Home MarketsAsia Japan opposes PE slowdown in Asia and deal value soared 183% last year

Japan opposes PE slowdown in Asia and deal value soared 183% last year

by SuperiorInvest

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The total value of private equity deals in Asia Pacific last year fell to its lowest level since 2014, as fundraising fell to its lowest level in 10 years amid slowing growth, high rates of interest and volatile public markets, according to management consulting firm Bain & Company.

However, Japan was an outlier, with deal value increasing 183% in 2023 from the previous year, making it the largest private equity market in Asia Pacific for the first time, according to the Bain's Asia-Pacific Private Equity 2024 released Monday.

Japan is an attractive investment because of its large group of target companies with “a significant pool to improve performance” and pressure from corporate governance reform on Japan Inc to divest non-core assets, Bain said.

Overall, the value of deals in the Asia-Pacific region decreased more than 23% to $147 billion from a year earlier. This is also 35% below the 2018-2022 average value (a pace of decline that is consistent with the global slowdown) and almost 60% below the peak of $359 billion in 2021, Bain said.

Exits plummeted 26% to $101 billion in 2023 from a year earlier, of which 40% came through initial public offerings. Greater China accounted for 89% of IPO value in Asia Pacific, with the vast majority listing in Shanghai and Shenzhen. Excluding Greater China IPOs, Asia-Pacific's total exit value was $65 billion.

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“Exit prospects in 2024 remain uncertain, but successful funds are not waiting for markets to recover. They are paving the way for sales that meet their performance targets through strategy reviews to highlight the potential value of transactions for buyers,” Lachlan McMurdo, co-author of the firm's annual report, said in a statement.

“This approach can reduce aging asset inventory and return cash to limited partners through 2024, even if the overall exit market remains depressed,” he added.

Bain said many leading private equity funds have turned to exploring alternative asset classes such as infrastructure operations with medium to high returns, including renewable energy storage and data centers and airports.

Here are some of the highlights from the report:

  • Acquisitions made up 48% of total deal value in Asia Pacific last year, surpassing the value of “growth deals” (which involve companies that expand rapidly and often disrupt industries) for the first time since 2017.
  • Despite the shrinking pool of investors, Bain said returns from private equity remain more attractive than those from public markets over a five-, 10- and 20-year horizon.

The timing of a recovery is still unclear, Bain said, although there were signs of some improvements toward the end of last year. When the recovery takes effect, disruptive technologies such as generative artificial intelligence are among the new areas that hold “great promise,” Bain added.

Japan, India and Southeast Asia are among Asia-Pacific markets viewed favorably for private equity investment opportunities in the next 12 months, Bain said, citing Preqin's 2023 investor survey.

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