Private Equity Interest Shifts to Southeast Asia

Thanks for Wall Street Journal

Some of the world’s biggest private-equity firms have stepped up their presence in Southeast Asia this year, eager to benefit from the region’s growth. But even as the value of transactions surges, the region remains a tough place to make a deal.

One key reason: Valuations are rising quickly as competition heats up for assets. Companies, particularly those in Japan and Korea, are looking there for growth, more so as growth stalls in India and China, say bankers and deal makers. These buyers are often happy to pay more than private-equity investors.

“Our competition is very rarely private equity. Our real competition is strategic buyers,” as firms in similar industries are called, said Rodney Muse, managing partner of Kuala Lumpur-based Navis Capital.

Private-equity transactions in Southeast Asia have totaled $3.6 billion so far this year, up from $1.3 billion last year, according to data from the Centre for Asia Private Equity. This year’s figure includes a $1.7 billion buyout of snack-food franchises KFC Holdings (Malaysia) Bhd 3492.KU +0.25%. and QSR Brands Bhd 9415.KU +0.15%. by European private-equity firm CVC Capital Partners, which hasn’t yet closed.

Last month, U.S. private-equity firm Kohlberg Kravis Roberts KKR 0.00% & Co. opened its Singapore office, with co-founder Henry Kravis boldly announcing plans to invest more than $1 billion in Southeast Asia over the next five years.

Blackstone Group LP BX +0.68% also opened a Singapore office earlier this year, while Carlyle Group LP CG -0.82% recently closed its first Southeast Asia deal, an investment in Indonesian telecom towers operator PT Solusi Tunas Pratama SUPR.JK +0.56% for between $100 million to $150 million, according to people with knowledge of the deal.

Apart from intense competition, one of the most common complaints is that it remains difficult to find deals, not least because of the dominance of large, family-owned conglomerates in Southeast Asia’s economies. The number of smaller startups are low in comparison.

“The entrepreneurial segment of the economy [in Southeast Asia] is still small,” Sigit Prasetya, managing partner for Southeast Asia at CVC, said on a panel at the Asian Venture Capital Journal conference in Hong Kong last week. He added that because these large business groups have great access to capital from banks, they are also asking what else private-equity can bring beyond just capital.

That may be starting to change, as the second generation of these families is more receptive toward the operational expertise that private-equity firms can offer, said John van Oost, managing partner of Singapore-based, Yishan Capital Partners, a real-estate investment firm that specializes in investing in Southeast Asia.

For example, Yishan recently formed a joint venture with Indonesian industrial group Rodamas Group, whose businesses range from chemicals to food, to manage and develop logistics facilities in the country.

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