Southeast Asia’s private equity market witnessed a shift in focus and the way of doing business over the past year. The Covid-19 pandemic saw consumer habits rapidly evolve, requiring innovative digital capabilities to meet that demand. Consequently, private equity investors identified new opportunities in the tech and online industries, says global consultancy Bain & Company in its 2021 Southeast Asia private equity report.
While the technology sector has been a consistent sweet spot for growth in private equity in Southeast Asia, Covid-19 hastened the trend with internet/tech deals accounting for the majority of deal volume and value (61%) in the region in 2020. This is now the principal sector throughout the region, dictating deals in Indonesia and driving growth in Vietnam, Singapore, and Malaysia.
Within this sector, healthcare deals are reaching scale levels with digital health services predicted to see continued growth both in the short and long term.
The unpredictability of the virus situation in the region could be a concern, but there are signs of continued growth in the market following initial signs of recovery in the second half of 2020.
The expected surge in technology IPOs indicates the direction of future deals in Southeast Asia.
The tech sector has lured a number of investments from North Asian firms including Horizons Ventures, Li Ka-shing's private investment firm. In partnership with Indonesian venture capital company Alpha JWC Ventures, Horizon has invested in three Indonesian consumer tech startups.
The pandemic has also seen growing investment into sustainability and focus on environmental, social and governance (ESG) considerations. Five years ago, 38% of the assets appraised included an ESG due diligence, says Bain. This average has now jumped to 74%, a trend that is expected to continue strengthening.
“While there were many challenges in the private equity market in 2020, including a decline in the overall investment market, the continued growth that we are seeing into the internet/tech industry is a cause for optimism,” Usman Akhtar, a partner at Bain & Company’s private equity practice in Singapore, tells The Asset in an interview.
“We should continue to see investment in this sector and a continued focus on ESG due diligence, two of the major positive outcomes of the current situation in the industry in Southeast Asia,” he says.
Asked if the rise of regulated digital platforms trading private investment assets could dilute the influence of the industry’s major players, Akhtar says: “I don't think they're going to. It's not going to disrupt the industry as we know it today. They have a role to play, but cannot displace what structured asset managers would do because they are not only investing capital but taking something beyond capital into these businesses.”