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1Private equity briefing: SEA
Private equitybriefing:Southeast AsiaJune 2015
2Private equity briefing: SEA
This quarterly briefing offersyou a roundup of the privateequity deals and capitalactivities across majorsectors in the quarter andtrends that are shapinginvestment decisions today.
It distills the perspectives ofour team of subject-matterprofessionals in the regioninto pertinent insights tokeep you ahead in navigatingthe private equity landscape.
3Private equity briefing: SEA
01Outlook
02Investments
03Exits
04Fund-raising
05Sector infocus:education
06Ourservices:CorporateFinanceStrategy
Contents4 6 8 9 11 13
4Private equity briefing: SEA
Outlook
The first quarter of 2015 has seen private equity (PE) activitycontinue where it left off in 2014, with deal volumes remaining high.This level of activity is expected to increase further with PE housesaggressively pursuing both investments and exits.There was a total of 33 PE deals executed in 1Q15, 43% higher than the same period in 2014, while the overallvalue was also considerably higher at US$672m compared with US$263m in 2014. This particularly positiveoutlook is set to continue in 2015.
Technology sector activity on the riseThe first quarter saw the continued rise of PE and venture capital (VC) investment into technology companies.In 1Q15, 22% (seven deals) of the total number deals involved the technology sector, continuing the trend thatstarted in 2014, which saw 34 of such deals across the year. The majority of these deals were sub-US$5minvestments.
This increased activity is not surprising, given the significant number of technology funds that have establisheda presence in the region, particularly in Singapore, over the past 24 months. These funds have taken the formof both new and established global funds looking to take advantage of the Southeast Asian market.
Another key trend is the increasing number of US$100m-plus investments. In the past 12 months, technologycompanies such as GrabTaxi, Garena and Lazada have attracted worthy levels of investments, and this looks toincrease in the forthcoming months.
Clearly, now is the time for PE and VC investments into the technology sector. Funds looking to get ahead needto act quickly to establish a strong reputation in the technology sector so as to build their portfolio and gain afoothold in the market. Funds that stall will likely struggle to compete with their more successful counterpartsand new market entrants.
01
5Private equity briefing: SEA
Heightened competitionDry powder across Asia is understood to be in the excess of US$100b, with Southeast Asia remaining as one ofthe key target geographies. With investors pouring in cash, there is increasing pressure on PE houses to investcapital, resulting in considerable competition for prize assets.
The abundance of capital is resulting in the willingness by PE houses to increase the multiples paid forinvestments, particularly in an auction process, with valuations further supported by the current low-cost debtenvironment. As a result, PE houses are spending considerable efforts to identify off-market deals.
EY‘s 2015 global private equity survey, which surveyed 256 CFOs and investors, has highlighted that globallyand regionally, PE houses are preparing for an influx of capital into Asia-Pacific, which will only serve toheighten the level of competition.
For PE funds to succeed, they need to focus on differentiation, whether by geography, sub-sector, people orbranding. Innovative strategies including partnerships, carve-outs and roll-ups will increasingly play a part in thesuccess of deals. It is also important to focus on value creation, and this is where specialist portfolio managersand advisors can provide investment professionals with deep insights.
The outlook for 2015 remains very exciting. We expect a continued increase in PE deals across Asia, particularlySoutheast Asia.
Luke PaisAsean Leader,M&A
“Private equity activity has got off to a confident start in 2015. If the first quarteris anything to go by, the new investment theme for 2015 is ‘the rise of tech’.”
6Private equity briefing: SEA
Investments02
Figure 1: Investment activity
Source: Thomson One, Dealogic and Mergermarket
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• The first quarter of 2015 saw the continued increasein the number of investments, with a total of 32 deals.Despite the large number of deals, the total reportedamount of investments was only US$209m, as thevalues of 26 deals were not disclosed.
• The consumer sector, which saw seven completeddeals, continues to dominate PE investments. One ofthe most notable deals was KV Asia’s investment intoAalst Chocolate in March.
• The first quarter also saw a significant number (sevendeals) of technology deals, which includes Garena and99.co. Garena, Singapore-based online gamingplatform, completed a new round of funding led byThe Ontario Teachers’ Pension Plan, while Singaporeproperty site 99.co, raised an additional round offunding led by Sequoia Capital. The sizes of both dealswere not disclosed.
• Investments have remained focused on the smalland mid-market and into companies based inSingapore (14) and Indonesia (13).
7Private Equity Briefing: SEA
Table 1: Top investments in 2015 (annual)
Investmentdate
Company Country Sector Value(US$m)
Investor
Feb 15 HydrEq Lte Ltd Singapore Power and utilities 87.0 Equis Fund
Jan 15 Masterskill (M) Sdn Bhd Malaysia Education 34.2 Creador Capital Group, undisclosed fund
Mar 15 PT Nirvana Wastu Pratama Indonesia Real estate 33.4 Warburg Pincus LLC
Mar 15 Bank Index Selindo PT Indonesia Banking and capitalmarkets
24.0 Creador Capital Group
Mar 15 Bank Mayora PT Indonesia Banking and capitalmarkets
22.0 International Finance Corporation
Purandar RaoSingapore Head,Transaction AdvisoryServices
“There continues to be a significant influx of capital that private equity in theregion have at their disposal. This results in increased competition, with prizeassets demanding premium prices. To differentiate themselves, PE houses arepursuing investments such as roll-ups where they can deliver considerable valuein integration and expansion across the region. Fragmented sectors such aseducation, health care and logistics present real opportunities.”
Source: Thomson One, Dealogic and Mergermarket
8Private Equity Briefing: SEA
• Exit activity remained low in 1Q15, with only one dealrecorded. A number of exits continue to be executedbut go unreported.
• The one deal that was reported is TPG Capital’s andNorthstar Pacific Partners’ partial exit from theirinvestment in Bank Tabungan Pensiunan Nasional ina US$463m-deal with Sumitomo Corporation.
• This deal reflects the continued trend of bankingand capital markets providing the larger exits inthe region.
• It is becoming evident that a number of PE housesare holding on to investments for a period longerthan initially anticipated in order to generate themoney multiple required. This creates additional riskfor PE when undertaking investments, since there isan increased likelihood that these investments willincur a change in the business cycle during theholding period.
• Driven by this and the ever-increasing amount of drypowder, a rise in the level of secondary buy-outs inSoutheast Asia in the coming years is expected.
Exits03
Figure 2: Exit activity
Source: Thomson One, Dealogic and Mergermarket
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Joongshik WangAsean Leader,Corporate FinanceStrategy
“Due to mixed views on asset valuation in Southeast Asia, various scheduled exitshave been discussed but delayed. One of the important momentums for deal exitswill be driven by strategic investors who are less price-sensitive but look for long-term synergies.”
9Private Equity Briefing: SEA
Fund-raising04
• The first quarter of 2015 saw a resurgence in the levelof funds being closed. There were four funds closed ata total commitment in excess of US$5b.
• This level of activity in the opening quarter of 2015 isconsistent with what has been observed in previousperiods as fund-raising activity peaks in the first halfof the year.
• The largest fund closed was Baring Asia VI, raising astaggering US$4b. This was the largest private equity
fund ever raised by an Asia-based PE firm, withinvestors having to be scaled back from the first closedue to the excess demand. This reflects the highinvestment interest into Asia, and increasingrecognition by investors on the value of regionallybased funds.
Figure 3: PE fund-raising with Southeast Asia focus
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10Private Equity Briefing: SEA
Table 2: Top funds closed with Southeast Asia focus in 2015 (annual)
Fund name Manager Type Commitments(US$m)
Closed Industry focus
Baring Private Equity Fund VI Baring Private Equity Asia Growth 3,998 Feb 15 Diversified
Equis Asia Fund II Equis Funds Group Infrastructure 1,000 Feb 15 Energy andinfrastructure
Baring Private Equity Asia Real EstateFund
Baring Private Equity Asia Real estate 365 Mar 15 Property
Equis Direct Investment Fund Equis Funds Group Infrastructure 300 Feb 15 Energy andinfrastructure
Geophin GeorgePartner,Transaction AdvisoryServices
“The private equity landscape in Southeast Asia continues to evolve. Increasedcompetition is making it harder for PE houses to close deals while ensuring theyoutperform the market. Driven by this, investors now seek to invest in PE houseswith real sector or geographical insight. This is evidenced by the increase inpure-play tech venture capitalists that have entered the market and the ongoingsuccess that regional headquartered funds are having in raising capital.”
Source: Preqin
11Private Equity Briefing: SEA
Increase in investor interest• Over the last decade, there has been an exponential
increase in investor participation in education, from101 deals in 2002–2004 to 788 deals in 2011–2013.
• Deal activity over the past 24 months include theacquisition of TSL Education by TPG, World ClassLearning by Nord Angelia, as well as CambridgeEducation Group by Bridgepoint.
• In Southeast Asia, recent notable transactions in theeducation sector include Knowledge Universe-BusyBees/OTTP, Tenby Schools-Ekuinas, BIS Vietnam-NordAnglia, and The Learning Lab-Advent International.
Appeal of the education sector• The characteristics that appeal to investors include:
1) Strong demand underpinned by significantresilience
2) Real value creation as price point increasesoften track ahead of inflation
3) Long-term revenue visibility
4) Strong business economics
5) High barriers to entry
0
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2002-2004 2005-2007 2008-2010 2011-2013
Asia-Pacific Europe India ANZ SEA LatAm Africa MENA
Figure 4: Completed M&A activity, emerging private education markets, 2000–2013
Sector in focus:education05
n = 101
n = 349
n = 637
n = 788
2002–04 2008–10 2011–132005–07
12Private Equity Briefing: SEA
Key themes for investors
• Successful education platforms generate revenue and profit scale by rollingup smaller institutions.
• Significant value can be generated through sharing of best practicesacross institutions.
• Platforms outgrow single institutions due to scale and competitiveadvantage accrued from scale in student acquisition and marketing.
• A portfolio of education assets across geographies to mitigate any impactof country-specific macroeconomic, regulatory and competitive risk shouldbe considered.
• Successful platforms have globally diversified portfolios.
• Premium-priced higher education and K-12 assets generate 30–40%EBITDA margins.
• Certain education companies depend on a small proportion of highlyprofitable premium schools to generate a disproportionate share of EBITDA.
• Business: top-line initiatives, operational best practices.
• Financial: five characteristics of education, scarcity of scale assets,premium for entry.
Platform play
Multi-geographicfocus
Premium price points
Value-creation drivers
Karan KhemkaManaging Director,Pathenon-EY
“The education sector offers investors opportunities to benefit from the demandfor quality education by the middle class. Typically, demand for private educationgrows at a multiple of GDP growth and can be very predictable.”
13Private Equity Briefing: SEA
Our services:Corporate FinanceStrategy06
Our Corporate Finance Strategy teamsupports PE clients across the deal cycle.We help clients enter new markets andindustries, perform commercial duediligence on targets and create value intheir portfolio companies.
► Focus: Deliver value creationservices across the PE investmentlife cycle
► Dedicated PE experience:Dedicated team comprising formerPE operating partners, seasonedoperating executives andmanagement consultants
► Broad functional knowledge:Capabilities in strategy, M&A andall core operating functions;experience in revenueenhancement, cost reduction,human capital andchange management
► Deep sector experience: Primaryfocus in oil and gas, consumer,industrial, and health care; ability totap into sub-sector specialists
► Accelerated approach: Customizedapproach that is highly responsiveand provides accelerated realizationof benefits
► Global capabilities: Dedicated teamthat has extensive cross-borderexperience with access to morethan 30,000 consultants operatingin 140 countries with deep industryand functional know-how
Our capabilities
The two key pillars of our value proposition: sector know-howand unmatched platform
Our team in Singapore comprises 25 seasoned global strategyconsultants with deep knowledge in consumer goods, naturalresources and financial services.
Within these industry segments, we have detailedunderstanding of the Southeast Asian market landscape and astrong network of contacts. Collectively, we have conductedmore than 100 commercial due diligence projects in theregion. At the same time, the EY platform gives us access toextensive cross-border experience with approximately 30,000consultants operating in 140 countries with outstandingfunctional capability across geographies. Our platform allowsus to span strategy and operations seamlessly.
The Parthenon-EY edgeIn September 2014, The Parthenon Group – a global strategyconsultancy with 300 professionals in offices in Boston,London, Mumbai, San Francisco, Shanghai and Singapore –joined EY’s Corporate Finance practice.
Parthenon-EY is a leading advisor to the global educationsector, and has completed more than 150 sector projects eachyear across 80 countries. Parthenon-EY advises at the C-suiteor Managing Partner level of the largest operators andinvestors in the education sector. Over the last two years,Parthenon-EY has advised on the largest transactions in theeducation sector, which saw capital investment of over US$5b.
Key driver for superior investment returns in Southeast AsiaOne of the largest areas of value creation for PE is operationalimprovement. A value creation thesis and plan is key tosuccessful PE investing in Southeast Asia. Our experiencesuggests that advisors who have proven to deliver valueshould be involved very early on in the life cycle of aportfolio investment.
Our value creation capabilities cover key operating areas,namely revenue enhancement, margin improvement andcapital efficiency. Our typical results target 3–5% revenuegrowth, 8–15% EBITDA increase and 4–7% cash flow release,giving a rapid payback period on our fee investment for clients.
14Private Equity Briefing: SEA
Contact usService line contactsM&A
Luke [email protected]+ 65 6309 8094
Ching [email protected]
+ 65 6309 8995
Corporate Finance Strategy
Vikram [email protected]
+ 65 6309 8809
Joongshik [email protected]
+ 65 6309 8078
Transaction Support
Purandar [email protected]
+ 65 6309 6560
Geophin [email protected]
+ 65 6309 8168
Transaction Tax
Eng Ping [email protected]
+ 603 7495 8288
Darryl [email protected]
+ 65 6309 6800
Valuation & Business Modelling
Andre [email protected]
+ 65 6309 6214
Wouter van [email protected]
+ 65 6309 8878
Country contactsIndonesia
David [email protected]
+ 62 21 5289 5025
Sahala [email protected]
+ 62 21 5289 5210
Malaysia
George [email protected]
+ 60 3 7495 8700
Preman [email protected]
+ 60 3 7495 7811
Philippines and Guam
Renato [email protected]
+ 63 2 891 0307
Singapore
Purandar [email protected]
+ 65 6309 6560
Luke [email protected]
+ 65 6309 8094
Geophin [email protected]
+ 65 6309 8168
Sanjeev [email protected]
+ 65 6309 8688
Karan [email protected]
+ 65 6922 9460
Joongshik [email protected]
+ 65 6309 8078
Thailand
Ratana [email protected]
+ 66 2 264 0777
Piyanuch [email protected]
+ 66 2 264 9090
Vietnam
Anthony [email protected]
+ 84 8 3824 5252
Global contactsGlobal
Jeffrey [email protected]
+ 1 212 773 2889
Michael [email protected]
+ 1 214 969 0675
15Private Equity Briefing: SEA
16Private Equity Briefing: SEA
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