Asia's Private Equity Transactions Face Slowest Start Since 2015 Amid Economic Uncertainty

Private equity (PE) activity in Asia is encountering its most challenging first quarter in eight years, due to a slowdown in China's dealmaking efforts alongside larger economic and geopolitical pressures. The overall value of private equity-backed mergers and acquisitions (M&A) in Asia dropped to $13.5 billion from January through March 19, which is a significant 32% decline compared to the same period the previous year. This decrease marks the most sluggish Q1 since 2015, as per early data provided by LSEG. Notably, this underperformance contrasts with a global increase of 21% in PE-backed deals, which reached a total of $136 billion.

Despite PE firms in Asia having substantial unspent capital at their disposal, various factors such as decelerating economies, high interest rates, market volatility, and geopolitical tensions have held back their investment activities. These circumstances have also influenced PE fund managers' capacity to generate new funds, as highlighted in the regional PE report of 2024 released by consultancy Bain & Co.

Sebastien Lamy, who co-heads Bain & Co's APAC PE practice, emphasized the need for exits. He pointed out that extended holding periods and aging portfolios not only pressure returns but also the ability to fundraise anew. The trend of decreased activity is further shown by the slump in PE funds' exits in Asia. According to Preqin, a data provider, exits went down by 51% to $4.9 billion in Q1, the lowest since early 2014.

Specifically, China's decreased activity heavily contributed to the downturn in regional PE-backed M&A deals, which almost halved in Q1. China's economic slowdown, coupled with tensions between China and the U.S., suppressed investor enthusiasm.

The initial quarter of the year only saw $12.1 billion gathered across 28 funds for the Asia Pacific region, the smallest amount recorded for a quarter since 2014. Over the past five years, the quarterly average stood at 313 funds raised. Furthermore, Asia's unspent PE capital hit a record $549 billion as of June 2023, with unrealized asset values poised for sale reaching a staggering $2.3 trillion, as reported by Preqin.

However, signals of a recovery are starting to show. Bankers and legal experts are optimistic about dealmaking regaining momentum in subsequent quarters. Morrison Foerster's global co-chair of PE, Marcia Ellis, based in Hong Kong, noted that medium-sized deals are ongoing, particularly in Southeast Asia, and Middle Eastern funds are considering more investments in China.

With business processes hastening and an alignment of asset valuation expectations between buyers and sellers, the anticipation for increased M&A volumes into 2024 is growing. The potential for privatizations of companies listed in Hong Kong is also under exploration. Optimistically, an uptick in M&A activities is expected throughout 2024.

Asia, privateequity, Q1