Private equity activity picking up

by **Cals** Fri 07 Feb 2014, 08:28

Posted on 7 February 2014 - 05:41am

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KUALA LUMPUR (Feb 7, 2014): Malaysian companies are warming up to private equity firms as they look to move away from traditional funding channels and accumulating debt, and as initial public offering (IPO) opportunities remain elusive.

EY's Malaysia Transactions Advisory Services Leader George Koshy said Malaysia has seen a number of regional funds spring up as investors look to tap neighbouring markets.

"In line with the growth of the private equity industry in the country, Malaysia must ensure that its regulations and guidelines surrounding foreign investors are relevant and effective.

"The Securities Commission's recent revision of its Equity Guidelines is a good step forward in enhancing investor protection and provides clarification on principles and requirements which will improve market efficiency and address the associated risks of investing in the country," George said in a statement on the release of the report "A maturing market: Asia-Pacific private equity outlook 2014" by EY yesterday.

EY co-leader for Asean private equity Purandar Rao observed that exciting times are ahead for private equity in Southeast Asia.

"Entrepreneurs and executives across Southeast Asia are increasingly aware of the value and wealth creation opportunities that private equity can bring to their businesses. While deal volumes have been relatively flat, we expect this to pick up in 2014.

"The pace of private equity exits in Southeast Asia is expected to increase given that markets are improving and holding periods have been stretched over the last few years. Trade sales to corporate buyers will continue to be the main exit strategy but as markets get better, IPO activity will pick up," he added.

According to the report, the private equity market in Asia-Pacific is coming of age and is realising substantial growth not only in volume and value terms but also in terms of market maturity.

Developed in collaboration with Mergermarket, the report highlights that rising investor sophistication as general partners utilise new means of investing, as well as greater understanding of the complex private equity model by business leaders are underpinning this growth, hence leading to expected increased deal activity in the region going forward.

It said cash-rich corporates will no longer pose the greatest challenge to private equity in Asia-Pacific in the year ahead. Only 40% of respondents chose this option as opposed to 79% in 2012.

"Corporate buyers are becoming less the foe and more the 'friend' of private equity in Asia," said EY's private equity leader for Asia-Pacific Robert Partridge.

This in turn saw respondents lean toward trade sales as the exit strategy of choice in 2014. A number of private equity firms across the region, particularly in Southeast Asia, have already benefited from the demand for assets by exiting portfolios to corporates for a sizable profit.

In terms of challenges, 62% of respondents expect overvalued targets to be a major hurdle. This follows an upswing in sentiment from last year, when only 48% felt valuation issues would prove most challenging.

According to 60% of respondents, regulatory issues will also remain a concern for the market, especially among foreign private equity firms new or unfamiliar with local investment landscapes.

Asia-based funds are expected to chip away market share previously held by their global counterparts. These funds will be in the spotlight for global private equity agendas in the year ahead, with 99% of respondents anticipating that competition in terms of raising capital will be significant.

"There is an increasing mix of global, regional and local private equity funds that are looking to invest in Southeast Asia. Funds are looking to differentiate through type of capital deployed, sector and geographical expertise as well as internal skillsets that can work with investee companies to improve performance. Growth capital investments will continue to be the main theme but we will see increasing buyouts, secondary transactions as well as partnerships with corporates," added EY co-leader for Asean private equity Luke Pais.