf_)* egfl`k Y[jgkk 9kaY%HY[aÕ[7Macroeconomic conditions/ 84% uncertainty Changes in government 74% regulations Availability of leverage 56% Funds nearing the end of 44% their investment period Seller distress 43% Other 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Percentage of respondentsJust as lingering uncertainty in the global economy is affecting the valuation climate,an uncertain outlook is expected to affect private equity deal flow activity, accordingto 84% of respondents, as market participants gauge the right conditions forinvestment. This was a common theme in 2012 as well, when 65% of respondentssaid that macroeconomic conditions would have an impact on deal flow. However, in2013, respondents have placed a far greater emphasis on regulatory changes and theiraf^dm]f[] gn]j ]Yd ^dgo2 /, af *()+ [gehYj] oal` gfdq *- g^ j]khgf]fl na]okfor 2012. Despite these expected challenges, the outlook still remains positive.A global private equity investor based in South Korea says, “Private equity has becomean important aspect of liquidity and therefore governments are encouraging privateequity investment by relaxing restrictions on investors. This will have a greater impacton private equity deal flow. Consider India. Private equity firms are concerned aboutcontinuing their investments in India because of the Indian Government’s new taxpolicies, but if the government does not implement the new tax policies, then privateequity deal flow could double in the next year.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 23
  • 26. ]Yd Ögo Yf ]pal ghlagfk L`] j]_mdYlgjq ]fnajgfe]flËk ]^^][l gf ]Yd Õgo ak egkl acute in Greater China and India O`Yl ^Y[lgj k! oadd `Yn] l`] _j]Yl]kl ]^^][l gf ]Yd Ögo gn]j l`] [geaf_ )* egfl`k af qgmj hjaeYjq j]_agf g^ ^g[mk7 Greater China Southeast Asia India Australasia Japan South Korea 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Macroeconomic conditions/uncertainty Changes in government regulations Funds nearing the end of their investment period Availability of leverage Seller distress Other While there are a host of factors affecting private equity deal flow across Asia- Pacific’s subregions, macroeconomic uncertainty stands out above the rest in every major geographic location. Other notable factors affecting deal flow are changes in government regulations in Greater China and India and seller distress in Japan, according to roughly three-quarters of respondents. An institutional investor in Southeast Asia says, “Changing regulations in India are having a major impact on the appetite of private equity funds investing there. The Indian Government introduced some quick policies with short notice that complicated the deal process, and private equity investors were apprehensive given the new policies. However, as the Government plans for amendments of these policies, investor interest should return.”24 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 27. Deals sourced from personal relationships and advisoryintermediaries are still seen as important in many marketsin 2013Af qgmj ghafagf$ o`Yl oadd Z] l`] hjaeYjq e]l`g ^gj kgmj[af_ 9kaYf hjanYl]]imalq ]Ydk gn]j l`] f]pl )* egfl`k af qgmj hjaeYjq j]_agf g^ ^g[mk7 Greater ChinaSoutheast Asia India Australasia Japan South Korea 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Direct from corporate/strategic Personal relationships Advisory intermediaries Direct from PE Pre-IPO Investments Marketing events Online informational exchanges Direct marketingA key theme of last year’s report was the competitive value-added proposition thatprivate equity funds offer to investors in finding the next deal in an unsophisticatedmarketplace. While personal relationships were a key marker for sourcing deals,according to respondents last year, respondents expect new opportunities to comedirectly from corporate sellers in 2013, though still with an emphasis on personalrelationships, particularly in Greater China and Southeast Asia.On the other hand, in India and South Korea, 82% and 63% of respondents, respectively,say advisory intermediaries are the primary means for sourcing new opportunities. Aninstitutional investor in India says, “Sourcing deals in India and China is not an issue.In India the process of matching private equity buyers and sellers increasingly involvesintermediaries.”Another institutional investor in Australasia says, “Now private equity firms are relyingon personal relationships and sourcing targets through local networks. The experienceof the local investment team is always the most reliable as they know where what ishappening in the market. But when private equity firms venture into a new market theyoften use advisory intermediaries or directly approach corporate targets.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 25
  • 28. ]Yd Ögo Yf ]pal ghlagfk In 2013, IPO markets are expected to be subdued compared with last year O`a[` hjanYl] ]imalq ]pal kljYl]_q ]al`]j AHGk$ k][gfYjq Zmqgmlk gj ljY] kYd]k! g qgm ]ph][l oadd Z] l`] egkl naYZd] af ]Y[` g^ l`] ^gddgoaf_ eYjc]lk gn]j l`] f]pl )* egfl`k7 Greater China 51% 7% 42% Southeast Asia 31% 13% 56% India 39% 8% 53% Australasia 10% 29% 61% 1% Japan 56% 43% South Korea 5% 51% 44% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents IPO Secondary buyout Trade sale With IPO markets relatively slow compared with previous years, respondents expect fewer exit opportunities in public markets over 2013 compared with 2012. However, a majority (51%) still expect IPO markets to provide the best exit opportunities in ?j]Yl]j ;`afY$ l`gm_` dYkl q]YjÌk fmeZ]j oYk `a_`]j Yl ./ 9 eYbgjalq g^ j]khgf]flk in Southeast Asia, India and Australasia expect the most viable exits to be to strategic buyers, contrasts with last year’s views, when respondents were split between exit options.26 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 29. ;YhalYd Ögok Yf afn]klgj ]eYfAfn]klgj Yddg[Ylagf lg 9kaY%HY[aÔ[ hjanYl] ]imalq ak ]ph][l]to rise at a faster pace compared with 2012Gn]j l`] f]pl )* egfl`k$ o`Yl g qgm ]ph][l oadd `Yhh]f lg DH afn]klgjYddg[Ylagfk eY] lg l`] 9kaY%HY[aÕ[ hjanYl] ]imalq [dYkk Yk Y o`gd]7 2%24% 30% 44% Af[j]Yk] ka_faÕ[Yfldq Increase slightly Stay the same Decrease slightly ][j]Yk] ka_faÕ[Yfldq É:a_ afn]klgjk af hjanYl] ]imalq ^mfk Yj] af[j]Ykaf_In total, nearly three-quarters of respondents expect more LP capital to enter the l`]aj [YhalYd Yddg[Ylagfk ^gjmarket in 2013, compared with 68% in 2012. At the same time, the pace is projectedto pick up as allocations made to Asia-Pacific private equity are expected to increase afn]kle]flk af hjanYl] ]imalqsignificantly, according to 30% of respondents, compared with just 19% in 2012. One af 9kaY%HY[aÕ[ Z][Ymk] g^Asia-Pacific-focused private equity investor based in Southeast Asia says, “Big investors `a_`]j _jgol`$ aehjgnaf_in private equity funds, such as global pension funds, university endowments and family [gjhgjYl] _gn]jfYf[] Yfoffices, are increasing their capital allocations for investments in private equity in Asia- `a_`]j j]lmjfkÊPacific because of higher growth, improving corporate governance and higher returns.I anticipate a staggering jump in capital allocation by the LPs if the macroeconomicconditions turn more favorable.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ */
  • 30. ;YhalYd Ögok Yf afn]klgj ]eYf A big jump in institutional capital coming from Greater China is expected in 2013 O`]j] g qgm ]ph][l egkl afÖgok g^ afklalmlagfYd ]imalq [YhalYd aflg 9kaY%HY[aÕ[ hjanYl] ]imalq oadd [ge] ^jge gn]j l`] f]pl )* egfl`k7 Greater China 74% North America 47% Australasia 42% South Korea 30% Europe 28% Japan 7% 0% 10% 20% 30% 40% 50% 60% 70% 80% Percentage of respondents Almost three-quarters of respondents expect institutional capital to come from Greater ;`afY gn]j l`] [gmjk] g^ *()+$ Y kmZklYflaYd af[j]Yk] ^jge l`] ,/ g^ j]khgf]flk l`Yl said the same of 2012. Respondent views regarding capital flows from North America and Europe are roughly the same as they were in 2012. However, Australasian and South Korean LP capital is expected to flow into the market according to 42% and 30% g^ j]khgf]flk$ [gehYj] oal` / Yf 0 g^ j]khgf]fl na]ok af *()*$ j]kh][lan]dq A global institutional investor in Greater China says, “European and North American institutional investors are looking to increase their investments in private equity funds in Asia-Pacific. The opportunities for them in their domestic markets have shrunk as returns have withered, thus they are increasing their investments where they can make better returns. Also they are motivated by the regulatory changes Asian governments have undertaken particularly to attract these foreign institutional investors.”28 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 31. Secondary market trading is on the rise, according to 60%of respondentsO`Yl g qgm ]ph][l ^gj l`] hjanYl] ]imalq k][gfYja]k eYjc]l a] DHkZmqaf_ Yf k]ddaf_ ]paklaf_ [geeale]flk Yf afl]j]klk af hjanYl] ]imalq^mfk! af 9kaY%HY[aÕ[ gn]j l`] f]pl )* egfl`k7 8% 7%32% 53% Af[j]Yk] ka_faÕ[Yfldq Increase slightly Remain the same Decrease slightlyThe financial crisis in 2008 and the ensuing turmoil in the years following promptedLP investors the world over to search for liquidity. The result has been an increaseof activity in the secondary market. In Asia-Pacific, the trend has been slower tomaterialize than in more developed markets in the West, but activity in the secondarymarket will pick up in the region, according to 60% of respondents, though most (53%)expect this change to be slight.One private equity investor in India says the general absence of other exit opportunitiesfor portfolio companies has led LPs to turn to the secondary market more so thanpreviously. Another institutional investor focused on South Korea says that since manyportfolio companies are still unable or unwilling to exit, LPs are using secondary activityto make gains. 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 29
  • 32. ;YhalYd Ögok Yf afn]klgj ]eYf Fund sponsor due diligence processes at the asset level are becoming more important for LPs making new investments af 9kaY%HY[aÔ[ ^mfk Gn]j l`] f]pl )* egfl`k$ o`Yl oadd Z] l`] egkl aehgjlYfl akkm] ^gj ^mf afn]klgjk o`]f eYcaf_ f]o Yddg[Ylagfk lg 9kaY7 Due diligence processes 71% Management team experience 57% mf an]jkaÕ[Ylagf 42% Geographic location of the investment team 32% Historical results 32% Internal controls 29% 0% 10% 20% 30% 40% 50% 60% 70% 80% Percentage of respondents Compared with 2012, due diligence has become far more important for institutional investors evaluating new fund opportunities in Asia-Pacific. While management team experience remains a top issue, identical to last year, due diligence processes top the list ^gj /) g^ j]khgf]flk af *()+$ [gehYj] oal` bmkl *- af *()* Oal` Y `]a_`l]f] awareness of fraud and corruption, thorough due diligence has become paramount, and due diligence processes must be prepared to adapt to Asia-Pacific’s markets, many of which differ substantially from their Western equivalents. Due diligence in Asia, one respondent in Greater China points out, takes an unusually long time. The market has yet to embrace international standards, and due diligence processes can be outdated. Relying on historical results alone does not create an accurate picture of the company. An institutional investor in India says, “In Asian markets, due diligence that relies only on the annual books is not enough. Instead, due diligence has to be done by gathering unbiased information from the field by interviewing customers, suppliers, competitors and creditors to get accurate information about the target and most importantly its liabilities.” Pertaining to the experience of the management team, a private equity investor in Japan says a lack of qualified investment professionals in the local market presents problems, and relocating investment teams creates feasibility issues. According to the respondent, “As the industry is maturing, private equity is becoming increasingly competitive, and success completely depends on access to good deals, which is only possible with a highly experienced management team.”30 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 33. ;gmfljq%kh][aÔ[ ^mfk Yj] Ôfaf_ egj] ^Yngj af *()+for Asian and non-Asian LPs alike@go oadd 9kaYf DHk Yf fgf%9kaYf DHk hjaeYjadq eYc] Yddg[Ylagfklg 9kaY%HY[aÕ[ hjanYl] ]imalq gn]j l`] f]pl )* egfl`k7 76% With regional/country kh][aÕ[ ^mfk 83% 59%Oal` 9kaY%HY[aÕ[ ^mfk 45% 45% Through direct or co-investment opportunities 41% With mega/global 57% investment funds 27% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Percentage of respondents Non-Asian LPs Asian LPsAccording to more than three-quarters of respondents, Asian and non-Asian LPsalike will prefer country-specific funds over 2013, a continuation of a trend fromlast year, when 62% and 45% said Asian and non-Asian LPs would elect country funds,respectively. At the same time, global and Asia-Pacific funds should draw more non-Asian capital, according to respondent views, and while some LPs engage in directinvesting, many respondents believe this will remain difficult.According to one institutional investor, “Asia-Pacific is dominated by regional- andcountry-specific funds, which have the upper hand in the market and always exploit thisfor their benefit. Thus, both local and international LPs are choosing to invest in local orregional funds. I have not seen many LPs engaging in direct investments because theylack experience.”Another private equity investor provides a slightly different view, saying, “Local LPsare concentrating on country-specific funds because of cultural similarities and are notvery interested in partnering with global private equity firms. Local LPs are also tryingtheir hand at direct investment opportunities, but foreign LPs will not be able to obtainpermission for direct investing in many Asian countries.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 31
  • 34. ;YhalYd Ögok Yf afn]klgj ]eYf Respondents do not anticipate any problems raising capital ^gj 9kaY%HY[aÔ[ kljYl]_a]k 9l ÕfYd [dgk]$ 9kaY%HY[aÕ[%^g[mk] ^mfk [mjj]fldq jYakaf_ f]o [YhalYd oadd g o`a[` g^ l`] ^gddgoaf_ [gf[]jfaf_ e]]laf_ ^mf%jYakaf_ lYj_]lk7 6% 1% 2% 47% 44% Ka_faÕ[Yfldq ]p[]] Slightly exceed Meet Fall slightly short of Ydd ka_faÕ[Yfldq k`gjl g^ With LP interest in Asia-Pacific private equity up across the board, 44% of respondents ]ph][l f]o ^mfk lg e]]l ^mf%jYakaf_ lYj_]lk af *()+$ Yf ,/ ]ph][l ^mf%jYakaf_ to slightly exceed targets. In last year’s survey more than half of respondents expected new fund offerings in 2012, and as those new funds raise capital, few expect them to encounter significant problems. Furthermore, with more capital in the market, more competition is expected in 2013.32 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 35. @Yd^ g^ j]khgf]flk Y_j]]2 9kaY%HY[aÔ[ oadd j]eYaf Y Zja_`lspot in the global economy, attracting more private equitycapital to the region in 2013O`Yl oadd Z] l`] _j]Yl]kl ]^^][l g^ l`] _dgZYd ][gfgea[ kdgogof gf hjanYl]]imalq Y[lanalq af 9kaY%HY[aÕ[7 5% 2%21% 50% 22% 9kaY%HY[aÕ[ oadd j]eYaf Y j]dYlan] Zja_`l khgl af l`] _dgZYd ][gfgeq$ Yf 9kaY%HY[aÕ[Ìk _dgZYd k`Yj] of PE activity will increase substantially Tighter liquidity will lead to more distressed investment opportunities Tighter liquidity will create investment opportunities in healthy companies Uncertainty will push down valuations and slow deal activity afYf[af_ ^gj hjanYl] ]imalq afn]kle]flk oadd Z] a^Õ[mdl lg Y[[]kkFifty percent of respondents expect Asia-Pacific economies to act as beacons amid afaltering global economy, a key reason for increased private equity investment in theregion. At the same time, 43% expect tighter liquidity, with 22% expecting this to leadto more distressed opportunities and another 21% anticipating that liquidity issues willcreate opportunities for investment in healthy companies. Few respondents expectglobal economic uncertainty to slow Asia-Pacific private equity investments significantly. 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 33
  • 36. ;`Ydd]f_]k lg hjanYl] ]imalq Competition from corporate acquirers tops the list of [`Ydd]f_]k ^gj 9kaY%HY[aÔ[ hjanYl] ]imalq O`Yl g qgm k]] lg Z] l`] egkl ka_faÕ[Yfl [`Ydd]f_]k ^Y[af_ hjanYl] ]imalq gn]j l`] f]pl )* egfl`k Y[jgkk 9kaY%HY[aÕ[7 Competition from cash-rich corporates 79% Macroeconomic uncertainty 71% Regulatory issues 66% Overvalued targets 48% a^Õ[mdlq jYakaf_ [YhalYd 25% Lack of viable 23% opportunities ]Zl ÕfYf[af_ [gf[]jfk 22% Establishing a viable 20% exit strategy Too much private equity 16% capital in the market 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Percentage of respondents 9[[gjaf_ lg /1 g^ j]khgf]flk$ l`] _j]Yl]kl [`Ydd]f_] lg hjanYl] ]imalq afn]kle]fl in 2013 will be competition from strategic corporate investors — willing and sometimes more able to pay higher prices for assets — who will create greater bidding obstacles for buys than other private equity investors, sovereign wealth funds or LPs engaged in direct investing. At the same time, macroeconomic uncertainty will be a challenge, Y[[gjaf_ lg /) g^ j]khgf]flk$ Yf j]_mdYlgjq akkm]k oadd Z] Y [`Ydd]f_]$ Y[[gjaf_ to 66% – two key themes to watch for the coming 12 months. A private equity investor says, “Corporates across Asia-Pacific did not suffer as much as private or institutional investors during the recession. Corporates have a very strong cash position and are aggressive toward MA opportunities. This is creating stiff competition for private equity investors and driving valuations up.”34 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 37. Competition from corporates is most acute in Greater Chinaand Southeast AsiaO`Yl g qgm k]] Yk l`] egkl ka_faÕ[Yfl [`Ydd]f_]k ^Y[af_ hjanYl] ]imalq gn]jl`] f]pl )* egfl`k af qgmj j]_agf g^ ^g[mk7 Greater ChinaSoutheast Asia India Australasia Japan South Korea 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Competition from cash-rich corporates Macroeconomic uncertainty Regulatory issues Overvalued targets ]Zl ÕfYf[af_ [gf[]jfk a^Õ[mdlq jYakaf_ [YhalYd Establishing a viable exit strategy Too much private equity capital in the market Lack of viable opportunitiesCompetition will challenge private equity investors in Greater China and SoutheastAsia, according to more than 80% of respondents in each subregion. At the same time,regulatory issues in India and Greater China are expected to challenge market players,Y[[gjaf_ lg 1, Yf /0 g^ j]khgf]flk$ j]kh][lan]dq Egj] l`Yf `Yd^ g^ j]khgf]flkfocused in these locations also expect overvalued targets to curb private equity activity.A Southeast Asian institutional investor primarily focused on Greater China says, “Themajor factor hindering efforts to put more capital to work is the valuation mismatchbetween buyers and sellers due to volatile public equity markets and some level ofprevailing uncertainty. Sellers are holding out for the lofty trading multiples and aredemanding prices that were there at market peaks, but private equity buyers arereluctant to stretch their bids to meet sellers’ high price expectations.”In South Korea, 63% of respondents say difficulties raising capital will be a challengefor private equity investors there, and a majority in Japan and Australasia expectcompetition from strategic buyers to present the greatest challenge. 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 35
  • 38. ;`Ydd]f_]k lg hjanYl] ]imalq The expectations for competition are similar across Asia- HY[aÔ[Ëk kmZj]_agfk O`a[` Za]j lqh] oadd [j]Yl] l`] egkl [geh]lalagf ^gj hjanYl] ]imalq afn]klgjk af qgmj j]_agf g^ ^g[mk gn]j l`] f]pl )* egfl`k7 Greater China Southeast Asia India Australasia Japan South Korea 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Corporate/strategic buyer Other private equity investors Sovereign wealth funds Other LPs engaged in direct investing Most respondents in every subregion point to strategic buyers, and all subregions except South Korea-based respondents expect competition from other private equity investors. In China, where a strong local private equity market has developed, competition from locally-based firms will particularly challenge global players. Furthermore, sovereign wealth funds are expected to give private equity funds competition in Greater China, Australasia and South Korea, according to roughly 60% of respondents in each subregion. While this is similar to last year in South Korea, more respondents expect sovereign wealth funds to challenge private equity funds in Greater China and Australasia in 2013.36 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 39. Japan, Greater China and India are projected to be the mostchallenging marketsGn]j l`] f]pl )* egfl`k$ o`a[` j]_agf g qgm l`afc hjanYl] ]imalq Zmq]jkoadd Õf l`] egkl [`Ydd]f_af_ af l]jek g^ mf]jlYcaf_ Y[imakalagfk7 3% 3% 14% 29%22% 29% Japan Greater China India South Korea Australasia Southeast AsiaJapan, a relatively developed private equity market, is projected to be one of thetwo most difficult investment markets by 29% of respondents. According to a privateequity investor in Japan, “The single biggest challenge facing private equity firms inJapan is the regulatory environment. Regulations in Japan allow only specific types ofinvestment models, which are unsuitable for many private equity firms. Japan also lacksopportunity generally because of its poor economy and macroeconomic uncertainty.”Given competition for deal flow, the same number of respondents point to GreaterChina as the most difficult, and India, with its regulatory uncertainties and highvaluation expectations, is expected to be most difficult by 22% of respondents. 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ +/
  • 40. ;`Ydd]f_]k lg hjanYl] ]imalq Southeast Asia and Australasia are expected to be the least challenging markets Gn]j l`] f]pl )* egfl`k$ o`a[` j]_agf g qgm l`afc hjanYl] ]imalq Zmq]jk oadd Õf l`] d]Ykl [`Ydd]f_af_ af l]jek g^ mf]jlYcaf_ Y[imakalagfk7 3% 4% 8% 12% 43% 30% Southeast Asia Australasia Greater China Japan India South Korea In contrast to last year’s survey, when there was no consensus for the least challenging market in Asia-Pacific, 43% of respondents say Southeast Asia is the market with the fewest challenges for private equity investment over the next 12 months. Another 30% of respondents point to Australasia as least challenging. An Australasia-focused investment banker disagrees and highlights what he perceives as a number of challenges facing the subregion. “Though access to debt is easy, interest rates are very high in Australia, which makes debt unfeasible for many investors. Competition from corporate buyers is the most common and significant challenge for the private equity firms in the country. Australia already has limited opportunities, and as competition for these opportunities has increased, target valuations have risen sharply.”38 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 41. Concerns regarding high seller valuation expectations remainthe same on a transactional levelGf Y ljYfkY[lagfYd d]n]d$ o`Yl Yj] l`] Za__]kl gZklY[d]k ^gj hjanYl] ]imalqafn]kle]fl af qgmj j]_agf g^ ^g[mk7 Greater ChinaSoutheast Asia India Australasia Japan South Korea 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Sellers’ valuation expectations are too high Sellers unwilling to give up management control Legal/regulatory challenges Taxation issues Cultural or management differences Corruption/compliance of target K]dd]jk g fgl mf]jklYf l`] Z]f]Õlk g^ hjanYl] ]imalq afn]kle]fl9[[gjaf_ lg egj] l`Yf /( g^ j]khgf]flk af ]n]jq kmZj]_agf Y[jgkk 9kaY%HY[a^a[$high seller valuation expectations are often the reason deals do not close. Interestingly,sellers who are unwilling to give up management control were a major concern inSoutheast Asia, India, Japan and South Korea, where family owners are often hesitantto sell their livelihoods and legacies. Legal and regulatory issues struck a chord with88% of respondents in India and 69% in Greater China, and cultural and managementa^^]j]f[]k Yj] Y eYbgj [`Ydd]f_] af Kgml` Cgj]Y$ Y[[gjaf_ lg /- g^ j]khgf]flkfocused there. 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 39
  • 42. L`] [`Yf_af_ ^Y[] g^ hjanYl] ]imalq The use of internal operating partners continues to increase in the region @Yn] qgm gZk]jn] af[j]Yk] mk] g^ Yfq g^ l`] ^gddgoaf_ af gj]j lg [j]Yl] af[j]e]flYd nYdm] af Y hgjl^gdag7 Internal operating partners 50% Internal portfolio 35% support team External management 29% consultants External advisors 21% None of the above 22% 0% 10% 20% 30% 40% 50% 60% Percentage of respondents Compared with last year’s survey, when 43% of respondents saw an increased use ofÉFgo$ gh]jYlagfk Yf internal operating partners, 50% of respondents have observed a similar increase this hgjl^gdag hjg^]kkagfYdk Yj] year. A global institutional investor focused on Greater China says, “Now, operations and portfolio professionals are increasingly playing an important role in improving portfolio af[j]Ykaf_dq hdYqaf_ Yf values for Asian private equity. When looking to improve the performance of their aehgjlYfl jgd] af aehjgnaf_ portfolio companies, the majority of the private equity firms always seek guidance from hgjl^gdag nYdm]k ^gj 9kaYf their internal investment professionals and operational partners.” hjanYl] ]imalqÊ40 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 43. L`] jak] g^ Y ljmdq _dgZYd 9kaY%HY[aÔ[ hjanYl] ]imalq ^mfis at least two years away, according to 52% of respondents@go dgf_ oadd al Z] Z]^gj] hjanYl] ]imalq Õjek ZYk] af 9kaY%HY[aÕ[ka_faÕ[Yfldq af[j]Yk] l`]aj afn]kle]fl Y[lanalq gmlka] g^ 9kaY7 3% 16%52% 29% 0-12 months 12-18 months 18-24 months 24 monthsAs Asia-Pacific funds grow in size and prowess, the question of whether they willcapitalize on investment opportunities outside of Asia-Pacific in large numbers remainsunclear. According to 52% of respondents, this process will take more than two years.At the same time, 48% believe this will happen within the next two years though, almost30% say this will take place between 18 and 24 months.A private equity investor in Southeast Asia believes within the next year Asia-Pacificprivate equity funds will jump on opportunities elsewhere, saying, “As the euro crisisis ending, private equity firms based in Asia-Pacific who have an interest in distressedassets will invest in Europe. Many private equity firms are also opening to invest in otheremerging regions like Africa and Latin America.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 41
  • 44. L`] [`Yf_af_ ^Y[] g^ hjanYl] ]imalq Asia-based private equity funds pose a greater risk to their global peers in 2013 than in 2012 @go ka_faÕ[Yfl ak l`] [geh]lalagf hgk] Zq 9kaY%ZYk] hjanYl] ]imalq ^mfk lg o]dd%]klYZdak`]$ _dgZYd hjanYl] ]imalq ^mfk af 9kaY gn]j l`] f]pl )* egfl`k7 In terms of raising capital 51% 46% 3% In terms of executing 48% 47% 5% transactions 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents N]jq ka_faÕ[Yfl Kge]o`Yl ka_faÕ[Yfl Fgl ka_faÕ[Yfl With many LPs looking to invest with country-focused funds in Asia-Pacific, an overwhelming majority expect Asia-Pacific funds to challenge global funds in raising capital and executing transactions. Particularly with respect to fund-raising, respondents expecting Asia-Pacific funds to compete significantly increased to 51% from 38% in 2012. Furthermore, in last year’s survey, 18% and 11% said that Asia-based funds would not significantly challenge established global funds for fund-raising and executing transactions, figures that have diminished in 2013 to 3% and 5%, respectively.42 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 45. Egj] j]khgf]flk ]ph][l an]jkaÔ[Ylagf g^ hjanYl] ]imalqstrategies in 2013 than in 2012g qgm Z]da]n] l`Yl 9kaY%HY[aÕ[ hjanYl] ]imalq `gmk]k oadd an]jka^q YoYq^jge l`] ljYalagfYd Zmqgml eg]d aflg gl`]j Ydl]jfYlan] Ykk]l Zmkaf]kk daf]k7 28% Prominent business lines: 31% Venture capital */ Af^jYkljm[lmj] 14% Funds of funds 9% Distressed debt 8% Property / HmZda[ ]imalq 72% 3% Mezzanine debt 1% Trading Yes NoAf *()+$ /* g^ j]khgf]flk ]ph][l hjanYl] ]imalq `gmk]k lg an]jka^q g^^]jaf_k$compared with 62% in 2012. Furthermore, strategies expected to gain attention includen]flmj] [YhalYd Y[[gjaf_ lg +) g^ j]khgf]flk$ af^jYkljm[lmj] Zq */ g^ j]khgf]flkand funds of funds by 14% of respondents.A private equity investor focused in Greater China says, “Private equity firms in Asia-Pacific are now dedicating their experience toward venture capital, focusing on early-and growth-stage investments in a number of sectors. Venture capital has shown anoutstanding track record in Asia-Pacific, and the exceptional returns achieved throughventure capital are attracting private equity firms.”Another private equity investor focused in Greater China says, “Private equity firms areincreasingly getting comfortable taking risks with infrastructure investments, and theyare more keen to finance infrastructure projects.” 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 43
  • 46. HYf%j]_agfYd na]o g^hjanYl] ]imalq ]f]YngjkOverview 9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgml Y[lanalqReversing a downward trend in activity following the globalfinancial crisis in 2008, private equity fund managers are once 25,000 100again raising funds and making buys across Asia-Pacific. Globalinvestors looking to reap the benefits of the region’s growth trend 20,000have set their sights on Asia-Pacific, as local shops also begin to 75open their doors. Indeed, as private equity’s traditional homes in Number of deals Value (US$m)the United States and Europe post lackluster economic stats and 15,000offer fewer opportunities, investor attention has turned East. 50 10,000Private equity buyout activity across Asia-Pacific rose steadilyfrom 2009 to Q3 2012, peaking in Q2 2011 before beginning 25a slow decline and leveling off going into 2012. The average 5,000ljYfkY[lagf ngdme] mjaf_ l`Yl lae] oYk -/ ]Ydk h]j imYjl]jwith a mean value of approximately US$150m per deal. 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3On average, deal size was uniform over the past three years, 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12with 68% of transactions worth less than US$250m, according Volume Value (US$m)to mergermarket data. Though a vast majority of deals wereless than US$250m, 2011 saw numerous transactions valued at Source: mergermarketwell above the US$1b mark, including a 5.44% stake acquisitionin China Construction Bank by a Temasek Holdings-led group ofinvestors for a consideration of US$8.29b and the Carlyle Group’s 9kaY%HY[aÕ[ hjanYl] ]imalq ]Yd kar] Zj]Ycgof Zq nYdm]purchase of Nomura-owned Tsubaki Nakashima, a Japanesemanufacturer, for US$1.13b. More recent large-cap dealsincluded Hong Kong-based Affinity Equity Partners’ and a group 100 17% 12%of investors’ acquisition of a 24% stake in a South Korean life 90 26%insurance company, Kyobo Life Insurance, for a consideration of 80 34% 14% 12%US$1.06b in August 2012. 70 9% 64%Deals worth US$250m–US$500m spiked in 2011, accounting 60 19% 35% 35%^gj / g^ ]Ydk l`Yl q]Yj$ mh ^jge , af *((1 Yf + af *()( 50 30%Likewise, the US$500m–US$2b range saw aggressive increases, 10% 40oal` )/ ]Ydk Y[[gmflaf_ ^gj . g^ l`] lglYd$ Y [gfka]jYZd] 6% 11% 8% 14% 30uptick from less than 1% in 2009 and 2% in 2010. 20 27% 37% 30% 28%All eyes on industrials and finance 22% 10Respondents in last year’s Asia-Pacific private equity outlook 0said energy, mining and utilities would yield the greatest private 2009 2010 2011 Q1-Q3 2012 Totalequity activity across Asia-Pacific, but according to mergermarketdata, that title was awarded to industrials and chemicals this year. US$250m US$250m–US$500m US$500m–US$2bIndeed, the sector was a particularly hot sector by volume, with US$2b–US$5b US$5b)-/ ljYfkY[lagfk lYcaf_ hdY[] gn]j l`] *((1 lg I+ *()* h]jag264 took place in 2011 alone, with 2012 seeing 25 transactions Source: mergermarketin the first three quarters of the year. The sector accounted for18.25% of all private equity deals in Asia-Pacific for the timeperiod.44 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 47. 9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq nYdm] 9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq ngdme] 1% 1.5% 2.3% 1.4% 4.5% 2.3% 3.6% 5.3% 21.8% 4.0% 18.3% 4.1% 5.6% 6.9%6.2% 15.5% 7.0%7.2% 14.9% 7.3% 7.2% 12.3% 15.2% 10.5% 12.9% Financial services Consumer Industrials and chemicals Consumer TMT Industrials and chemicals TMT Business services Leisure Construction Financial services Pharma and biotech Energy, mining and utilities Business services Energy, mining and utilities Construction Transportation Pharma and biotech Transportation Leisure Real estate Agriculture Real estate Agriculture Defense Source: mergermarketSource: mergermarketEnergy, mining and utilities had only 59 deals worth US$8.09b a 5.24% acquisition of Suning, the Chinese maker of homesince 2009. Notable activity involved the acquisition of Kencana appliances that operates chain stores across the country,Petroleum, a Malaysia-based integrated engineering solutions ^gj MK/*.e af Bmf] *()) È Y ]Yd l`Yl oYk hj][]] Zqprovider for the oil and gas industry, by Integral Key, the private Malaysian private equity firm Navis Capital’s buy of a 45% stakeequity arm of Malayan Banking, for US$1.93b in 2011. While in Australian Retail Apparel Group for US$210m.activity has been lackluster, general interest in the sector showspotential. In contrast, the financial services sector took the top spot in terms of activity by value with a hefty US$28.33b, accountingThe consumer, TMT and business services sectors fared well, with for slightly more than one-fifth of total deal value since 2009 at133, 131 and 111 deals, respectively. Deals in the consumer 21.83%. In addition to the aforementioned Temasek buy, a primesector have been growing steadily since 2009, with 29 deals that case in point was KKR’s acquisition, with TPG Capital and theyear, followed by 38 in 2010, 41 in 2011 and 25 as of Q3 2012. Government of Singapore Investment Corporation, of a 34.3% stake in China International Capital Corporation Limited in 2010The consumer sector has risen in popularity in the last decade for US$990m.among private equity firms and multinational corporations alikeas each subregion – led by a burgeoning middle class in China The consumer sector also posted noteworthy activity, withand a growing affluent population in Southeast Asia – sees its 133 deals yielding US$19.38b.demand for consumer goods take off. From a valuation perspective, the proportion attributed to theMajor private equity names have shown mounting interest in financial services sector fell off sharply after 2011 as it wasthe sector. China-based private equity firm Hony Capital made historically inflated by the massive Temasek deal that year. With 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 45
  • 48. HYf%j]_agfYd na]o g^ hjanYl] ]imalq ]f]Yngjk9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq nYdm] US$15.95b worth of deals, industrials and chemicals currently sits in third place, behind the consumer sector. These two sectors Y[[gmfl] ^gj YhhjgpaeYl]dq */ g^ lglYd hjanYl] ]imalq Zmqk$ 12,000 broadly in line with growing global interest in manufacturing and consumer goods as countries across the region, China in 10,000 particular, transform from manufacturing-based economies to ones based on consumption. 8,000Value (US$m) Bull’s-eye on Asia-Pacific 6,000 Unsurprisingly, China (including Hong Kong) and India saw the most private equity activity in 2012, with 204 and 208 deals, 4,000 respectively. Mergermarket data showed that as of the end of Q3 2012, India had 43 deals, ahead of China’s 36 for the year. By 2,000 volume, the two have been evenly matched, equal contenders for private equity funds’ focus, but by value, China saw significantly 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 more private equity dollars — US$43.3b to India’s US$10.4b 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 Ç Y[[gmflaf_ ^gj +++/ g^ hjanYl] ]imalq nYdm] kaf[] *((1 lg Financial services Industrials and chemicals India’s 8.03%. Consumer TMT Deals in China were predominantly in the financial services andSource: mergermarket consumer sectors, with slightly fewer deals in the traditionally targeted manufacturing arena. India too saw prolific activity in financial services, although the top deal sectors involved the9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq ngdme] automotive industry and energy, with regional and global players Navis Capital Partners, Bain Capital, KKR and Blackstone active participants in the sectors. 0.6% 0.4% 8.0% Surprisingly, Southeast Asia, which respondents in last year’s 8.8% survey ranked as the third most likely region for activity and 33.4% which has been gaining notoriety as an alternative market to saturated markets like China and India, fell short of expectations. Economic growth across the subregion is creating myriad opportunities for private equity, leaving Southeast Asia ripe for14.9% afn]kle]fl @go]n]j$ Kgml`]Ykl 9kaY `Y gfdq /1 ljYfkY[lagfk$ behind Australia, Japan and South Korea, since 2009. By volume and value, a large portion of those transactions also came in Q3 2011, led largely by deal activity in the energy, mining and utilities sector and financial services. 16.9% 17.0% More developed markets – specifically Australia and Japan – saw abundant private equity activity, with Australia’s 123 deals worth China and Hong Kong Australia Japan US$22b, barely topping Japan’s 121 deals at US$21.99b. In South Korea Southeast Asia India New Zealand *()*$ l`gk] ^a_mj]k lglYd] *1 ]Ydk Yl MK-*/Z ^gj 9mkljYdaY and 18 deals for US$4.18b for Japan.Source: mergermarket Japan saw deals concentrated in the leisure sector, with Bain Capital’s purchase of Skylark, a Japan-based restaurant chain operator, from Japan’s Nomura for US$3.39b, and UK-based Permira’s purchase of Akindo Sushiro, a conveyor-belt sushi46 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 49. 9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq _]g_jYh`q 9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq nYdm] I)ÇI+ *()* 10,000 3,000 9,000 8,000 2,500 7,000Value (US$m) Value (US$m) 2,000 6,000 5,000 1,500 4,000 3,000 1,000 2,000 500 1,000 0 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 2012 Q2 2012 Q3 2012 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 China and Hong Kong India Japan China and Hong Kong India Japan South Korea Australia Southeast Asia Australia South KoreaSource: mergermarket Source: mergermarketrestaurant chain operator, for US$1b. Overall, the sector saw]Yd nYdm] g^ MK/-Z E]aY Zmqk o]j] Ydkg hj]nYd]fl2 kap o]j] 9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq ngdme]worth more than US$1b. I)ÇI+ *()* 16Australia, unsurprisingly, saw considerable deal activity inenergy, mining and utilities, although the transportation and 14medical sectors also saw a fair amount of transactions. Bain 12Capital’s buy of MYOB, an Australia-based provider of accountingand management software for small and midsized businesses, Number of deals 10for US$1.25b and Blackstone’s purchase of Valad Property 8?jgmh ^gj MK/-+e o]j] Yegf_ l`] lgh ]Ydk g^ *()) 6South Korea saw a spike in activity in Q4 2010, with twodomestic transactions from Korea Development Bank’s private 4equity arm, KDB Private Equity, and led investments by value 2for Asia-Pacific in Q3 2012 with similar forays by domestic firmsinto the financial services sector. South Korea saw deal value 0 Q1 2012 Q2 2012 Q3 2012dip to US$1.91b in 2011, following a stellar year in 2010 withMK/./Z 9k g^ I+ *()*$ l`Yl nYdm] k]]ek gf l`] mhkoaf_$ China and Hong Kong India South Koreacurrently sitting just shy of US$4b. Southeast Asia Japan AustraliaA full recovery in private equity activity and deal value to pre- Source: mergermarketcrisis levels is quickly becoming a reality as investor confidencereturns and the region regains its strength, outpacing the USand European markets. With emerging markets presentingnew proving grounds for fund managers and more established in the year ahead holds renewed promises of stable growth andmarkets regaining lost momentum, the outlook for private equity earnings, in addition to increased volume figures. 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ ,/
  • 50. EYcaf_ Yf ]palHjanYl] ]imalq dggck lg an]kl hgjl^gdag Ykk]lk Yf j]Yh ÔfYf[aYd j]oYjkTo discuss value creation and exit strategies, Brandon Taylor, “The slow IPO market has resulted in lengthy holding periodsEditor for Remark Asia at mergermarket, spoke with while the PE houses focus on creating value, rather than exiting.Ernst Young’s Luke Pais, PE Leader for the ASEAN; Robert At the same time, we have seen PE houses focus on restructuringPartridge, Managing Partner for Transaction Advisory Services or refocusing their investees, and some are undertakingand Private Equity for Greater China; Ringo Choi, Asia-Pacific recapitalizations and dividend distributions as a means toIPO and Strategic Growth Markets Leader; and Bryan Zekulich, creating realized returns, which is absolutely critical for keepingOceania Private Equity Leader. limited partners (LPs) satisfied,” says Robert Partridge, Managing Partner for Transaction Advisory Services and Private Equity forPrivate equity investments start with the final stage in mind: the Greater China.exit, when years of hard work yield returns from value createdduring the investment’s life cycle. High returns, however, are far Yet despite unpredictable global trends, private equityfrom guaranteed. Despite the financial expertise they bring to practitioners have proven time and time again their effectivenessthe table and the ability to execute strategies where others often at creating value in the face of market volatility, proving thatcannot, private equity investors are not immune to the fallback the private equity model is sound in its mandate of buying right,from an ailing global market. Affecting markets around the improving operational performance and making a profitable in varying degrees, macroeconomic conditions have had aprofound impact on private equity exit strategies in Asia-Pacific. Creating and maintaining value Divesting a business asset is the culmination of the investmentExits for the year up to Q3 2012 totaled 90, worth just more cycle and a core component of the private equity model. The exit,than US$14.5b, according to mergermarket data. While this however, can prove to be as intricate and resource-intensive aoYk egj] l`Yf *((1Ìk /0 ]palk ogjl` MK)***Z$ l`] ^a_mj] process as the purchase was during the acquisition phase yearspales in comparison to the 125 exits in 2011 worth a staggering prior. Ensuring that the portfolio asset is seen as a high-demandUS$44.96b. item will prove paramount to guaranteeing a smooth exit.Encumbered by macroeconomic uncertainties, exit numbers In last year’s survey, 30% of respondents said they would focushave been slow — and will continue to be — largely due to a on improving operational performance of portfolio companies toslowdown in IPO and overall capital markets. Persistent valuation increase portfolio value. The response was fourth behind makinggaps are also acting as speed bumps, slowing private equity acquisitions, raising new capital and exiting current and exits. As such, private equity firms operating in This year, improving operational performance rose one place,Asia-Pacific have seen their exit plans thrown into disarray. tied with raising new capital. Indeed, private equity players are employing numerous tactics to ensure that value is created and maintained to maximize the exit. “Value in the new paradigm is driven by profit growth,ÉO] `Yn] k]]f H= `gmk]k ^g[mk gf particularly as the multiple expansion on a 3% GDP platform j]kljm[lmjaf_ gj j]^g[mkaf_ l`]aj afn]kl]]k$ will be minimal, albeit specific to each industry sector. As such, PE is focused on improving performance through back-office Yf kge] Yj] mf]jlYcaf_ j][YhalYdarYlagfk efficiencies and redeploying resources into front-office activities. Yf ana]f akljaZmlagfk Yk Y e]Yfk In addition, bolt-on acquisitions and realignment of the product lg [j]Ylaf_ j]Ydar] j]lmjfk$ o`a[` ak or service suite is also key. The PE houses and management are YZkgdml]dq [jala[Yd ^gj c]]haf_ daeal] better aligned to achieve better outcomes and are working more hYjlf]jk kYlakÕ]Ê collaboratively together,” says Bryan Zekulich, Oceania Private Equity Leader. JgZ]jl HYjlja_] According to Luke Pais, PE Leader for the ASEAN, private equity firms are also focusing on “strengthening management and48 9kaY HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 51. incentivizing performance, emphasizing strong budgeting and “When a PE in the United States or Europe does a buyout, theyplanning, controlling and optimizing cash flow and debt levels, have a controlling stake in the company and can influence itstightening monitoring and reporting systems, balance sheet business operations. It’s easy to mandate changes and createoptimization, and many other core business improvements, shareholder value. But with a minority interest, control lies inwhich will not only improve core EBITDA but also result in the hands of the founder,” Partridge says. “You get significantmultiple expansion.” interest, but you don’t get control or authority, and this sometimes has an effect on creating value.”Additionally, to maximize exit values for investees, private equityplayers are going to a global buyer pool, as well as other private Waiting for IPOs to returnequity buyers through secondary buyouts, Pais points out. Long the favorite exit for private equity funds looking to make waves in the public markets, the IPO has seen better days in thePrivate equity managers are also going to great lengths to Asia-Pacific region, with phrases like “chilled market” or “closedencourage portfolio companies to develop good governance window” associated with this exit strategy. While a few mega-structures and strengthen overall governance to win favor from IPOs came to market in 2012 – Malaysian palm oil producerpotential investors or buyers, says Ringo Choi, Asia-Pacific IPO Felda’s US$2b IPO in June and private-equity-backed IHHand Strategic Growth Markets Leader. Healthcare’s US$2b IPO in July – trade sales have been strongly preferred recently with respect to private equity exits, Pais says.Choi adds that with the global economy going through a seriesof ups and downs, and the export picture for China affecting “I think the general consensus is that the markets aren’tmarkets globally, the timing may be wrong to divest portfolio recovering very quickly, and no one really thinks the publicassets. For the time being, then, private equity houses are doing markets are going to open up in the first quarter of 2013,”what they have traditionally done as they await a more buoyant Partridge adds. “By the second quarter of 2013, it may startexit market: focusing on improving operational efficiency and to open up, but we’re most likely to see an acceleration of IPOguiding companies to tap new markets for growth opportunities, and MA in the second half of the year.”Partridge notes. Various other factors could be responsible for exacerbatingBut riding out the storm, even in safe harbors, is not without its the tepid IPO climate. Regulatory shifts and recent events havedangers. Delays in the exit process or timeline established at the resulted in a changed level of interest in Chinese IPOs, a blowoutset of the investment could have negative effects, namely to private equity firms in China. Those firms, Partridge says,value erosion, which could impede a clean exit down the line. rely on IPOs for exits more so than their overseas counterparts. The ongoing situation in the Eurozone is also proving to be a bane to private capital’s interests.ÉNYdm] af l`] f]o hYjYa_e ak jan]f Zq Developed markets, like Japan and Australia, are also feeling hjgÕl _jgol` 9k km[`$ H= ak ^g[mk] gf the chill. aehjgnaf_ h]j^gjeYf[] l`jgm_` ZY[c%g^Õ[] “The IPO market is closed in Australia, and suggestions are that ]^Õ[a]f[a]k Yf j]]hdgqaf_ j]kgmj[]k aflg it will not be until the second half of 2013 that we will start to ^jgfl g^Õ[] Y[lanala]kÊ see some activity. This has meant that the PE houses have been :jqYf R]cmda[` looking at a number of options like JVs with corporates and the secondary market. We have had dividend recapitalization as well. The hope is that alternative funding sources will also come into the market to alleviate pressure on the traditional bankingAnother challenge to creating value lies in a fundamental aspect sources and provide better competitive tension to the process,”of private equity investment in Asia-Pacific (China as a prime Zekulich says.example): the minority interest investment. 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 49
  • 52. EYcaf_ Yf ]pal In general, Choi says, secondary buyouts are likely to be a short-ÉKlj]f_l`]faf_ eYfY_]e]fl Yf _anaf_ l`]e term trend, never rising to become the mainstream method of exiting. af[]flan]k lg h]j^gje$ hdY[af_ ]eh`Ykak gf Zm_]laf_ Yf hdYffaf_$ ]klYZdak`af_ “People’s minds seem set on IPOs and getting back that return []fljYdar] [gfljgd g^ [Yk` Yf ]Zl on investment,” Choi says. “But if they can find some interested f]_glaYlagfk oadd fgl gfdq aehjgn] [gj] investor, then perhaps they will take that route, but it’s mostly =:AL9 Zml Ydkg j]kmdl af emdlahd] ]phYfkagfÊ going to be on a case-by-case or industry-by-industry basis.” Dmc] HYak Ultimately, investors are likely to sit tight and focus their efforts on portfolio management — merging companies, creating synergies, cutting costs and driving profits — until the IPO windowMacroeconomic uncertainties aside, public market valuations opens again. According to Choi, smaller windows of opportunityhave also hindered private deals, creating a gap between sellers for listing throughout the year will arise with upswings in theattaching a hefty price tag to their assets and buyers in search of stock markets, and private equity funds need to remain vigilantbig buys at bargain prices. This has allowed the valuation gap to to exit when the time is right.persist because private companies are willing to wait instead ofselling low, Partridge says.Increasingly, private equity firms are becoming more realistic ÉH]ghd]Ìk eafk k]]e k]l gf AHGk Yf _]llaf_with their IPO exit expectations — the pre-2008 boom years are ZY[c l`Yl j]lmjf gf afn]kle]fl$ Zml a^ l`]qlong gone, and not everyone can expect results similar to those [Yf Õf kge] afl]j]kl] afn]klgj l`]fbefore the financial crisis, Choi says. h]j`Yhk l`]q oadd lYc] l`Yl jgml]Ê Jaf_g ;`gaSights on the secondary market?The lackluster IPO market matched with portfolio assets reachingthe end of their investment cycles has set the stage for increasedactivity in secondary buyouts across Asia-Pacific.According to Zekulich, “Secondaries in Asia-Pacific, Australiain particular, are more prevalent due to the restricted MA andclosed IPO markets. The success of the secondary transactionand the greater success that management teams have withprivate equity means we will continue to see such transactionsforming a credible option for Australian and overseas PE.”Indeed, the secondary buyout market has seen some activity,Partridge says, but that has largely been focused on smallerdeals, sometimes below US$50m and often less than US$25m.“It’s difficult to predict whether we’ll see larger secondaries in2013. Ultimately, PE houses will probably focus on value creationwhile waiting for valuations and/or favorable markets to return,”Partridge says.50 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 53. @aklgja[Yd YlY9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgml Y[lanalq 30 100 90 25 80 70 20 60Value (US$b) Deal volume 15 50 40 10 30 20 5 10 0 0 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Deal volume Deal value (US$b)Source: mergermarket9kaY%HY[aÕ[ hjanYl] ]imalq ]pal Y[lanalq 13 40 12 35 11 10 30 9 8 25Value (US$b) Deal volume 7 20 6 5 15 4 10 3 2 5 1 0 0 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Deal volume Deal value (US$b)Source: mergermarket 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 51
  • 54. @aklgja[Yd YlY 9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq fgf%9H9; Zmq]jk 8 50 7 6 5 Value (US$b) Deal volume 4 25 3 2 1 0 0 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Deal volume Deal value (US$b) Source: mergermarket 9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq 9H9; Zmq]jk 25 75 20 50 15 Value (US$b) Deal volume 10 25 5 0 0 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Deal volume Deal value (US$b) Source: mergermarket52 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 55. =pal lqh] Zq nYdm] *((- lg I+ *()*2005 11% 15% 74%2006 12% 11% 77%2007 18% 41% 41%2008 9% 8% 83%2009 31% 8% 61%2010 30% 10% 60%2011 15% 17% 68%2012 16% 24% 60% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% IPO Secondary buyout Trade saleSource: mergermarket=pal lqh] Zq ngdme] *((- lg I+ *()*2005 18% 11% 71%2006 9% 16% 75%2007 13% 14% 73%2008 16% 13% 71%2009 23% 10% 67%2010 43% 12% 45%2011 28% 15% 57%2012 15% 22% 63% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% IPO Secondary buyout Trade saleSource: mergermarket 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 53
  • 56. @aklgja[Yd YlY 9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq ngdme] *((+ lg I+ *()* 1% 4% 11% 16% Agriculture 5% Business services Construction 2% Consumer Energy, mining and utilities 6% 17% Financial services Industrials and chemicals 5% Leisure Pharma, medical and biotech 6% Real estate 18% TMT 9% Transportation Source: mergermarket 9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq nYdm] *((+ lg I+ *()* 1% 4% 4% 8% 19% Agriculture Business services Construction 13% Consumer 2% Energy, mining and utilities 4% Financial services Industrials and chemicals 10% Leisure 6% Pharma, medical and biotech Real estate 13% TMT 16% Transportation Source: mergermarket54 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 57. 9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq ngdme] *((+ lg I+ *()* 1% 1% 5% 3% 16% Mainland China 8% Australia Japan India9% Southeast Asia South Korea 18% Hong Kong New Zealand Taiwan 20% Other 18% Source: mergermarket9kaY%HY[aÕ[ hjanYl] ]imalq Zmqgmlk Zq nYdm] *((+ lg I+ *()* 11% 16% 2% 3% Mainland China 2% Australia 3% Japan India 21% South Korea13% Hong Kong New Zealand Taiwan 7% Other Southeast Asia 21% Source: mergermarket 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 55
  • 58. Lgh ]Ydk lYZd]Lgh )( 9kaY%HY[aÕ[ hjanYl] ]imalq ]Ydk *()* ) BYf % )- ][! Ranking Announced date Status Target company Target dominant Target dominant sector country 1 16 Mar C China Cinda Asset Management Financial services China Corporation (16.54% stake) 2 14 Feb C Extract Resources Limited Mining Australia -/*. klYc]! 3 22 June P Jupiter Shop Channel Co. Ltd. Media Japan (50% stake) 4 25 Oct C Pacific Fair Shopping Centre Consumer: retail Australia (25% stake); Macquarie Centre (50% stake); Garden City Shopping Centre Booragoon (40% stake) 5 8 Aug C Kyobo Life Insurance Co. Ltd. Financial services South Korea (24% stake) 6 16 Aug P Woongjin Coway Co. Ltd. Industrial products South Korea (30.9% stake) and services / 30 April P Spotless Group Limited Services (other) Australia 8 16 Aug P Genpact Limited (30.49% stake) Services (other) India 9 24 Aug C Akindo Sushiro Co., Ltd. Leisure Japan 10 12 Dec P Guoco Group Ltd. (25.53% stake) Financial services Hong Kong Key: C = Completed P = Pending Source: mergermarket56 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 59. Bidder company Bidder dominant Seller company Seller dominant Deal value country country (US$m)UBS AG; Standard Chartered Plc; National Council China Ministry of Finance China 1,639for Social Security Fund; CITIC Capital Partners ChinaChina Africa Development Fund; CGNPC Uranium China Rio Tinto Limited; Australia 1,250Resources Co Ltd. Itochu CorporationBain Capital LLC USA Sumitomo Japan 1,240 CorporationAMP Capital Investors Limited Australia Westfield Group; Australia 1,062 Westfield Retail TrustGovernment of Singapore Investment Corporation Hong Kong Daewoo South Korea 1,062Pte. Ltd.; Baring Private Equity Asia; Affinity Equity InternationalPartners; IMM Private Equity Inc. CorporationMBK Partners II South Korea Woongjin Holdings South Korea 1,055 Co., Ltd.Pacific Equity Partners Australia 1,021Bain Capital LLC USA General Atlantic USA 1,004 LLC; Oak Hill Capital Partners LPPermira United Kingdom Unison Capital, Inc. Japan 1,000Hong Leong Company (Malaysia) Berhad Malaysia 950 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ -/
  • 60. E]l`ggdg_q Gn]j Bmdq Yf 9m_mkl *()*$ J]eYjc$ l`] ]n]flk Yf  Gfdq [gehd]l] Yf h]faf_ e]j_]j Yf Y[imakalagf ]Ydk publications division of mergermarket, canvassed the are collated. Where the stake acquired is less than 30% (10% opinions of 50 private equity investors (GPs), 30 institutional in Asia-Pacific), the deal is included only if its value is greater investors (LPs) and 20 private equity investment bankers, all than US$100m. based in Asia-Pacific, on a number of extant topics related to private equity activity. All responses were collected  LjYfkY[lagfk km[` Yk j]kljm[lmjaf_k af o`a[` k`Yj]`gd]jkÌ confidentially and are reported in aggregate. interests in total remain the same are not collated. mergermarket does not track property deals, letters of intent, gj []jlYaf kmjn]q im]klagfk$ j]khgf]flk eYq `Yn] k]d][l] memorandums of understanding, heads of agreement or more than one answer choice. In these cases, the total non-binding agreements. percentage of respondents will not total 100% per category.  9[[gjaf_ lg e]j_]jeYjc]l$ Yf ^gj l`] hmjhgk]k g^ l`ak @aklgja[Yd YlY af[dm]k Ydd e]j_]jeYjc]l%j][gj] report, an Asia-Pacific buyout is defined as a deal in which transactions for 1 January 2003 to 30 September 2012 the target business is predominantly located in any country unless otherwise noted. in Asia-Pacific and at least one bidder operates predominantly as a private equity house. An Asia-Pacific LjYfkY[lagfk oal` Y ]Yd nYdm] _j]Yl]j l`Yf MK-e Yj] exit is defined as a deal in which the business being sold is included. If the consideration is undisclosed, deals are predominantly located in any country in Asia-Pacific and at included on the basis of a reported or estimated value of over least one seller operates predominantly as a private equity US$5m. If the value is not disclosed, deals are included if the house. target’s turnover is greater than US$10m.  9dd YlY imgl] ak hjghja]lYjq e]j_]jeYjc]l gj =jfkl Qgmf_ data unless otherwise stated.J]khgf]fl af^gjeYlagfJ]khgf]fl lqh] O`]j] ak qgmj Õje ZYk] af 9kaY7 20% 11% 23% 12% Private equity fund Greater China 50% sponsor/asset India investor (GP) Australasia Institutional investor/ fund investor (LP) Southeast Asia 18% 18%30% Japan Investment bank/ ÕfYf[aYd Ynakgj South Korea 18%58 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 61. Hd]Yk] afa[Yl] qgmj ÕjeÌk _]g_jYh`a[Yd k[gh] A^ qgm afa[Yl] Y [gmfljq ^g[mk$ hd]Yk] afa[Yl] o`a[` [gmfljq gj [gmflja]k 3% 6% 17% 6% Japan 29% 37% India 6% Mainland China/ Greater China 9kaY%HY[aÕ[ j]_agf 9% Australia 17% Global Indonesia ;gmfljq%kh][aÕ[ Malaysia 9% New Zealand South Korea 12% 15% 34% Singapore VietnamAf o`a[` eYjc]lk `Yn] qgm [gfm[l] egkl g^ Hd]Yk] jYfc l`] ^gddgoaf_ j]_agfk af o`a[` qgmj Õje akqgmj hjanYl]%]imalq%j]dYl] Zmkaf]kk `aklgja[Yddq7 [mjj]fldq dggcaf_ ^gj afn]kle]fl%j]dYl] ghhgjlmfala]k Hd]Yk] afa[Yl] Ydd l`Yl Yhhdq! ) 5 _j]Yl]kl ^g[mk3 . 5 d]Ykl ^g[mk!Southeast Asia 65% Greater China 43% 43% 10% 4% 1% Greater China 61% Southeast Asia 17% 38% 21% 17% 6% India 45% Australasia 37% 6% 11% 19% 23% 4% 3% Australasia 40% India 27% 11% 22% 18% 19% Japan 37% South Korea 17% 8% 19% 15% 28% 13% South Korea 26% Japan 19% 10% 24% 5% 14% 28% 0% 10% 20% 30% 40% 50% 60% 70% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percentage of respondents Percentage of respondents 1 2 3 4 5 6A^ ÉKgml`]Ykl 9kaY$Ê hd]Yk] afa[Yl] o`a[` [gmfljq O`Yl ak qgmj hjaeYjq j]_agf g^ afn]kle]fl ^g[mk7gj [gmflja]k 8% 11% Greater China 32% Singapore 63% Australasia Indonesia 36% India Malaysia 22% Southeast Asia 13% Japan Thailand 13% South Korea Vietnam 13%Philippines 5% 0% 10% 20% 30% 40% 50% 60% 70% 17% 19% Percentage of respondents 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+ 59
  • 62. 9Zgml e]j_]jeYjc]lmergermarket is an unparalleled, independent mergers andacquisitions (MA) proprietary intelligence tool. Unlike any otherservice of its kind, mergermarket provides a complete overview ofthe MA market by offering both a forward-looking intelligencedatabase and a historical deals database, achieving real revenuesfor mergermarket clients.Remark, the events and publications arm of The MergermarketGroup, offers a range of publishing, research and events servicesthat enable clients to enhance their own profile, and to developnew business opportunities with their target audience.For more information please contact:Naveet McMahonPublisher, Remark Asianaveet.mcmahon@mergermarket.comJoyce WongProduction, Remark Asiajoyce.wong@mergermarket.com60 9kaY%HY[aÕ[ hjanYl] ]imalq gmldggc *()+
  • 63. ContactsASIA-PACIFIC Ki-Whan Jung Korea Private Equity LeaderMichael Buxton SeoulBBody copyBody copy Private Equity Leader opAsia-Pacific #0* * +//( (0-,Hong Kong 2846 Bryan Zekulich Oceania Private Equity LeaderBill Seto SydneyAsia-Pacific Private Equity Tax Leader +61 2 9248 5833Hong Kong 2629 GLOBALSatoshi Sekine Jeffrey BunderJapan Private Equity Leader Global Private Equity LeaderTokyo New York+ 81 3 4582 6696 #) *)* //+ * jeffrey.bunder@ey.comLuke Pais Philip BassASEAN Private Equity Leader Global Private Equity Markets LeaderSingapore New York+65 6309 8094 #) *)* //+ -) philip.bass@ey.comRobert Partridge Sachin DateGreater China Private Equity Leader Europe, Middle East, India and AfricaHong Kong Private Equity Leader#0-* *0,. 11/+ #,, *( /1-) (,+- sdate@uk.ey.comMayank RastogiIndia Private Equity Leader Jon ShamesMumbai Americas Private Equity Leader#1) * +//( (0-, New #) *)* //+ 1*.1 9kaY 9kaY HY[aÕ[ hjanYl] ]imalq gmldggc 61 Y gmldggc l g
  • 64. Ernst YoungAssurance | Tax | Transactions | Advisory9Zgml =jfkl Qgmf_ 9Zgml =jfkl Qgmf_k ?dgZYd © 2013 EYGM Limited.Ernst Young is a global leader in assurance, HjanYl] =imalq ;]fl]j All Rights, transaction and advisory services. Value creation goes beyond the private equity =Q? fg J((/.Ogjdoa]$ gmj )./$((( h]ghd] Yj] mfal] investment cycle to portfolio company and fundby our shared values and an unwavering advice. Ernst Young’s Global Private Equity This publication contains information in summary form and is therefore intended for general guidance only. It is not intendedcommitment to quality. We make a difference Center offers a tailored approach encompassing to be a substitute for detailed research or the exercise ofby helping our people, our clients and our the unique needs of private equity funds, their professional judgment. Neither EYGM Limited nor any otherwider communities achieve their potential. transactions processes, investment stewardship member of the global Ernst Young organization can accept any responsibility for loss occasioned to any person acting and portfolio companies’ performance, with a or refraining from action as a result of any material in thisErnst Young refers to the global organization focus on the market, industry and regulatory publication. On any specific matter, reference should be madeof member firms of Ernst Young Global issues. We meet the evolving requirements to the appropriate advisor.Limited, each of which is a separate legal entity. of private equity firms and their portfolioErnst Young Global Limited, a UK company The opinions of third parties set out in this publication are companies from acquisition to exit through a not necessarily the opinions of the global Ernst Younglimited by guarantee, does not provide services `a_`dq afl]_jYl] _dgZYd j]kgmj[] g^ )./$((( organization or its member firms. Moreover, they should beto clients. For more information about our viewed in the context of the time they were expressed. professionals across audit, tax, transactions andorganization, please visit advisory services. Ultimately we can help you ED None meet your goals and compete more effectively. It’s how Ernst Young makes a difference.