Private equity deals in the region up in Q3

Singapore-based ride-hailing app Grab and Indonesia's Go-Jek raised a combined total of US$1.3 billion (S$1.9 billion) in capital, breathing life into what has been a slow year for private equity. But investors are increasingly looking to other regio
Singapore-based ride-hailing app Grab and Indonesia's Go-Jek raised a combined total of US$1.3 billion (S$1.9 billion) in capital, breathing life into what has been a slow year for private equity. But investors are increasingly looking to other regional markets for growth opportunities.PHOTOS: KUA CHEE SIONG, BLOOMBERG
Singapore-based ride-hailing app Grab and Indonesia's Go-Jek raised a combined total of US$1.3 billion (S$1.9 billion) in capital, breathing life into what has been a slow year for private equity. But investors are increasingly looking to other regio
Singapore-based ride-hailing app Grab and Indonesia's Go-Jek raised a combined total of US$1.3 billion (S$1.9 billion) in capital, breathing life into what has been a slow year for private equity. But investors are increasingly looking to other regional markets for growth opportunities.PHOTOS: KUA CHEE SIONG, BLOOMBERG

Four mega-deals help improve fortunes of a lacklustre year

Private equity activity in South-east Asia roared back to life in the third quarter, after a sluggish start.

The 32 transactions struck in the three months to Sept 30 had a total value of US$1.91 billion ($2.8 billion) - a stark contrast to the first half of the year.

That six-month period was lacklustre, with only US$1.56 billion invested across 56 deals, a report from professional services firm EY said yesterday.

But the pick-up in the third quarter arose mainly from four mega- deals that accounted for over 85 per cent of transactions, it noted.

An impressive US$1.3 billion was raised by two regional ride-hailing apps. Indonesia's Go-Jek closed a US$550 million funding round in August and Singapore-based Grab roped in US$750 million in September. The report said that the Indonesian market could link the two companies in the future.

"While Go-Jek is entirely focused on Indonesia at present, Grab has stated that its key goal is to further penetrate the Indonesian market. This could see the two companies go head-to-head in a more aggressive manner going forward," it said.

"The market in Indonesia for ride-hailing applications is estimated at US$15 billion by Grab. Further, this market looks to increase as diversification into food delivery and logistics continues."

A total of US$1.73 billion was invested across 30 deals in South- east Asia in the third quarter, while two exits - investors cashing out of their investments through acquisitions - reportedly took place.

The quarter's investment deal count was in line with the average across the last three years, but slightly down on the same period last year, when 36 transactions were closed, the report said.

Technology was once again the most active sector, with 14 transactions closed in the quarter.

On a full-year basis, however, the number of technology deals is 20 per cent lower than last year.

Over 95 per cent of the total capital raised in the third quarter was invested in two countries - Singapore, which accounted for 54 per cent of total capital raised, and Indonesia, with 42 per cent.

Singapore, Malaysia and Indonesia have historically dominated the private equity scene in South-east Asia, accounting for over 85 per cent of all investments in the region over the past five years, the report said.

But the trend now is for diversification, with many funds spending more time and resources investigating opportunities in markets like the Philippines, Thailand and Vietnam.

"As these economies continue to evolve, the number of opportunities of sufficient size is increasing," the report said.

"Given that South-east Asia is behind markets such as Japan, South Korea and China in the tech maturity curve, it means that market is ripe to bring in business models that are proven elsewhere and can be rolled out in the region."

A version of this article appeared in the print edition of The Straits Times on December 29, 2016, with the headline 'Private equity deals in the region up in Q3'. Print Edition | Subscribe