According to Bain & Company’s 2022 annual Southeast Asia Private Equity Report, the region’s private equity (PE) market reached a record high deal value of $25 billion USD last year. The total deal value went up by a whopping 143%, more than doubling the 2020 figures.

The management consulting company described it as “one of the most impressive turnarounds” after having had the most significant fall in the entire Asia Pacific (APAC) in 2020 due to COVID-19 pandemic lockdowns and travel restrictions.

Key findings from the report

Last year, Southeast Asia bounced back from the pandemic and began opening the region up to trade, imports, financial backing, and travel. Demand for investments returned, with venture capital (VC) firms seeking to quench their thirst for investing in startups. Previously, investors had held on to their funds, waiting to see how the global economic shutdown would play out.

Singapore tops in PE-VC deals in Southeast Asia in 2021: Duff & Phelps Transaction Trail 2021 report

In 2021, VCs anticipated early acquisition of top deals as a way to generate substantial returns on investment (ROI). According to the Bain & Company report, PE investors expect to see a return in  3-5 years. The emphasis on top-line growth—increasing sales and earning more revenue from the business—requires the investors to streamline the operations of budding startups and guide them to realise their full potential.

In 2021, APAC accounted for a quarter of global PE, indicating the region’s rise in recent years. Five megadeals accounted for 33% of the total deal value in Southeast Asia. Singapore, Indonesia, and Vietnam experienced higher deal values due to their vibrant startup economies, availability of in-demand tech companies to invest in, and an influx of capital from eCommerce, logistics, and technology sectors.

Growth and early-stage deals also grew significantly, accounting for  77% of the total deal value in Southeast Asia. With Singapore’s top companies, such as Grab Inc., entering public markets, the value of exits more than quadrupled in 2020. PE firms must have defined their investment goals and a contingency plan in place in the event that their strategy fails.

Challenges for the region

Although the Bain & Company report stated that sustainability is something investors want to focus on in the future, there has been insufficient attnetion on it so far. Furthermore,  global VC companies are increasingly competing for the best investment opportunities, making it  difficult for other investors to find the right deals.

In addition, the Association of Southeast Asian Nations (ASEAN) is lowering funding due to a larger investment approach in APAC, with China and India being the most viable markets. Singapore has seen the most growth, leaving other nations with underfunded startups. Financial technology (fintech) remains the popular investment choice, receiving the lion’s share of funding in the Internet and Technology sectors.

The COVID-19 outbreak is continuing, which is a serious threat, as new strains reach Southeast Asia and infect more people. Therefore, regional governments were forced to initiate new lockdown phases in an effort to contain the spread. Vaccination rates are increasing, giving leaders hope that they would be able to address many of their citizens’ concerns.

Investment themes for 2022

The report ends by highlighting three themes to look forward to:

First, the region’s digitalisation intitatives will benefit Southeast Asia’s young and tech-savvy population. While the outbreak has accelerated the adoption of digital solutions, post-COVID-19 recovery will focus on reviving industries that were affected, such as travel and tourism.

Following the revival, th next step will be to develop  innovative tech solutions to improve processes. It is likely that the region’s current tech talent shortages may be alleviated as more students study technology in schools and universities.

Secondly, many companies plan to get listed on public stock exchanges. Successful Initial Public Offerings (IPOs) will enable investors to recoup their money, make profits, and seek out the next opportunity.

Finally, Environmental, Social, and Corporate Governance (ESG) has emerged as a vital issue for investors. Over 90% of the funds wanted to focus on sustainability in the coming years. According to Bain & Company, ESG themes include clean energy, sustainable food and health, and inclusive communities. If the region can address these issues, it could spur growth in every AESAN startup ecosystem because ESG programmes contribute to the mental and physical health of the community.

The digital assets (cryptocurrencies and NFTs), telehealthcare, and consumer products sectors are the most likely to see high investor interest and growth. There are also investments available and increasing calls for ESG integration in every business to safeguard the environment and empower diverse populations, which are more likely to lead to long-term success.

The Bain & Company report shows that Southeast Asia presents untapped  private equity investment opportunities with potentially significant returns. Startups should position themselves not just to attract investment, but also to participate in lucrative mergers and acquisitions.