Private equity briefing: Southeast Asia - May 2019 - EY
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Private equity
briefing:
Southeast Asia
May 2019
Private equity briefing: SEA 1
This briefing offers you a
roundup of the private equity
and venture capital deals
along with capital activities
across major sectors in the
quarter and trends that are
shaping investment decisions
today.
It distills the perspectives of
the teams of subject-matter
professionals in the region
into pertinent insights to
keep you ahead in navigating
the private equity landscape.
Private equity briefing: SEA 2
Contents
1
Outlook
2
Investments
3
Exits
4
Fundraising
5
Diversified
6
Risk and
7
Our Private
Industrial compliance Equity (PE)
products challenges service
in emerging offerings
markets
4 6 11 14 16 22 26
Private equity briefing: SEA 3
1 Outlook
PE and Venture Capital (VC) investment activity across Southeast Asia (SEA)
delivered a strong performance in 2018 with a total US$14.1b worth of announced
deals. Dry powder reached record levels, and 2019 is off to a relatively sedate
start with the announcement of deals worth over US$2.2b till February.
In terms of investment activity, PE investment declined in 2018 with 69 announced deals, valued at US$8.9b1,
compared to 90 announced deals worth US$17.5b2 in 2017. VC investment increased in 2018 with 311 announced
deals, valued at US$5.2b1,compared to 230 announced deals worth US$4.1b2 in 2017.
Exit value for PE declined sharply from US$20.7b3 in 2017 to US$7.3b4 in 2018 while PE exit count declined from 41
announced exits in 2017 to 32 exits in 2018. As well, VC exits declined steeply from US$1.7b3 in 2017 to US$0.1b4 in
2018 while VC exit count declined from 13 announced exits in 2017 to six exits in 2018.
Unicorns based out of Indonesia (Go-Jek, Tokopedia) and Singapore (Grab) dominate the league tables in 2018 with
deals of more than US$1b raised as growth capital. Vietnam-based companies, Techcombank (financial services) and
Vinhomes JSC (luxury home developer) raised US$0.9b each as pre-IPO funding from sovereign wealth fund (SWF) and
leading PE. Vietnam and Indonesia are seeing increasing deal traction with sizeable investments from SWF and bulge
bracket PE, including Government of Singapore Investment Corporation, Warburg Pincus LLC, Kohlberg Kravis Roberts
& Co. Inc. and Texas Pacific Group Capital, among others.
Markets across SEA have witnessed a decline in fundraising in 2018. Interestingly, there was disparity in fundraising
performance, as funds with strong track record and size were able to exceed their fundraising goals, while newer funds
found it harder to raise capital.
Current trends and a peek into 2019
In the year ahead, we will likely be seeing:
► Tech companies continue to gain significant traction: Strong investor interest in the region's developing
technology sector and other consumption-based industries is likely to help sustain higher levels of investment. PE
investors will be particularly interested in SEA’s FinTech players with payments platforms and digital wallets, and
health tech players with medical diagnostics capabilities.
► Maturing investor landscape leading to stiff competition and increased valuation: The growing amount of dry
powder, coupled with the greater demand for capital from later stage companies has resulted in the surge of large
cap consortium deals. Valuation for PE transactions are at close to its peak and there is an increasing valuation
mismatch. EY Global Corporate Divestment Study 2019 indicates that 70% of SEA vendors believe that the valuation
gap is more than 20%.
Note: PE and VC includes private equities, venture capitals and sovereign wealth funds (SWFs).
1. Deal value was undisclosed for 22 of the 69 announced PE transactions and 141 of the 311 announced VC transactions in 2018.
2. Deal value was undisclosed for 20 of the 90 announced PE transactions and 74 of the 230 announced VC transactions in 2017 Private equity briefing: SEA 4
3. Exit value was undisclosed for four of the 41 announced PE transactions and six of the 32 announced VC transactions in 2017.
4. Exit value was undisclosed for nine of the 13 announced PE transactions and five of the six announced VC transactions in 2018.
Note: Our analysis in this newsletter are based solely on PE and VC deals that are reported.
► Start-ups gaining stability in the region: Start-up and early-stage funding decreased in 2018 in contrast to
the rising expansion and growth capital funding. This indicates confidence of PE and VC firms in existing
start-ups.
► Strengthening regulations increasing investor confidence: The focus on stringent anti-corruption laws
among SEA corporates has led to an increase in investor confidence in the region. Malaysia has passed the
Anti-Corruption Commission (Amendment) Act 2018, while Vietnam, Thailand and Singapore are enhancing
efforts to curb private sector bribery and promote integrity, transparency and compliance.
► Opportunity for PE firms as corporate divestments expected to see a rise: More than ever, divestments
are at the core of companies’ growth and transformation strategies. The EY Global Corporate Divestment
Study 2019 found that 85% of SEA corporates plan to divest in the next two years. This continues to reflect a
significant increase since 2018 from low previous averages – SEA divestment intentions were just at 26% in
2017.
► Increased focus on active value creation: The focus on active value creation in the portfolio has never been
higher. We see PE funds increasingly ramp up their value creation efforts through various operating models.
In addition to topics such as revenue management, cost management, supply chain, and working capital. We
are also seeing the emergence of digital as an active topic in value creation.
Topics to be discussed in this issue
In this issue, get insights on the fundamental changes that are at play in the diversified industrial sector in their
bid to stay relevant in this changing landscape shaped by new technology and changing preferences. In the
article, we will also share about how Industry 4.0, powered by a combination of big data, analytics and physical
technology would potentially appear and the six big bets that will differentiate the leaders in the diversified
industrial sector from their peers:
► Customer connectivity
► Supply chain reinvention
► Talent and culture
► Digital assimilation
► Big data and analytics
► Advances in enterprise
We share our perspective on how the compliance landscape in SEA markets are affecting PE in the region.
There is an increasing thrust on strengthening local legislation and guidelines to bring it on par with accepted
international laws and conventions. We list out some of the key challenges that PE face in their pre and post-
investment phases, as well as the best practices followed by PE around forensics and monitoring.
Luke Pais
EY Asean M&A and Private
Equity Leader and Partner,
Ernst & Young Corporate
Finance Pte Ltd.
“ We have almost come to the end of the second decade of private capital investing
in the region. As the product has matured and is better understood, it has also
taken various forms to address a variety of investor needs from early stage to
growth stage to mature stage to structured solutions. The years ahead promise to
be very exciting.”
Private equity briefing: SEA 5
2 Investments
► PE and VC firms invested US$4.0b over 128 deals in ► Aggregate size of small- and mid-cap deals soared in
4Q18 across the Southeast Asian region. 4Q18 as compared to 3Q18, increasing over 3.3
times.
► Deal activity in 4Q18 increased compared to the
preceding quarter, i.e., 3Q18, both in terms of deal ► Second half of 2018 has witnessed significant uptick
value and deal count, wherein PE and VC announced in VC deal activity with 199 deals in 2H18 vis-à-vis
107 deals, investing US$3.1b in the region. 112 deals in 1H18.
Figure 1: PE investment activity
10,000 30 35
27 30
8,000
23
Deal value US$m
20 25
Deal count
6,000 17 20
16
13 13
4,000 15
7,762
6,438 10
2,000
3,138 3,282 5
1,728 1,616 1,518 976
0 0
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18
PE investment Deal count
Figure 2: VC investment activity
3,000 105 120
94
2,500 100
2,632
Deal value US$m
2,000 80
Deal count
62 62 2,100
52 54 56
1,500 56 60
1,000 40
500 752 739 20
647
314 357 1,710
0 0
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18
VC investment Deal count
Note: Analysis based on announcement dates of the PE and VC deals
Source: AVCJ
Private equity briefing: SEA 6
Table 1: Top PE and VC investments announced in 4Q18
Investment Company Country Sector Value Acquirer or investor
date (US$m)
Dec-2018 PT. Tokopedia Indonesia Information 1,100 Alibaba Group Holding Ltd.; Sequoia
technology Capital India Advisors; SoftBank
Investment Advisers (SB Investment
Advisers); SOFTBANK Ventures Korea
Dec-2018 Standard Chartered Singapore Other 995 Intermediate Capital Group Plc; Nainesh
Private Equity - Jaisingh
Portfolio
Dec-2018 V3 Group Ltd. Singapore Consumer 364 KKR Singapore Pte. Ltd.
products and
services
Oct-2018 Masan Group Vietnam Conglomerate 209 GIC Pte Ltd.; Undisclosed investor(s)
Corporation
Oct-2018 Voyager Innovations Philippines Information 175 Kohlberg Kravis Roberts & Co. L.P.
technology (KKR); Tencent Holdings Ltd.
Source: AVCJ
Vikram Chakravarty
EY Asean Transaction
Advisory Services Leader and
Partner
Ernst & Young Solutions LLP
“Given the global headwinds and business uncertainty, business owners will do well to
partner with PE to diversify risk, manage growth, improve governance and beat
competition. Therefore, we expect to see healthy investment activity in 2019.”
Private equity briefing: SEA 7
Annual investment activity
► In 2018, PE and VC recorded a total investment of US$14.1b from 380 announced deals across Southeast Asia.
The total deal count (announced) in the region increased in 2018 from 2017 (320 deals), however the total
investment value was lower than that in 2017 (US$21.6b) due to two mega deals (Equis Energy and Global Logistic
Properties Ltd. ) in that year. Excluding these two deals, the total investment in 2017 was US$11.1b.
► Investments by PE in 2018 is estimated to be c.63% of total deal value, with remaining c.37% being from VC. In
terms of deal count, investments by PE in 2018 is estimated to be c.18% of total deal count (majority of the deal
counts are VCs).
Figure 3a: PE investment activity by deal cap Figure 3b: VC investment activity by deal cap
25,000 90 100 6,000 350
311
90
5,000 300
20,000 80
69
230 250
70
4,000
15,000 60 3,180
Deal value US$m
Deal value US$m
Deal count
Deal count
200
50 3,000
12,550 150
10,000 40 3,050
2,000
30 100
5,179
5,000 20 1,488
1,000 50
4,786 10 514
3,670
491 529
0 0 0 0
2017 2018 2017 2018
Small cap Mid cap Large cap Deal count Small cap Mid cap Large cap Deal count
► Singapore maintained its lead in 2018 and accounted for the majority of the deal value (US$6.7b), followed by
Indonesia (US$3.3b) and Vietnam (US$3.1b).
► In terms of deal count, Singapore leads again with the completion of 180 deals, followed by Indonesia (80),
Vietnam (38) and Malaysia (38).
Figure 4a: PE investment activity by country Figure 4b: VC investment activity by country
25,000 90 100 6,000 350
311
90
5,000 300
20,000 80
69
178 230 250
813 70
Deal value US$m
Deal value US$m
4,000
15,000 60 3,003 200
Deal count
Deal count
50 3,000
150
10,000 12,924 40
10 2,000 3,706
2,911 30 100
5,000 20
3,737 276 1,000 1,782 50
1,657 10
747 465
1,200 1,512
0 0 0 0
2017 2018 2017 2018
Cambodia Indonesia Brunei Cambodia
Laos Malaysia Indonesia Malaysia
Myanmar (Burma) Philippines Myanmar (Burma) Philippines
Singapore Thailand Singapore Thailand
Vietnam Deal count Vietnam Deal count
Note: Analysis based on announcement dates of the PE/VC deals; Small = deal value less than US$20m, mid = deal value of US$20m-500m, large = deal value more
than US$500m; based on deal values disclosed
Source: AVCJ Private equity briefing: SEA 8
Annual investment activity (cont’d)
► The Information Technology (IT) sector has been a major segment driving PE and VC deal activity in the region.
Total deal value for tech companies went up by c.23% in 2018, while deal count increased by c.16%. The IT sector
will continue to be a strong driver of deal activity as more companies and business models of scale emerge.
Headline deals in this sector for 2018 include unicorns like PT Go-Jek’s US$1.5b, PT. Tokopedia’s US$1.1b and
Grab’s US$1.0b fund raised.
► Computer-related, medical and electronics sector experienced an increase in VC deal activity. Notable computer-
related deals include Goldman Sachs and TPG Capital’s debt funding of Airtrunk (US$618m) and Boyu Capital’s
investment of US$125m in Trax retail.
► A majority of deal activity in the consumer sector is concentrated in Indonesia, Thailand and Malaysia. Investor
appetite for consumer sector targets remained high amid the growing middle class in the region, however, there is
tough competition for quality assets from both financial and strategic investors.
Figure 5a: PE deal count by sector Figure 5b: VC deal count by sector
90 69 230 311
100% 100%
90% 9.6% 12.9%
29.0% 90%
80% 41.1% 6.1% 3.9%
80% 5.5%
70% 14.3%
7.2%
70% 19.0%
Deal count
60% 7.2%
10.0% 10.1%
Deal count
60%
50%
40% 7.8% 10.1% 50%
30% 12.2% 40%
14.5%
68.7%
20% 13.3% 30% 58.8%
10% 21.7% 20%
13.3%
0% 10%
2017 2018
0%
Information technology Medical 2017 2018
Consumer products/services Financial services
Information technology Computer related
Electronics Services
Services - Non-Financial Medical
Others Others
Figure 6a: PE deal value by sector Figure 6b: VC deal value by sector
US$17.5b US$8.9b US$4.0b US$5.2b
100% 100%
14.4% 8.3% 8.8%
90%
90% 4.7% 4.9%
80% 39.4%
80% 12.7%
70%
36.6%
60% 70%
2.7%
Deal value
50% 10.9% 60%
Deal value
40% 13.6% 50%
30% 34.7% 87.1%
15.7% 40%
20% 73.6%
30%
10% 5.9% 17.8%
4.1%
0% 20%
2017 2018
10%
Financial services Information technology 0%
Medical Consumer products/services 2017 2018
Transportation/ Distribution Utilities
Others Information technology Manufacturing - Heavy
Computer related Others
Note: Analysis based on announcement dates of the PE/VC deals; based on deal values disclosed
Source: AVCJ
Private equity briefing: SEA 9
Annual investment activity (cont’d)
Table 2: Top investments in 2018 – announced deals
Investment
Company Country Sector Value (US$m) Acquirer or investor
date
Jan-2018 PT Go-Jek Indonesia Indonesia Information 1,535 Allianz X GmbH; Alphabet Inc. (Google);
(GoJek) technology Beijing Shunwei Venture Capital Co., Ltd.
(Shunwei Capital); BlackRock, Inc.; GIC
Special Investments Pte Ltd.; Hera Capital
Partners Pte Ltd.; JD.com, Inc.; KKR
Singapore Pte. Ltd.; Meituan-Dianping
(Meituan.com); Northstar Group; PT Astra
International Tbk; PT Global Digital Prima
Ventures (GDP Ventures); Samsung
Venture Investment Corp.; Sequoia
Capital India Advisors; Temasek Holdings
(Private) Ltd.; Tencent Holdings Ltd.;
Warburg Pincus Singapore Pte Ltd.
Dec-2018 PT. Tokopedia Indonesia Information 1,100 Alibaba Group Holding Ltd.; Sequoia
technology Capital India Advisors; SoftBank
Investment Advisers (SB Investment
Advisers); SOFTBANK Ventures Korea
Aug-2018 Grab Holdings Inc. Singapore Information 1,000 All-Stars Investment Ltd.; Cinda Sino-Rock
technology Investment Management Co., Ltd.;
Lightspeed Venture Partners; Macquarie
Capital (USA) Inc.; Mirae Asset Daewoo
Co. Ltd.; OppenheimerFunds, Inc; Ping An
Capital Co., Ltd.; Vulcan Capital
Dec-2018 Standard Chartered Singapore Other 995 Intermediate Capital Group Plc; Nainesh
Private Equity - Jaisingh
Portfolio
Apr-2018 Vietnam Technological Vietnam Financial services 922 Capital Group International Inc; Dragon
& Commercial Joint Capital Group Ltd.; Fidelity Management &
Stock Bank Research Co.; GIC Pte Ltd.
(Techcombank)
Apr-2018 Vinhomes JSC Vietnam Construction 850 GIC Special Investments Pte Ltd.
June-2018 DSM Sinochem Singapore Medical 693 Bain Capital Asia, LLC
Pharmaceuticals Pte
Ltd.
Sep-2018 MMI Holdings Ltd. Singapore Manufacturing - Heavy 645 Beijing HBH Innovation Industry Fund;
Cybernaut (China) Capital
Aug-2018 AirTrunk Singapore Computer related 619 Goldman Sachs & Co. - Principal
Investment Area; TPG Sixth Street
Partners (TSSP)
Mar-2018 Vietnam Technological Vietnam Financial services 370 Warburg Pincus Singapore Pte Ltd.
& Commercial Joint
Stock Bank
(Techcombank)
Source: AVCJ
Private equity briefing: SEA 103 Exits
► There remains limited disclosure around PE exits in the ► The largest exit in 4Q18 was the sale of Standard
region, with a number of deals going unreported and Chartered Private Equity portfolio for US$995m.
therefore not captured by the analysis.
► 4Q18 saw total exit value of US$1.34b through six
disclosed exits. The total exit value for 4Q18 declined
due to absence of large-cap exits and low deal count.
Figure 7: PE exit activity
12,000 13 14
11 12
10,000 10 10
Deal value US$m
8 8 10
8,000
Deal count
7 8
6,000 6
11,246
6
4,000 7,940
4
2,000 2
2,254 1,258 2,404
777 755 1,342
0 0
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18
PE exit value Deal count
Figure 8: VC exit activity
1,200 7
6
1,000 1,113 6
Deal value US$m
5
800
Deal count
4
600 3
3
2 2 2 2
400
2
1 1
500
200 1
80 50
0 0
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18
VC exit value Deal count
Note: Analysis based on announcement dates of the PE/VC exit deals; based on deal values disclosed; Deals in which PE and VC both were involved are considered
as PE deals for the purpose of the analysis
Source: AVCJ Private equity briefing: SEA 11Table 4: Top exits in 4Q18
Investment Company Country Sector Value Sponsor Type
date (US$m)
Dec-2018 Standard Chartered Singapore Other 995 Standard Chartered Private Trade sale
Private Equity - Equity
Portfolio
Oct-2018 Masan Group Vietnam Conglomerate 209 Kohlberg Kravis Roberts & Co. Trade sale
Corporation (KKR)
Nov-2018 EZbuy Holdings Ltd. Singapore Information 86 China Growth Capital; EZbuy Trade sale
technology Holdings Ltd.; IDG Ventures;
Sky9 Capital; Ventech; Vision
Knight Capital Partners
Oct-2018 Tranglo Sdn. Bhd. Malaysia Information 28 Ekuinas Trade sale
technology
Nov-2018 SM Asset Holdings Myanmar Information 26 Samena Capital Trade sale
(Burma) technology
Source: AVCJ
Geophin George
Partner
Transaction Advisory Services
Ernst & Young Solutions LLP
“ There is a strong exit pipeline over the next two years and given the levels of dry
powder, we expect to see more PE secondary transactions.”
Private equity briefing: SEA 12Annual exit activity
► PE and VC exit counts decreased from 54 in 2017 to 38 in 2018. The total exit value recorded in 2018 was
US$7.3b across Southeast Asia, a steep decline from US$22.4b in 2017. Large-cap exits in 2018 include the sale of
PT Agincourt Resources (exited by EMR Capital and Farallon Capital), sale of PT Bank Danamon Indonesia Tbk
(exited by Temasek Holdings), share buyback of Interpharma Investments Ltd., and sale of MMI Holdings Ltd. (exited
by KKR).
► In terms of exit count in 2018, Singapore leads with 12 announced exits, followed by Vietnam with 10 exits and
Malaysia with seven exits. Singapore and Indonesia lead in terms of exit value due to the large-cap exits.
Figure 9a: PE exit activity by deal cap Figure 9b: VC exit activity by deal cap
25,000 41 45 2,000 13 14
40 1,800
12
20,000 32 35 1,600 180
2,888
1,400 10
30
Deal value US$m
Deal value US$m
15,000 1,200
25 8
Deal count
Deal count
1,000 6
20 6
10,000 800
17,800 1,500
15
600 4
1,662
5,000 10 400
2
5,551 5 200
50
0 0 0 0
2017 2018 2017 2018
Large cap Mid cap Small cap Deal count Large cap Mid cap Small cap Deal count
Table 5: Top exits in 2018 – announced deals
Investment Value
Company Country Sector Vendor Type
date (US$m)
Aug-2018 PT Agincourt Indonesia Mining and 1,210 EMR Capital; Farallon Capital; Private Trade sale
Resources (Martabe metals Investor(s)
Gold and Silver
Mine)
Mar-2018 PT Bank Danamon Indonesia Financial 1,171 Temasek Holdings Trade sale
Indonesia Tbk services
Apr-2018 Interpharma Singapore Medical 1,000.0 Temasek Holdings Share buyback
Investments Ltd.
(Zuellig Pharma)
Dec-2018 Standard Chartered Singapore Other 994.5 Standard Chartered Private Equity Trade sale
Private Equity -
Portfolio
Sep-2018 MMI Holdings Ltd. Singapore Manufacturing - 645.0 Kohlberg Kravis Roberts & Co. (KKR) Trade sale
Heavy
Sep-2018 DSG International Thailand Manufacturing - 530.0 DSG International Ltd.; Morgan Stanley Trade sale
(Thailand) PCL Light Private Equity
Jan-2018 Aspion Group Malaysia Manufacturing - 342.7 Low Chin Guan; Southern Capital Trade sale
Light
Note: Analysis based on announcement dates of the PE/VC exit deals; Small = deal value less than US$20m, mid = deal value of US$20m-500m, large = deal value
more than US$500m; based on deal values disclosed; Deals in which PE and VC both were involved are considered as PE deals for the purpose of the analysis
Source: AVCJ Private equity briefing: SEA 134 Fundraising
► According to Preqin, the total PE and VC dry powder ► Surging investments in Southeast Asia resulted in
for Asia-Pacific has reached a record level high of increased competition and higher valuations. Thereby,
c. US$368.4b at end of 2018. requiring PE and VC investors to increase their focus
on value creation and organic growth.
► Total funds raised for 2018 amounted to US$4.5b
from a total fund count of 34, a decline of 72% from ► Funds that improve their commercial excellence and
US$16.0b in 2017. harness digital technologies, along with securing top
talent, will be better positioned to produce anticipated
► PE funds accounted for 71.5% of total funds raised in
returns.
2018. However, PE fund raising declined from
US$13.8b in 2017 to US$3.2b in 2018.
► VC funds accounted for 28.5% of the total funds
raised in 2018. VC funding also declined in 2018 from
US$2.2b in 2017 to US$1.3b in 2018.
Figure 10: Fund raising activity* – Asia-Pacific domiciled funds with Southeast Asia focus
8,000 16
14
7,000 13 14
699
6,000 12
10
Fund raised US$m
5,000 9 10
1,237
Fund count
8
4,000 7 7 8
6
3,000 6,000 6
2,000 4,089 4
3,241
1,000 2,355 2
344
479 404 610 389
0 0
1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18
PE investment VC investment Deal count
Note: *Analysis includes all fund types i.e., growth, early stage or venture, real estate, infrastructure, mezzanine, special situations, etc. It includes funds that are
based out in Asia-Pacific and have a mandate to invest in Southeast Asia along with other geographic regions. Private equity briefing: SEA 14
Source: Preqin► We are currently witnessing a record level of dry powder in Asia. The two largest funds raised in 2018 with
Southeast Asia as a region of focus include Dymon Asia Private Equity, which raised US$0.5b, and North Haven
Thai, which raised US$0.4b.
► In addition to pure play PE, there is an increasing prevalence of shadow capital as institutional investors, sovereign
wealth funds and family offices begin to deploy capital directly. Corporate acquirers continue to compete for quality
assets, thereby increasing the need for PE firms to articulate a differentiated source of value-add above and beyond
their ability to invest capital.
Table 6a: Top funds raised in 2018 – with Southeast Asia region among the location focus for investment
Fund name Closed Manager Type Final size Location focus Industry focus
date (US$b)
Southeast Asia, Australia,
Axiom Asia Fund of
Axiom Asia V Dec-18 1.4 Emerging Markets, Greater China, Diversified
Private Capital funds
India, Japan, South Korea
Dymon Asia
Dymon Asia
Private Equity May-18 Balanced 0.5 Southeast Asia, Singapore Diversified
Private Equity
(S.E. Asia) Fund II
Morgan Stanley
North Haven Thai
Oct-18 Private Equity Buyout 0.4 Thailand Diversified
Private Equity
Asia
Technology, IT,
Biotechnology,
Korea
KIP NPS Re-up Expansion/ Southeast Asia, Europe, Far East, Software,
May-18 Investment 0.3
Fund late stage South Korea, US Semiconductors,
Partners
Biomedical,
Diversified
IT, Business
Capital Square Capital Square Services,
Oct-18 Buyout 0.2 Southeast Asia, India, Singapore
Partners Fund I Partners Outsourcing, IT
Infrastructure
Table 6b: Top funds raised in 2018 – with Asia as the key focus for investment
Fund name Closed Manager Type Final size Location focus Industry focus
date (US$b)
Hillhouse Fund IV Sep-18 Hillhouse Capital Buyout 10.6 Asia (incl. China) and Global Technology,
Management Healthcare,
Consumer
Products
Blackstone Real Mar-18 Blackstone Real Estate 7.1 Asia and Australia Property
Estate Partners Group
Asia II
Carlyle Asia Jun-18 Carlyle Group Buyout 6.6 Asia Telecoms,
Partners V Consumer
Products,
Manufacturing,
Media, Financial
Services
PAG Asia Capital Nov-18 PAG Asia Capital Buyout 6.0 Asia (incl. India) Consumer
Fund III Products, Financial
Services,
Education,
Business Services
Bain Capital Asia Dec-18 Bain Capital Buyout 4.7 Asia Diversified
IV
Source: Preqin
Private equity briefing: SEA 155
Diversified
Industrial
Products
Diversified Industrial Products (DIP) sector overview
► The DIP sector includes companies in aerospace and defense, chemicals, industrial conglomerates, industrial and
mechanical components, machinery and electrical systems and packaging, and paper and wood manufacturing.
► DIP companies are undergoing fundamental changes as they adapt to the altered landscape shaped by new
technology and changing preferences. Though each subsector faces its own unique challenges and opportunities,
they are united in their focus on three key fronts — growth, operational efficiencies, and technological innovation.
Figure 11: Global industrial revenue growth CAGR, 2011-14 versus 2014-18F
2011-2014 2014-2018F +1.6%
+4.8%
-0.7% 6.3% 6.6%
+4.2%
+4.8% +2.8% 4.9% 5.0%
4.3% 4.1%
3.4% 3.6%
1.5%
0.8% 0.7%
(0.5%)
Industrials Financials Consumer Communications Information Health care
staples technology
Source: Capital IQ; EY Analysis
Private equity briefing: SEA 16Diversified Industrial Products (DIP) sector overview (cont’d)
► As technology innovation drives new business possibilities, DIP firms are finding themselves in a market with new
customer expectations and product capabilities, including new competitors that bring differentiated business
models to long established ways of working.
► DIP companies are refocusing their businesses on core operations, moving away from the mindset of “diversification
as a virtue” and are divesting operations that were underperforming or diluting corporate resources. As such, we
are seeing an increase in industrial revenue growth (figure 11). Leaders are now turning their attention towards
positioning themselves to survive market disruption and to increase their digital capabilities.
► The EY Industrial Products Balancing Act survey revealed that investing in the following six big bets is what
differentiates the leaders from its peers. The survey covered 500 companies and their C-suite leaders across six
industries (chemicals and base materials, machinery and electrical systems, industrial and mechanical components,
packaging, paper and wood and aerospace and defence).
Six bets for DIP players
1 4
Customer connectivity Digital assimilation
• Faced with empowered customers who are • There has been explosive growth of new
more demanding coupled with changing technologies such as big data, analytics,
business models (use of seamlessly artificial intelligence, and the Internet of
connected products), companies in Things. Companies that embrace digital
manufacturing need to seek new ways to early on have witnessed improved
connect with their end consumers. productivity and customer satisfaction.
• E.g., an industrial conglomerate generates • E.g., an European DIP conglomerate
additional revenues from third-party app acquired a smart building IoT systems
developers that offer services over their provider that enhances building
digital platforms. performance by gathering multiple streams
of data, thus improving transparency and
lowering energy usage.
2 5
Supply chain reinvention Big data and analytics
• The supply chain must be positioned to meet • Amid challenges such as a lack of analytics
the needs of today’s digitally savvy awareness among suppliers, limited abilities,
consumer, integrating a complex ecosystem resources and talents such as data
of suppliers and customers to deliver on scientists, companies need to examine how
increasing cost and cash saving demands they can reap the full benefits of big data
while still running efficiently. and analytics.
• E.g., an aviation company uses 3D-printed • E.g. a DIP conglomerate leveraged machine
fuel nozzles for one of its engines. Reducing learning to derive meaningful insights from
the number of parts required to make the large volumes of unclean procurement data,
nozzle from 20 to one leads to a much saving US$300m of procurement costs
shorter supply chain. annually.
3 6
Talent and culture Advances in enterprise
• Against competition from technology • With a risk universe that is rapidly changing
companies in attracting talent, DIP in the form of disruptions, digitization of
companies need to focus on creating a business and loss of sensitive data from
supportive culture as well as training and cyber attacks, DIP companies should be
upskilling workers. efficiently equipped to ensure business
continuity.
• E.g., an aerospace manufacturer invested
US$100m for a new workforce development • E.g., an aerospace manufacturer launched a
program to enhance employees’ digital portfolio of digital solutions along with a
literacy through online courses and degree new customizable self-service portal to
programs. maximize the operational efficiencies of its
aerospace aftermarket business.
Private equity briefing: SEA 17Portfolio transformation helps industrial companies ride the wave of market
disruption and remain competitive
About 75% of executives believed that portfolio business strategy in times of rapid-speed technology
transformation is the leading priority on the advancements need to understand the value of their
boardroom agenda. Over the last three years, 29% of own technology to their business. As well, sellers can
industrial companies have increased the frequency of achieve strong valuations for their business not only
their portfolio reviews. Of which, one-third have from strong operating models and legal structures, but
increased the frequency of reviews, citing threats from also from clear communication about the potential
digitally-enabled competitors and startups as the impact of technology. Revealingly, 19% of DIP
reason. executives did not communicate the impact of
technology on the future state of the business, and
A key aspect of transformation is related to believed that their sale price would have had benefitted
technology; 40% of DIP companies say they recently from doing so.
divested to raise funds for technology investment.
Going forward, 72% of companies believe that 61% of executives citing the need to fund new
technology-driven divestments will increase in the next technology investments as increasing their impetus to
12 months. divest over the coming year. While this makes sense,
companies should evaluate divestments not only on the
Clearly, such technology-driven divestments and cash that can be generated to support new technology,
capital decisions must be taken and executed but also the impact on the overall portfolio as the
judiciously. organization builds out its digital capabilities and
positions itself to pursue new markets.
For a start, these companies that are redefining their
Figure 12: Most important factors for board members Figure 13: List of technologies companies plan to
use ahead of their next divestment
Portfolio transformation (buying and selling assets to Reporting and analytics
reshape future portfolio)
88%
73% Cloud computing
Impact of increased economic and political 80%
uncertainty
Cybersecurity software
41% 76%
Shareholder activism, including returning cash to Enterprise Resource Planning (ERP) software
shareholders
68%
36% Software as a Service
62%
Increasing regulatory or governmental intervention
Robotics process automation
29% 47%
Impact of digital technology and transformation to Machine learning
business model or threat of digital enabled competitors
30%
18% IT infrastructure
21%
Artificial intelligence
9%
Private equity briefing: SEA 18The rise of digital factories, which
Sensors characterizes manufacturing in Industry
and big 4.0, is powered by a combination of big
data data, analytics and physical technology.
analytics
Manufacturers will need to transform their
business models. However, coordinating
Cloud
the end-to-end digital transformation
Blockchain computing across entire value chains that are often
(IoT) scattered across the globe, is a challenge.
Industry DIP companies are taking a more
thoughtful and strategic approach to
Advanced
4.0 planning deals. With both equity and M&A
valuations at elevated levels, the pressure
robotics,
on buyers is increasing.
artificial
intelligence Cybersecurity
But executives are acutely aware that the
and deals still have to make both strategic and
machine financial sense, and are unwilling to
learning overpay for assets. Sophisticated
Additive
methodologies to source potential targets
manufacturing
or 3D printing will support this growth, along with
evolving due diligence techniques and
analytics to assess planned acquisitions.
Figure 14: Companies that failed to complete or
DIP deals in Southeast Asia cancelled a planned acquisition in the past 12 months
74%
• One of Asia’s largest defense and engineering
groups agreed to acquire a world-leading
manufacturer of aircraft components in a deal
26%
that values the company at US$630m. This
was in line with the Group’s intention to
acquire companies in their core business areas
of adjacencies, which will result in profitable No Yes
revenue streams and a stronger competitive
edge.
Primary reason for failure
• A unit of a Singapore listed utilities, marine
53%
and urban development group has divested its
Singapore medical waste division for S$20m.
This is in line with the Group’s intention to
divest peripheral utilities assets to recycle
capital and unlock value.
Competition from other buyers or price or valuation gap
Karambir Anand
Partner
Transaction Advisory Services
Ernst & Young Solutions LLP
“ DIP companies are taking a more thoughtful and strategic approach to planning
deals. With both equity and M&A valuations at elevated levels, the pressure on
buyers is increasing.”
Private equity briefing: SEA 196
Risk and compliance
challenges in
emerging markets
Across various Southeast Asia (SEA) countries, a strengthening of local legislation
and guidelines to be at par with international laws and conventions is observed.
Singapore: Indonesia:
► The government announced that it was enhancing ► A Supreme Court Regulation in 2016 provided
efforts to keep graft at bay, including reviewing the guidelines for enforcement authorities around
Prevention of Corruption Act and boosting manpower handling of corporate crimes including corruption, and
at the Corrupt Practice Investigation Bureau. money laundering.
► Singapore, Malaysia and Indonesia adopted standards Thailand:
in line with ISO 37001:2016 Anti-bribery management
► Amendment to the Organic Act on Counter Corruption
systems, a leading voluntary industry standard that
for failure to prevent bribery. The Thai Criminal Code
provides requirements and guidance to help
adds that active and passive bribery are banned.
management establish a culture of integrity,
transparency and compliance. Vietnam:
Malaysia: ► Introduction of a new Penal Code in 2018 to
criminalize private sector bribery. The country also
► The Anti-Corruption Commission (Amendment) Act
designed and implemented a cyber security law that
2018 was passed in April 2018. The Act penalizes
tightens control over the internet and global
commercial organizations for corrupt acts by
technology companies.
associated persons. It also empowers the Malaysian
Anti-Corruption Commission.
Private equity briefing: SEA 20Emerging markets’ perception
Transparency International’s Corruption Perception Index (TI CPI), which is released annually, ranks 180 countries
and territories by their perceived levels of public sector corruption. The index uses a scale of 0 to 100, where 0 is
“highly corrupt” and 100 is “very clean”. TI’s most recent CPI continues to show that the majority of regions within
SEA are making little or no progress in ending corruption:
41
China
35
Vietnam
40
India
37
37 Indonesia
Thailand
84
Singapore 47
Malaysia
CPI
scores
The EY Global Fraud Survey 2018 found that bribery and corrupt practices happen more widely in emerging markets
– 52%, compared to the global average of 38%. Similarly, respondents in emerging markets (16%) believe it is
common to use bribery in their sector (emerging markets 16% versus global 11%) and to justify cash payments to
win or retain business (emerging markets 19% versus global 13%).
Insights from EY Global Fraud Survey 2018 Global Emerging markets
Bribery and corruption is widespread in business 38% 52%
Cash payments justified to win or retain business 13% 19%
Bribery is used commonly to win contracts 11% 16%
Saket Bhartia
Associate Partner
Forensic & Integrity Services
Ernst & Young Advisory Pte. Ltd.
“ Given the increased focus on governance and compliance matters by limited
partners, risk and compliance is becoming an even more important element in the
due diligence process. There is also a strong focus on corrective actions following
the investment.”
Private equity briefing: SEA 21Challenges faced by PEs
Some of the recent challenges that PE firms face when monitoring portfolio companies in emerging markets include:
► Not being directly involved in the operations of the company
► Poor governance and lack of transparency
► Limited due diligence on third parties and other integrity risks
► Bureaucratic complexities
► Regulatory pressures (e.g., due to past enforcement actions against the entity)
► Difficulty in keeping abreast with the emerging fraud scenarios or risks in various industries
These challenges expose PEs to the following key fraud, bribery, corruption and other risks generally observed in the
region as part of pre- and post-investment decisions:
Pre-investment Post-investment
Financial misstatement risk End use of funds
► Overstatement or advancement of sales, and ► Siphoning of funds through related-party
real margins of business transactions and not at arm’s length prices
► Superficial business modelling ► Whether funds have been utilized per the
► Overvaluation of assets and undervaluation business plan
of liabilities ► Diversion of funds into unrelated businesses
► Related parties and such transactions are ► Cash sales, unaccounted business transactions
not disclosed
► Postponement of major cost items or delay in Financial misstatement risk
regular payout to channel partners
Bribery and corruption risk ► Overstatement of expenses and unreasonable
business transactions
► Involvement in bribery and corruption to meet
business goals Other risks
► Irregular payments paid to officials and disclosed
under incorrect heads ► Theft of intellectual property (IP)
► Counterfeit and grey market products ► Asset misappropriation
► Violations against regulatory, taxation guidelines, or
Other risks compliance norms
► Asset stripping and project cost inflation
► Undisclosed non-compliances (e.g., food safety, ► Involvement in bribes and facilitation pay-outs for
environmental issues) business end
► Undisclosed tax evasion, legal cases, demands and ► Significant deviations from loan covenants or agreed
disputes with tax authorities financial goals
Questions that PE should ask when investing in emerging markets:
► Promoters: can they be relied upon? What is their ► Business practices: what are the business
history or background? Are there any significant practices followed by the entity? How are the
unknowns that can impact investment in the business practices and issues identified of the
future? target compared to industry standard and the
country environment?
► Management: what is the integrity and background
of key management, especially those who will ► Customers and vendors: are they genuine?
continue to work in the organization post-
► Bribery and corruption: what is the level of
investment?
tolerance when it comes to bribery and corruption?
► Financials: how accurate is the financial Can the business continue without such practices
presentation? How can specific issues identified post-investment?
during a financial due diligence be verified?
Private equity briefing: SEA 22Best practices followed by PEs when it comes to forensic due diligences
and monitoring
Pro-active forensic activities pre-investment: Forensic activities post-investment:
Before deciding to invest, PEs need to proactively analyze Uncertainties related to valuations, working capital
a range of risks to minimize the potential loss of deal value. adjustments and earn-outs, along with increased
These risks may include fraud, bribery and corruption investments in emerging markets, expose transacting
including conflicts of interest, restrictions on trade and parties to significant risks even after the deal is completed.
export, third-party integrity, reputation, and regulatory PEs mitigate and resolve post-closing disputes and ease
investigations. Some of the key proactive steps that PE the purchase integration process by conducting
firms can take include: appropriate risk mitigation exercises. This can include:
Forensic due diligence Investigation, compliance and dispute services
► Assessing the risks of fraud, bribery and corruption, ► Assisting with the development of anti-fraud or ABAC
money laundering, economic sanctions and conflicts compliance programs
of interest
► Conducting post-closing fraud risk assessments;
► Executing a detailed anti-bribery anti-corruption advising on compliance risk programs and performing
(ABAC) due-diligence on the business to ensure compliance monitoring
compliance with regulators
► Performing fact-finding transaction testing on ► Leveraging FDA to perform enhanced due diligence
selected high-risk transactions with additional data from the acquired business,
► Deploying forensic data analytics (FDA) to identify ► Monitoring the end-use of funds
potential red flags ► Proactive Electronic Stored Information (ESI) review
► Conducting integrity due diligence checks (e.g.,
background checks on key management personnel, ► Conducting fraud investigations
vendors and customers) ► Serving as subject-matter expert or testifying expert
► Performing a cyber due diligence on behalf of seller or buyer
Belinda Tan
Partner
Forensic & Integrity Services
Ernst & Young Advisory Pte. Ltd.
“ Understanding the areas to look at when conducting a due diligence exercise can
help PE firms reduce the risk of post-acquisition surprises.”
Private equity briefing: SEA 237 Our PE service
offerings
The EY PE team comprises
experienced professionals focused
on PE and is supported by EY deep
sector and functional professionals
around the world.
► Lead advisory ► Restructuring ► Performance ► Finance
► Commercial advisory ► Real estate improvement ► Human resources
► Financial diligence ► Divestiture ► Sales force ► Supply chain
► Operational diligence ► Valuation and effectiveness ► IT transformation
► IT diligence business modeling ► Business ► Risk
► Carve-out ► Operational improvement intelligence
► Integration
EY PE team
Private
equity
fund
Our capabilities
► Focus: provide value creation ► Broad functional knowledge: ► Accelerated approach: customized
services across the PE investment capabilities in PE fund structuring, approach that is highly responsive
life cycle portfolio audit, strategy, M&A and and provides improved realization
► Dedicated PE experience: all core operating functions; of benefits
dedicated teams comprising former experience in revenue ► Global capabilities: dedicated
PE operating partners, seasoned enhancement, cost reduction, teams that has extensive cross-
operating executives and human capital and border experience with access to
management consultants change management. more than 30,000 consultants
► Deep sector experience: primary operating in 140 countries with
focus in oil and gas, consumer, deep industry and functional know-
industrial, and health care; ability to how
tap into sub-sector professionals
Private equity briefing: SEA 24EY contacts
Service line contacts Country contacts
M&A Indonesia
Luke Pais David Rimbo Sahala Situmorang
luke.pais@sg.ey.com david.rimbo@id.ey.com sahala.situmorang@id.ey.com
+65 6309 8094 +62 21 5289 5025 +62 21 5289 5210
Corporate Finance Strategy Commercial Due Diligence Hertanu Wahyudi
hertanu.wahyudi@id.ey.com
Karambir Anand Nicolas de Geeter +62 21 5289 5684
karambir.anand@sg.ey.com nicolas.de.geeter@sg.ey.com
+65 6309 8089 +65 6309 8148 Malaysia
Transaction Support ESG George Koshy Preman Menon
george.koshy@my.ey.com preman.menon@my.ey.com
Seng Leong Teh Raymond Leong +60 3 7495 8700 +60 3 7495 7811
seng-leong.teh@sg.ey.com raymond.leong@sg.ey.com
+62 21 5289 5007 +65 6309 6313 Philippines
Transaction Tax Ramon Dizon Marie Stephanie C Tan-Hamed
ramon.d.dizon@ph.ey.com marie.stephanie.c.tan-hamed@ph.ey.com
Darryl Kinneally +63 2 894 8163 +63 2 894 8338
darryl.kinneally@sg.ey.com
+65 6309 6800 Singapore
Operational Due Diligence / Value Creation Purandar Rao Vikram Chakravarty
purandar.rao@sg.ey.com vikram.chakravarty@sg.ey.com
Sriram Changali Alan Huang +65 6309 6560 +65 6309 8809
sriram.changali@sg.ey.com alan.huang@sg.ey.com
+65 6309 8555 +65 6309 8108 Thailand
Valuation, Modeling & Economics Data Analytics Piyanuch Nitikasetrsoonthorn Vorapoj Amnauypanit
piyanuch.nitikasetrsoonthorn@th.ey.com vorapoj.amnauypanit@th.ey.com
Andre Toh Xavier Vitiello +66 2 264 9090 +66 2 264 9090
andre.toh@sg.ey.com xavier.vitiello@sg.ey.com
+65 6309 6214 +65 6309 8328 Vietnam
Toan Quoc Nguyen Du Vinh Tran
toan.quoc.nguyen@vn.ey.com du.vinh.tran@vn.ey.com
Sector contacts +84 8 3824 5252 +84 8 3824 5252
Consumer Products TMT
Regional contacts
Geophin George Joongshik Wang
geophin.george@sg.ey.com joongshik.wang@sg.ey.com Asia-Pacific Markets & Deal
Greater China PE Leader
+65 6309 8168 +65 6309 8078 Origination
Health care Financial Services Amitava Guharoy Tony Tsang
amitava.guharoy@sg.ey.com tony.tsang@cn.ey.com
Abhay Bangi /Keith Lostaglio Stuart Last +65 6309 8001 +86 21 2228 2358
abhay.bangi@sg.ey.com /
stuart.last@sg.ey.com
keith.lostaglio@sg.ey.com Oceania PE Leader Korea PE Leader
+65 6309 6720
+65 6309 6151 / +65 6718 1999
Bryan Zekulich Yoon Hyung Chang
Oil & Gas Infrastructure bryan.zekulich@au.ey.com yoonhyung.chang@kr.ey.com
+61 2 9248 5833 +82 2 3787 6788
Sanjeev Gupta Lynn Tho
sanjeev-a.gupta@sg.ey.com lynn.tho@sg.ey.com Global contact
+65 6309 8688 +65 6309 6688
Global
Real Estate Power & Utilities
Andres Saenz
Teh Seng Leong Gilles Pascual andres.saenz@parthenon.ey.com
seng-leong.teh@sg.ey.com gilles.pascual@sg.ey.com +1 617 478 4619
+62 21 5289 5007 +65 6309 6208
Private equity briefing: SEA 25EY | Assurance | Tax | Transactions | Advisory
About EY
EY is a global leader in assurance, tax, transaction
and advisory services. The insights and quality
services we deliver help build trust and confidence
in the capital markets and in economies the world
over. We develop outstanding leaders who team to
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How EY’s Global PE Sector can help your business
PE firms, portfolio companies and investment
funds face complex challenges. They are under
pressure to deploy capital amid geopolitical
uncertainty, increased competition, higher
valuations and rising stakeholder expectations.
Successful deals depend on the ability to move
faster, drive rapid and strategic growth and create
greater value throughout the transaction lifecycle.
EY taps its global network to help source deal
opportunities and combines deep sector insights
with the proven, innovative strategies that have
guided the world’s fastest growing companies. Our
clients discover powerful new ways to create
unexpected paths to value ─ generating positive
economic benefits for both investors and society.
That’s the power of positive equity.
© 2019 EYGM Limited.
All Rights Reserved.
EYG no. 002350-19Gbl
ED None
This material has been prepared for general informational
purposes only and is not intended to be relied upon as accounting,
tax or other professional advice. Please refer to your advisors
for specific advice.
The views of third parties set out in this publication are not
necessarily the views of the global EY organization or its member
firms. Moreover, they should be seen in the context of the time
they were made.
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