Japan bucks trend as Asian private equity investment slows, with deal values ​​soaring 183% last year | Private Equity Weekly

The total value of Asia-Pacific private equity deals fell last year to its lowest level in 2014, according to management consultancy Bain & Company, as financing fell to a decade low as slowing growth, high interest rates and public market volatility lowest level since.

However, Japan is an exception, with deal values ​​increasing 183% annually in 2023, becoming the largest private equity market in the Asia-Pacific region for the first time, according to Bain’s “2024 Asia-Pacific Private Equity Report” released on Monday.

Bain said Japan is an attractive investment because of the large number of target companies, “significant room for performance improvement” and because Japanese companies are under pressure to reform corporate governance and need to dispose of non-core assets.

Overall, deal value in the Asia-Pacific region fell more than 23% from the previous year to $147 billion. It’s also 35% below the 2018-2022 average (a decline consistent with a global economic slowdown) and nearly 60% below the 2021 peak of $359 billion, Bain said.

Exits in 2023 fell 26% from a year ago to $101 billion, 40% of which were through initial public offerings. Greater China accounts for 89% of IPO exits in the Asia-Pacific region, with the vast majority listed in Shanghai and Shenzhen. Excluding Greater China IPOs, the total value of Asia Pacific exits was US$65 billion.

“The outlook for exits in 2024 remains uncertain, but successful funds do not wait for the market to rebound. They highlight the potential value of the deal to buyers through strategic reviews, paving the way for sales to achieve target returns,” Lachlan said. McMurdo, co-author of the annual report, said in a statement.

He added: “This approach can reduce inventories of aging assets and return cash to limited partners through 2024, even if the overall exit market remains subdued.”

Bain said many leading private equity funds have turned to exploring alternative asset classes, such as infrastructure operations with medium to high returns, including renewable energy storage, data centers and airports.

Here are some highlights from the report:

• Last year, acquisitions accounted for 48% of total deal volume in Asia Pacific, surpassing the value of “growth deals” (involving companies that expand rapidly and often disrupt industries) for the first time since 2017.
• Bain said that despite the shrinking pool of investors, private equity returns remain more attractive than public market returns over a five-, 10- and 20-year perspective.

Bain said that while there were some signs of improvement late last year, the timing of the recovery remains unclear. Bain added that when the economic recovery does take effect, disruptive technologies such as generative artificial intelligence will be a “promising” new frontier.

Citing Preqin’s 2023 investor survey, Bain said Asia-Pacific markets such as Japan, India and Southeast Asia are seen as favored locations for private equity investment opportunities in the next 12 months.