Why PE can thrive in Southeast Asia

Luke Pais, EY ASEAN Private Equity Leader, explores why Southeast Asia is a vibrant region for PE investors who adeptly navigate local dynamics.

Contact Luke: luke.pais@sg.ey.com

According to the Preqin Investor Survey conducted in November 2020, Southeast Asia is among the top three emerging markets ideal for private equity (PE) and venture capital (VC) investment in the next 12 months. The region is welcoming to foreign capital, with entrepreneurs and family conglomerates actively seeking capital and focusing on succession planning.

PE's field of play in the region is dynamic. Because the region demands quality infrastructure to support its burgeoning and young population, the field of play includes specialist funds focused on real estate, infrastructure, renewable energy and digital. The technology sector is especially vibrant and impact funds are becoming more prevalent. While credit has historically been a domain of banks, PE credit products are emerging in the region given balance sheets have become healthier since the great financial crisis of 2008. Lastly, family conglomerates in the region often function like PE funds and compete against PE funds in the deal space.

PE has historically done well in the region by carefully selecting the right companies and preparing them to expand internationally. As a result, PE-backed companies have been attractive to multinationals and trade sales to strategic investors in the US, China, Europe and Japan have been the dominant exit thesis in the region.

Learning outcomes:

1. PE should consider localizing their strategy to include a regional headquarters in Singapore in combination with strong market coverage in various other Southeast Asian countries.
2. PE firms must be clear about the value they bring to the table in a competitive deal environment in which discussions have shifted from valuation to value proposition and value creation.
3. Successful PE funds have built local relationships over time as companies seek partnerships rooted in shared aspirations.
4. ESG is increasingly important during due diligence, as access to capital depends on achieving ESG benchmarks and commitments.