According to the Southeast Asia (SEA) Private Equity Report 2023 by global consultancy Bain & Company, private equity deals in Southeast Asia fell last year compared to 2021’s record totals. Deal value fell 52% compared to the previous year, with deal count declining 15% year-on-year (YoY). While the first half (H1) of 2022 started well, giving hope of maintaining a similar momentum as 2021, the second half (H2) was a disaster, with activity declining.

Investment trends in Southeast Asia in 2022 showed that Singapore and Indonesia accounted for the region’s largest share of investment capital, with over 80% of the deal value and count. Singapore had the most deals, with 97 out of the 176 deals done in the region.

Southeast Asia’s PE value hits all-time high of $25b, jumping 143% over 2020 according to Bain report

The Internet and Technology sector remained the most attractive to investors, with 55% of total deal volume, followed by Healthcare and Financial Services. While most deals went to the Internet and Tech sector, there were few large ticket investments and low deal activity levels in 2022 compared to 2021.

Healthcare received much attention in 2022, as it has since the beginning of the COVID-19 pandemic. The Association of Southeast Asian Nations (ASEAN) has seen more significant investment in healthcare technology (healthtech) and innovation in recent years. Investors notice the trends in the region with an ageing population that needs medical care, and rising affluence, which enables Southeast Asians to access digital health solutions.

Exit value also crashed 46% YoY due to the deterioration of portfolio performance, public market valuation issues, and a decline in Initial Public Offerings (IPOs), leading to fewer exits for investors.

Reasons for the slowdown in investments

Even though Bain & Company’s report highlighted negative investment results, these outcomes were predictable due to the state of the global economy. The consultancy’s Global Private Equity Report showed that private equity (PE) investments in 2022 were lower than in 2021, coming in at USD 654 billion compared to USD 1.012 trillion. Exits reduced from USD 969 billion to USD 565 billion, while fund-raising dropped from USD 413 billion to USD 347 billion.

Equally, Bain & Company’s Asia-Pacific (APAC) Private Equity Report showed that deal value also plunged 44% in 2022 from USD 354 billion to USD 198 billion, and exit value dropped 33% from USD 199 billion to USD 132 billion.

In all these regions—Global, APAC, and ASEAN—the investment slowdown was due to deteriorating economic growth, high inflation, and interest rate hikes by the US Federal Reserve. Other contributors were:

  • Geopolitical tensions.
  • Supply chain disruptions.
  • Weakened international trade.
  • Reduced manufacturing output.
  • Extended China lockdown.
  • Uncertain business outlook.
  • Withheld funds by venture capital (VC) firms.
  • And other significant challenges.

Additionally, VC firms planned to de-risk their portfolios to avoid possible financial ruin due to recessions, inflation, or other economic factors. They seek to invest in startups with good governance and sustainable business models.

Expected investment trends in Southeast Asia

According to professional services firm KPMG’s Q4’22 Venture Pulse Report – Asia, China continues to ease its restrictive COVID-19 pandemic policy, meaning that economic activity will begin booming again in the region. There is also great optimism that investments will grow in the second quarter (Q2) of 2023 due to the area opening up, enabling travel and face-to-face dealmaking.

Chinese investors are pouring money into the electric vehicle (EV) and clean energy sectors, carrying on the trends from Q4 2022. Companies like Voyah Car Technology raised USD 631 million, BYVIN Auto raised USD 444 million, SPIC Hydrogen Energy raised USD 631 million, with USD 280 million going to battery company Hithium. 

Furthermore, Suvir Varma, senior advisor of Bain’s global PE practice based in Singapore, pointed out that investment trends in Southeast Asia would be positive moving forward. In quotes from the SEA report, Varma said, “SEA remains an attractive place to deploy capital in the long term. The market fundamentals are there, and investors will be able to find attractive opportunities. However, competition for these assets will intensify, and multiple expansion will no longer be a sustainable return driver.”

Bain & Company’s report also noted that ASEAN has opportunities to transition to sustainable energy, meet its long-term carbon reduction goals, and work on waste management. Clean technology (cleantech) and green tech offer investment opportunities as the world turns its attention to using renewable energy sources to protect the environment.

DealStreetAsia believes ASEAN has shown resilience in the face of global economic challenges and remains a good investment option. Private equity deals in Southeast Asia will still earn VC firms a substantial return on their investments because the region is quick to adopt new technologies, making it ideal for growth capital. The question is how long the global economy will continue hampering investors and making them cautious of pumping money into startups at a time of uncertainty.