Private equity-backed mergers and acquisitions in Asia have experienced their slowest start to the year in almost a decade due to a downturn in dealmaking in China and broader economic and geopolitical uncertainties, according to data.
In the first quarter, private equity-backed M&A in Asia totaled $13.5 billion, down 32% from the same period last year, making it the worst first quarter since 2015, preliminary data showed. Meanwhile, global private equity-backed deals rose by 21% to $136 billion over the same period.
Despite record levels of unspent cash among private equity firms in Asia, factors such as slowing economic growth, volatile markets, and geopolitical tensions have hindered investments and exits, affecting fund managers’ ability to raise new funds, a consultancy report highlighted.
“There’s mounting pressure for exits,” stated Sebastien Lamy, co-head of Bain & Co’s APAC PE practice. The extended holding periods and aging portfolios are not only affecting returns but also the ability to secure new funding.
According to Preqin data, exits via IPOs, trade sales, or secondary buyouts in Asia plummeted 51% to $4.9 billion in the first quarter, reaching the lowest level since 2014.
The slowdown in China significantly contributed to the decline in regional PE-backed M&A, with deals in the country almost halving in the first quarter due to economic slowdown and Sino-U.S. tensions.
Despite the downturn, there are signs of recovery with hopes for a pickup in the coming quarters, experts noted. Middle-market deals are happening, particularly in Southeast Asia, while Middle Eastern funds are eyeing increased investments in China. Additionally, potential privatisations of Hong Kong-listed companies are being explored, indicating movement in the market.
“People are showing interest, and processes are gaining momentum,” said Marcia Ellis, global co-chair of PE at law firm Morrison Foerster. “Asset valuation expectations are aligning better between buyers and sellers, suggesting a potential increase in M&A volumes in 2024,” added Paul DiGiacomo, managing partner at BDA Partners.