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Expect the unexpected: a year of change leading to opportunity and optimism in private equity

Mark Cooper

Mark Cooper,

Singapore

Guy Ker,

Singapore

Danielle Secher,

London

06 March 2017

2016 was a year of unexpected change and uncertainty across the globe. Although the Singapore M&A market generally reacted to this with caution, private equity investment saw a slight improvement following a strong year in 2015. In this post we consider whether the market can capitalise on this gradual upward trend in 2017 in the current climate of political and economic unease. The on-going political evolution in the United States, and China's more stringent approach to outbound investment, cannot be ignored.

Expect the unexpected: a year of change leading to opportunity and optimism in private equity

Private equity investment remains strong in 2016

Following a strong year in 2015, private equity and venture capital investment in Singapore increased in 2016. Singapore saw its highest deal value in the last five years, eclipsing both Malaysia and Indonesia. Private equity investors continue to focus on the technology sector; the sector showing the greatest investment during the year, accounting for an estimated 31% of total deal value. The highlight of 2016 was the investment by SoftBank and others of US$750 million in Singapore-headquartered GrabTaxi.

Across Asia Pacific, the most significant deals were Australian infrastructure privatisations and late-stage Chinese technology investments. While private equity has historically focused on Malaysia, Singapore and (more recently) Indonesia, we are now seeing a diversification from these core markets to embrace the Philippines, Vietnam and Thailand. These growing markets are increasingly being targeted as investment opportunities in these regions increase.

Shadow capital in the private equity market

Singapore is not removed from the rise of shadow capital, in both scale and scope, in the global private equity market. Forms of shadow capital range from co-investment and co-sponsorship to separate accounts and solo direct investments. Although there are no precise numerical values of the investments made in these four categories, it is estimated that shadow capital could represent as much as 15% to 20% of traditional fund-raising in the private equity market. What’s clear is that shadow capital is large, growing and here to stay.

Singapore in line with global M&A trends 

The M&A market in 2016 saw a rise in transaction volume but a decline in deal value. Nevertheless, consistent with the private equity market, Singapore boasted a higher number of M&A deals than Malaysia and Indonesia combined (a total of 684). Unlike private equity activity however, the value of M&A transactions compared to 2015, declined by 18% to US$ 82.7 billion. Temasek Holdings' acquisition of a minority stake in Postal Savings Bank of China, worth over US$ 7 billion, was a stand-out deal of the year.

These patterns reflect investment activity across Asia Pacific as well as global trends. In 2016, Asia Pacific (excluding Japan) saw a substantial decrease of 22% in deal value compared to the previous year. Chinese outbound M&A was the main contributor with 372 deals worth US$ 206.6 billion. India was also a significant force in Asian M&A in 2016 with 388 deals worth US$ 64.5 billion (up 90.5% compared to 2015).

Outlook 

The general outlook for private equity remains uncertain. The Chinese government's recent measures to control capital outflow are already impacting deals involving Chinese buyers and flexibility will need to be built into payment deadlines and transaction structures. Nevertheless the amount of capital available for investment across the region should permit at least cautious optimism as 2017 progresses. With western countries undergoing major political changes at the same time, there's all to play for.

Take a look at Hogan Lovells 2016 M&A Year in Review by clicking here.

Guy Ker, Trainee Solicitor in Singapore, and Danielle Secher, Trainee Solicitor in London also contributed to the creation of this blog post.

Mark Cooper

Mark Cooper,

Singapore

Guy Ker

Danielle Secher

PE in Indonesia – a vibrant market

Indonesia is gaining popularity among both regional and international private equity funds. Demographics and economic forces increasingly portray Indonesia as a 'must-be-in' market.

16 October 2017
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