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1Private equity briefing: SEA
Private equitybriefing:Southeast AsiaDecember 2016
2Private equity briefing: SEA
This quarterly briefing offersyou a roundup of the privateequity deals and capitalactivities across majorsectors in the quarter andtrends that are shapinginvestment decisions today.
It distills the perspectives ofour teams of subject-matterprofessionals in the regioninto pertinent insights tokeep you ahead in navigatingthe private equity landscape.
3Private equity briefing: SEA
1Outlook
2Investments
3Exits
4Country in focus:Vietnam
5Our services: PEvalue creation
Contents4 6 8 9 12
4Private equity briefing: SEA
Outlook1
3Q16 saw a considerable increase in the amount of capital beinginvested led from fundraising by the region’s two ride-hailingapplications.
The overall value of private equity (PE) deals completed in 3Q16 was US$1.91b, across the 32 deals closed. Althoughthis outstrips the total value from across 1H16, it must be noted that four transactions accounted for over 85% of thetotal value.
Evolving regional private equity environmentPE in Southeast Asia was historically focused on Malaysia and Singapore, followed by the emergence of Indonesia.These three markets have dominated PE activity, reflected by the fact that they accounted for over 85% of allinvestments across the past five years.
Increasingly we are seeing PE diversify from these core markets with a significant amount of time and resources beingspent investigating the opportunities in markets such as the Philippines, Thailand and Vietnam. These markets, whichhave been dominated by local funds such as Lombard and VinaCapital to date, are being actively targeted by regionalPE houses at a level far greater than before. As these economies continue to evolve, the number of opportunities ofsufficient size is increasing.
This activity is supported by the number of investments. In 2012 there were a total of 13 investments, a number thatis forecast to double for the full year of 2016. Politicalinstability remains one of the key concerns for investors,and this has again come to the fore over recent months.
Investments into regions such as Cambodia, Laos andMyanmar remain limited and focused on buildinginfrastructure such as banking and communications.That said, a number of PE investors have publiclystated their ambition and see these markets as along-term growth story.
Source: Thomson One, Dealogic and Mergermarket
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2012 2013 2014 2015 2016
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Figure 1: Investment activity in the Philippines,Thailand and Vietnam
5Private equity briefing: SEA
Ride-hailing applications3Q16 saw a staggering US$1.3b raised by the region’s two ride-hailing apps. Go-Jekclosed a US$550m fundraising in August, led by KKR and Warburg Pincus that alsosaw participation from Farallon Capital, Capital Group Private and existingshareholders. The investment valued Go-Jek at over US$1b. Next, led by SoftBankGroup, GrabTaxi raised US$750m in September and saw investments fromundisclosed existing and new shareholders.
The two investments have a common theme being a focus on Indonesia. While Go-Jekis entirely focused on Indonesia at present, Grab has stated that its key goal is tofurther penetrate the Indonesian market. This could see the two companies go head-to-head in a more aggressive manner going forward. The market in Indonesia for ride-hailing applications is estimated at US$15b by Grab, providing significantopportunity. Further, this market looks to increase as diversification into fooddelivery and logistics continues.
What the two investments do show is the fast evolution of the technology sector inSoutheast Asia. According to CB Insights, there are now four unicorns (the others areGarena and InMobi, with Lazada having been acquired by Alibaba), three of which arein Singapore; the sixth highest number of unicorns in any country. This underlines theregion’s vast potential for technology-based business models. Given that SoutheastAsia is behind markets such as Japan, Korea and China in the tech maturity curve, itmeans that market is ripe to bring in business models that are proven elsewhere andcan be rolled out in the region.
Luke PaisEY Asean LeaderM&A and Private Equity
“The year 2016 has seen some of the large PE funds get in the tech game. It’sgreat to see the momentum in this sector, which is a real bright spot. Whileoverall PE deal activity this year to date has been flat, I see great potential giventhe liquidity needs across businesses in the region.”
6Private equity briefing: SEA
Investments2
• In 3Q16, a total of US$1.728b was invested across 30deals, with the total amount of capital being investedup by almost US$1b over the same period in 2015.This represents a strong pickup in deal value followinga muted first half of the year.
• The total number of deals closed in 3Q16 was 30, inline with the average across the last three years butslightly down on the same period in 2015, when 36deals where closed.
• The primary driver for the activity was the well-publicized fundraisings by ride-hailing applicationsGrabTaxi and Go-Jek, which raised US$750m andUS$550m, respectively.
• Driven by this, over 95% of the total capital raised inthe quarter was invested in Singapore (54%) andIndonesia (42%). The majority of the deals continuedto be focused on Singapore, accounting for 57% of thedeal count, and a continued interest in Indonesia wasobserved, resulting in six deals being closed.
• Technology remained the most active in terms ofsectors (14 deals) but for 2016 year-to-date, it is stilldown by circa 20% on the levels that were observedacross 2015. However, there are an increasingnumber of sizeable deals across this sector.
Figure 2: Investment activity
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Source: Thomson One, Dealogic and Mergermarket
7Private equity briefing: SEA
Table 1: Top investments in 3Q16
Investmentdate
Company Country Sector Value(US$m)
Acquirer
Sep 16 GrabTaxi Holdings Pte Ltd Singapore Technology 750.0 SoftBank Group, undisclosed firms
Aug 16 Go-Jek Indonesia PT Indonesia Technology 550.0KKR & Co LP, Warburg Pincus LLC, CapitalInternational Inc., Farallon CapitalManagement LLC, undisclosed firms
Aug 16 Siloam International HospitalsTbk Pt Indonesia Provider Care 165.3 CVC Capital Partners Ltd
Aug 16 Broadway Industrial Group –FPS and FCD Businesses Singapore Diversified Industrial
Products 111.4 Platinum Equity LLC
Aug 16 Carousell Pte Ltd Singapore Technology 35.0500 Startups, L.P., Golden Gate VenturesPte. Ltd., Sequoia Capital India, RakutenVentures
“The Go-Jek deal highlights the significant market opportunity that Indonesiapresents, particularly from a technology perspective. Few countries in the worldhave the ability of growing a company with so much value when only focusing onthe domestic market.”
Joongshik WangPartnerTransaction Advisory ServicesErnst & Young Solutions LLP
Source: Thomson One, Dealogic and Mergermarket
8Private equity briefing: SEA
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Exits3
Exits• There remains limited disclosure around PE exits in
the region, with a number of deals going unreportedand therefore not captured by the analysis.
• Exit activity in 3Q16 saw two deals being completed.The largest deal was SPi Global’s (a CVC portfoliocompany) sale of its CRM business to Japan-basedRelia in a US$181m acquisition.
• The other deal in the quarter was EQT’s disposal of itsinvestment in Econ Healthcare back to the founders.
• Southeast Asia remains high on the agenda forJapanese corporates. Across the past 24 months,there has been a notable rise in the amount of timebeing invested in trying to identify investmentopportunities across the region.
Figure 3: Exit activity
Source: Thomson One, Dealogic and Mergermarket
“As the equity markets in the US and Europe cool, investor interest may shift backto markets such as Southeast Asia. This would make the potential to exit throughIPO a much more attractive proposition.”
Geophin GeorgePartnerTransaction Advisory ServicesErnst & Young Solutions LLP
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Figure 4: Exit activity excluding large deals
9Private equity briefing: SEA
• Vietnam’s gross domestic product (GDP) growth hit6.7% in 2015, the highest in the last five years.GDP growth is estimated at 5.6% year-on-year in2Q16, slowing from 6.7% due to the impact of theEl Nino on the agricultural sector, costing theeconomy US$681m. The reduced global demandfor commodities (e.g., oil, rice) has further affectedGDP growth. However, as the effects from El Ninofade, economic growth will improve through therecovery of the agriculture sector.
• Most sectors have witnessed strong growth acrossthe past five years. Whereas industries such asagriculture, manufacturing and mining stilldominate the economy, sectors that serve theservice industry such as health care, education,food and beverage, and transportation have seenparticularly strong growth.
Country in focus:Vietnam4
Figure 5: Real GDP breakdown (2015)
19.6%
14.9%
13.5%10.0%
6.0%
5.9%
5.1%
25.0%
Agriculture
Manufacturing
Wholesale and retailtradeMining
Finance
Real estate
Construction
Others 8.1%10.1%
11.3%11.5%
12.4%13.0%
14.2%14.5%14.6%14.7%14.9%15.5%
19.8%20.6%
22.2%25.3%
0.0% 10.0% 20.0% 30.0%
InfocommsReal estate
Arts and entertainmentConstruction
Agriculture, forestry and fishingTransportation and logistics
Water utilitiesMining
Financial servicesProfessional services
Food and beverageManufacturing
AutomotiveEnergy
EducationHealth care
Figure 6: Historical GDP growth by sector, actual (2010-2015)
Economic growth gains momentum, with opportunities for investment.
Source: BMI Country report Q2/2016, BMI Research; General Statistics Office of Vietnam, Asian Development Bank
10Private equity briefing: SEA
Source: MAF Research 2016
Vietnam’s top five deals in 2015-2016
Vietnam M&A transactions, 2006-2016
Company Sector Bidder % Value
Big C Vietnam Retail CentralGroup
100 1,140
Masan ConsumerHolding andMasan Brewery
Food andbeverage
Singha 25; 33 1,100
Metro VietnamCash & Carry
Retail TCCHolding
100 711
KeangnamLandmark Tower72
Real estate MiraeAsset
100 382
Empire City Real estate KeppelLand
100 234
Vietnam M&A landscape• The total value of M&A deals in 2015 was
estimated at US$5.2b, and US$3b in the first halfof 2016. It is expected that the M&A value for thefull year of 2016 will exceed US$6b, exceedingthe highest record currently held in 2012, and willcontinue to edge up in the following years.
• Many M&A transactions have been seen in realestate, consumer goods and food and beverageproduction. The majority (60%) of the totaltransactions were between domestic enterprises,with each worth an average of US$5m, whilethose by foreign investors were over US$10m.
• The strategic aim of M&As being frequently citedis to enlarge and diversify business portfolios ofthe purchasers while allowing sellers to recovercapital.
• Vietnam’s Ministry of Planning and Investmentindicated optimism for M&A activities in theenergy, banking, infrastructure, hotels and officesectors.
Private equity• Vietnam has seen a number of large PE-backed
transactions across the past five years, which hasseen the likes of KKR and Warburg Pincusinvesting into Masan and Vincom Retail.
• There has been more limited activity in the mid-market space where, on average, less than 10deals per annum are recorded.
• High growth and a young population means thatVietnam is now attracting significant interest fromPE across the spectrum.
Changingthe deal
0100200300400500600700
01000200030004000500060007000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
No. of transactions Value of transactions in million (US$)
“Historically, local PE funds have dominated the PE landscape, particularly at themid-market level. This is now evolving with the regional and global funds lookingto be active and this can be seen through some of the deals that have beenexecuted across the past 18-24 months.”
Toan Quoc NguyenPartnerTransaction Advisory Services,Ernst & Young Vietnam Ltd
Source: Thomson One, Dealogic and Mergermarket
11Private equity briefing: SEA
Food andbeverage
• The middle and affluent class in Vietnam is expected to double to30 million in 2020, with per capita disposable income to rise fromUS$1,400 per year to US$3,400.
• The current population is young, with 75% born after 1975. Asthey age, demand for health care services will increase.
• Vietnam’s higher education system has grown quickly over thelast 15 years, which is accompanied by quality concerns.
• It is widely acknowledged by local and among internationalobservers that the system needs significant improvements in thestandards of its programs and outcomes for graduates.
• With Vietnam’s population of more than 90 million, the food andbeverage sector is a key industry and contributes significantly tothe country's economy.
• Vietnam’s domestic retail market is growing rapidly, making ithighly attractive in the eyes of foreign investors.
• Vietnam currently ranks among the top five in Asia and 11thglobally for retail growth.
• The manufacturing sector saw robust growth in recent years. Thesuccess is sustained by low labor costs, growing consumermarket and favorable political environment.
• As such, Vietnam is considered as a reliable substitute to China,but some manufacturing sectors are more vigorous than others.
• As demand increases, the logistic sector is in need of better-quality services to seize the potential on offer.
• Yet most providers are small- and medium-sized players that areshort on capital and infrastructure such as warehousing, IT andeven transportation.
Key industries for investors
CAGR2015-2020
CAGR2015-2020
CAGR2015-2020
Exportvalue
Logistic costsin Vietnam
Retail
Health care
10%Store-based
4.5%Non-store
19.7%
8.5%
42%of thepopulation arebelow 25
Education
Manufacturing
2015
US$27.5b2020 plan
US$40-50b
Transportation& Logistics
25%of annual GDP
“Service sectors such as health care, education and food and beverage are wherewe see the most attractive opportunities for PE in the short to medium term. Techis the other sector to watch, with a vast number of start-ups attracting funding.”
Du Vinh TanPartnerTransaction Advisory Services,Ernst & Young Vietnam Ltd
Source: BMI Country report Q2/2016, BMI Research; General Statistics Office of Vietnam, Asian Development Bank
12Private equity briefing: SEA
Our services:PE value creation5
► Focus: provide value creationservices across the PE investmentlife cycle
► Dedicated PE experience:dedicated teams comprising formerPE operating partners, seasonedoperating executives andmanagement consultants
► Broad functional knowledge:capabilities in strategy, M&A andall core operating functions;experience in revenueenhancement, cost reduction,human capital andchange management
► Deep sector experience: primaryfocus in oil and gas, consumer,industrial, and health care; ability totap into sub-sector professionals
► Accelerated approach: customizedapproach that is highly responsiveand provides accelerated realizationof benefits
► Global capabilities: dedicatedteams that has extensive cross-border experience with access tomore than 30,000 consultantsoperating in 140 countries withdeep industry and functional know-how
Our capabilities
EY PE value creation (PEVC) teamcomprises experienced professionalsfocused on PE and is supported byour deep sector and functionalprofessionals around the world.
PE value creation team
Privateequityfund
► Performanceimprovement
► Sales forceeffectiveness
► Businessintelligence
► Finance► Human resources► Supply chain► IT transformation► Risk
► Lead advisory► Commercial advisory► Financial diligence► Operational diligence► IT diligence► Carve-out► Integration
► Restructuring► Real estate► Divestiture► Valuation and
business modeling► Operational improvement
13Private equity briefing: SEA
EY ContactsService line contactsM&A
Luke [email protected]
+65 6309 8094
Corporate Finance Strategy
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Country contactsIndonesia
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Vietnam
Toan Quoc [email protected]
+84 8 3824 5252
Du Vinh [email protected]
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Global contactGlobal
Herb W [email protected]
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Sector contactsConsumer Products Financial Services
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14Private equity briefing: SEA
15Private equity briefing: SEA
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