Latin America vs Southeast Asia: The Race for Private Equity Supremacy

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Latin America vs Southeast Asia: The Race for Private Equity Supremacy

  1. 1. LatAm vs SEA: The Race for Private Equity Supremacy Darwin Jayson Mariano Like a battle of two Goliaths, emerging economies from Latin America and Southeast Asia are toughing it out in the world stage as both regions try to outdo each other in the arena of Private Equity deals and investments. According to data released by the Latin American Private Equity and Venture Capital Association (LAVCA), private equity (PE) and venture capital (VC) investing in Latin America hits 5-year high in 2012 with firms committing a total of $7.9 billion, representing 21% increase over 2011.
  2. 2. Meanwhile, according to a report from Bain, it was revealed that $5.3 billion worth of private equity deals have been made in Southeast Asia in 2011, with 2012 figures expected to be roughly the same, adding that “Southeast Asia’s aggregate GDP topped $2 trillion in 2011 and the region is home to a mostly young and dynamic population of nearly 600 million increasingly affluent customers.” Deals, deals and more deals According to the same LAVCA report, the $7.9 billion total in Latin America reflects 237 investments, a 37% increase in the number of deals from previous year. Investments in consumer-related sectors cornered 40% of the pie with the rest of the deals coming from financial services, restaurants, education, fitness, healthcare and consumer goods. IT deals also made a strong showing with the amount of dollars invested in the sector doubling compared to the previous year. “As in previous years, Brazil was the largest market for PE/VC investments in Latin America, accounting for 72% of the total invested and 62% of the total deals. In Mexico, the total number of deals was on par with 2011, but dollars committed increased by 50% over 2011. Activity in the Andean region was driven by an increasing number of cross border deals, with managers in Colombia, Peru and Chile investing across all three markets,” the report says.
  3. 3. Private equity and venture capital investing in Latin America hits 5-year high in 2012. While the landscape seems to be rosy in Latin America, there are also a lot of exciting developments happening in Southeast Asia. In a recent Asia-Pacific Private Equity Outlook 2013 report by Ernst & Young, Luke Pais, Ernst & Young’s M&A Leader for the ASEAN, opined that “Curiosity from LPs is piquing and Southeast Asia is becoming a very exciting market.” We learned from the same report that since 2011, Indonesia has seen 13 deals worth close to US$900 million. Deal value in Thailand is at US$114 million over the same period. On the sell side, firms and fund managers are able to take advantage of their investment on Southeast Asian assets. “In 2011, Navis Capital Partners sold Singapore-based King’s Safetywear Limited, a manufacturer of industrial safety footwear and personal protective equipment, to USbased Honeywell International for US$345.8m. Navis purchased the company in 2008 for US$83.5m. That deal was preceded by Navis’ sale of Linatext, a Malaysia-based maker of specialty rubber-based products purchased for US$31.1m, to the Weir Group for US$200m.” the report says.
  4. 4. LATIN AMERICA SOUTHEAST ASIA $7.9B $5.3B PE & VC investing in Latin America in 2012 acc. to LAVCA worth of PE deals in Southeast Asia in 2011 acc. to Bain. Similar figures expected in 2012 In a recent interview with Bloomberg, Sebastien Lamy, a partner at Bain & Co. said that, “The overall economic outlook for Southeast Asia remains solid and we are seeing strong interest by investors.” “Deal-making in the region will pick up in 2013 or 2014,” he adds. The Battle Heats Up Will 2013 be the year when Southeast Asia finally stages a private equity breakthrough? Analysts are quite positive about this. In its Global Private Equity Report 2012 by Bain & Company, Inc., it has been established that the Southeast Asian region is forging a more tightly integrated platform for trade and commerce. Quoting from the report: “Although it is economically, ethnically and culturally diverse, there is much that makes Southeast Asia appealing for PE investment. Spanning a territory from the Philippines in the east to Thailand in the west, the region’s economies rebounded smartly from the global financial crisis, outperforming both China and India in recent years. “From the perspective of PE investors specifically, Southeast Asia is attractive for many reasons. It is relatively well endowed with scale companies, particularly in Singapore, Malaysia and to a lesser extent, Indonesia. Unlike China and India, where PE funds have typically been able to take minority stakes in smaller companies or limit themselves to private investments in public equities, Southeast Asia has traditionally been a buyout market, offering GPs more opportunities to create value.” Latin America’s largest economy, Brazil, on the other hand shows less than stellar growth lately, which could affect PE activity. According to the same report by Bain: “GDP growth slowed to less than 4% in 2011 from the 7.5% pace of a year earlier and PE investment activity largely followed the macroeconomic trend. New investments
  5. 5. The overall economic outlook for Southeast Asia remains solid and we are seeing strong interest by investors. Deal-making in the region will pick up in 2013 or 2014 Sebastien Lamy, Partner, Bain & Co. in an interview with Bloomberg were off nearly 50% in 2011, according the Emerging Markets Private Equity Association, an industry trade group. But the dramatic decline overstates the actual falloff in deal making. Investments in 2010 spiked due to a handful of large buyouts. Remove these and the drop in deal activity was closer to 13%. “The fact that the data is sensitive to the impact of a few big deals reveals an important characteristic of PE in Brazil: Brazil remains a thin market, dominated by small and midsize investments, chiefly in family-owned businesses.” Who wins? The duelling private equity performance by both regions could be attributed to the overall dynamism of the private equity market, which could only be a good thing. While there are surely some pluses and minuses, in terms of PE attraction, for both sides, the fact that Latin America and Southeast Asia continue to attract significant PE investments show some great promise for these regions. The saga still continues. The fundamentals of good investment decision will not change and private equity managers will decide whatever is best for their portfolio. Who’s the winner? Perhaps it’s safe to say that the race for supremacy is still raging and things could still go one way or the other. Learn more about capitalising on your private equity investments in Southeast Asia and learn about successful exit strategies at the 8th Annual Private Equity Southeast Asia Summit 2013. To find out more, visit www.private-equityseasia.com Disclaimer: Please note that we do all we can to ensure accuracy and timeliness of the information presented herein but errors may still understandably occur in some cases. If you believe that a serious inaccuracy has been made please let us know. This article is provided for information purposes only. IQPC accepts no responsibility whatsoever for any direct or indirect losses arising from the use of this report or its contents. About the Author: Darwin Jayson Mariano is the Online Content Manager and Regional Editor - Asia for International Quality & Productivity Center (IQPC), a leading producer of events and conferences for business leaders around the world. Connect via LinkedIn sg.linkedin.com/in/whoisdarwin or email darwin.mariano@iqpc.com.sg References: http://www.bain.com/Images/Bain_and_Company_Global_Private_Equity_Report_2012%20public.pdf | http://www.pehub.com/189737/private-equity-and-vc-investing-in-latin-america-hits-5-year-high-in2012/ | http://www.avcj.com/avcj/news/2222930/se-asian-private-equity-deals-to-rebound-in-2013-bain-co | http://www.businessweek.com/news/2012-11-06/bain-says-private-equity-deals-to-reboundsoutheast-asia | http://www.gti.org/files/global_private_equity_report_2012.pdf | http://www.ey.com/Publication/vwLUAssets/Private_equity_Latin_America/$FILE/Private_equity_Latin_America.pdf | http://mergermarketgroup.com/wp-content/uploads/2012/12/RRD-Newsletter-Issue-11_Latam_V8_HS.pdf | http://blogs.wsj.com/deals/2012/11/21/interest-shifts-to-southeast-asia/

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