Almost a third of the private equity deals in South-east Asia last year were in the Internet sector, a new report has found.
Research from management consultancy Bain & Company showed that investments in Internet-related firms grew rapidly last year, accounting for about 30 per cent of deals done in the region.
The value of such deals last year was 2.4 times higher than the average for the past five years. On the whole, however, the year was relatively subdued for private equity.
Economic uncertainty, mounting competition and expensive valuations blunted activity across the region last year, according to Bain.
Deal value across South-east Asia slid to US$4.2 billion (S$5.8 billion) - a third of the five-year average and the worst showing since 2004.
"It was not a good year in terms of putting money to work," said Mr Suvir Varma, who heads Bain's private equity practice in the Asia-Pacific.
Singapore and Indonesia were the only two countries in the region where deal activity held up, according to Bain's research.
Major deals done in Singapore last year included Baring Private Equity Asia's $450 million acquisition of precision engineering firm Interplex Industries and a US$350 million funding round by Grab (formerly known as GrabTaxi). Among the investors were United States investment firm Coatue Management and Chinese sovereign wealth fund China Investment Corp.
Private equity investors will continue finding it tough to realise outsize returns, especially since competition for deals is expected to intensify, Bain's research found.
This means prices of potential acquisition targets are also climbing, a factor that contributed to the fairly muted level of activity last year, said Mr Varma.
"It's not because capital is not available; it's not because great companies that are growing are not available. It's just that competition to invest in them is pretty high," he said.
However, he noted, this year is off to a good start - about US$1.5 billion worth of deals already went through in the first three months of the year.
Venture capital funds - which invest in start-ups showing strong growth potential - are also a bright spot in the region, said Mr Varma.
The number of these smaller deals (valued below US$10 million) grew last year, increasing to 102, against an average of 59 a year between 2010 and 2014. Once again, the Internet and technology sectors were major contributors.
Dr Jeffrey Chi, the president of the Singapore Venture Capital and Private Equity Association (SVCA), said the two sectors are still hot this year.
"We're already seeing large technology deals this year," he said, citing as an example gaming company Garena, which in March held a US$170 million funding round led by Khazanah, the strategic investment fund of the Malaysian government.
"Certainly last year was slow for private equity... (But) there is no lack of dry powder from the investors," said Dr Chi.
He expects deal flow to pick up this year, "but also I foresee some bargain hunting as companies get more realistic about valuations".