Private equity

briefing:
Southeast Asia
April 2017

Private equity briefing: SEA 1

This quarterly briefing offers
you a roundup of the private
equity deals and capital
activities across major
sectors in the quarter and
trends that are shaping
investment decisions today.
It distills the perspectives of
our team 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
01
Outlook
02
Investments
03
Exits
04
Fund-raising
05
Sector in
06
Our
focus: services:
Financial PE value
Services creation

4 6 8 10 12 15

Private equity briefing: SEA 3

01 Outlook

2016 saw a slow start for private equity (PE) deals but the pace
markedly picked up in the second half. More importantly, some large
deals were done during the year and we expect this to set the tone for
dealmaking in 2017.
The overall value of PE deals completed in 2016 was US$7.8b, up 41% from 2015. The increase in deal value in 2016
was driven by the technology sector, with 3Q16 seeing a staggering US$1.3b being raised by the regions two ride-
hailing apps. However, overall deal volumes were down, from 162 deals in 2015 to 123 deals in 2016.

2016: Increased PE activities in technology sector in Indonesia

The technology sector was at the forefront of investor focus in 2016. Though the year started with investors taking a
more tentative approach when assessing investments in this space resulting in an overall decline in activity, the
second half of 2016 saw healthy investment activity.

Alibabas acquisition of a controlling stake in Lazada was one of the regions first major technology unicorn exits,
which set a positive precedent for future deals in this space. We also saw increased interest from the mainstream PE
(non-technology specific) investors.

Indonesias on-demand motorbike taxi service Go-Jek raised US$550m, led by PE firms KKR & Co. and Warburg Pincus
LLC, as it battled competition from other ride-hailing apps such as Grab and Uber. The other named investors in this
round include Farallon Capital and Capital Group Private Markets. Next, led by SoftBank Group, GrabTaxi raised
US$750m in September and saw investments from undisclosed existing and new shareholders.

The two investments were primarily focused on Indonesia. While Go-Jek is entirely focused on Indonesia at present,
Grab has stated that its key goal is to rapidly grow in the Indonesian market. This could see the two companies go
head-to-head in a more aggressive manner in the future. The market in Indonesia for ride-hailing applications is
estimated at US$15b by Grab, providing significant opportunity. Further, this market looks to increase as
diversification into food delivery and logistics continues. What the two investments do show is the fast evolution of the
technology sector in Asean. This underlines the regions vast potential for technology-based business models.

Private equity briefing: SEA 4

 2017: Megadeals may be expected

Market conditions in Southeast Asia remain challenging amid a changing global

landscape. Political change in the US and UK, the prospect of increased
protectionism, lower consumer confidence, the impact of artificial intelligence and
robotics, and a tighter credit environment and increased volatility in the currency
markets provide some of the headwinds. The upside is that compared to many of the
global economies, Southeast Asia continues to grow at a faster clip.

As a result, businesses need to do things differently. The overall market growth

provides a great platform for businesses to achieve their ambitions. They need capital
to do this. Entrepreneurs will need to look beyond traditional bank financing and
retained earnings to fund their growth aspirations and some of these could include
PE, joint ventures or partnerships, carve-outs of non-core businesses and better
balance sheet optimization.

Southeast Asian companies are certainly emerging on the regional and global stage
and we will see more billion-dollar companies from this region playing in the global
landscape. PE has a great role to play in making this happen.

Luke Pais
Asean Leader,
M&A and Private Equity

PE is well placed to capture significant opportunities in 2017 as the capital pool of

choice. Entrepreneurs need good partners and there is no better partner than PE
to create long term sustainable value.

Private equity briefing: SEA 5

 02 Investments

In 4Q16, we saw US$2.0b being invested across 30 The increase was due to a handful of large cap deals in
deals, highest since 2Q14. the second half the year, namely the sale of Edotco
Asia to Khazanah and Innovation Network Corp of
In 2016, while there was a decrease in the total
Japan (US$600m) and the sale of Nirvana Asia to CVC
number of deals, with 112 deals as opposed to 148
Capital Partners (US$1.0b).
deals in 2015, deal value more than doubled to
US$4.9b (compared to US$2.4b in 2015).

Figure 1: Investment activity

2,400 50

2,000 40
Deal value (US$m)

1,600

Deal count
30
1,200
20
800

400 10

0 0
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Small Mid Large Deal count

Source: Thomson One, Dealogic and Mergermarket

Figure 2: Investment activity excluding large deals

1,200 50
Deal value (US$m)

40
800
Deal count

30

20
400
10

0 0
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Small Mid Deal count

Source: Thomson One, Dealogic and Mergermarket

Private equity briefing: SEA 6
Table 1: Top investments in 2016 (annual)

Investment Company Country Sector Value Acquirer

date (US$m)

Quest Global Services Pte. Advent International Corp, Bain Capital Inc.,
Feb 16 Singapore Real Estate 350.0
Ltd. GIC Special Investments Pte. Ltd.

May 16 Telus International, Inc Philippines Other sectors 137.0 Baring Private Equity Asia Ltd

Sep 16 GrabTaxi Holdings Pte Ltd Singapore Technology 750.0 SoftBank Group, undisclosed firms

KKR & Co LP, Warburg Pincus LLC, Capital

Aug 16 Go-Jek Indonesia PT Indonesia Technology 550.0 International Inc., Farallon Capital
Management LLC, undisclosed firms

Siloam International Hospitals

Aug 16 Indonesia Provider Care 165.3 CVC Capital Partners Ltd
Tbk PT

Broadway Industrial Group Diversified Industrial

Aug 16 Singapore 111.4 Platinum Equity LLC
FPS and FCD Businesses Products

Oct 16 Nirvana Asia Ltd Malaysia Professional Services 1,052.2 CVC Capital Partners Ltd

Innovation Network Corporation of Japan,

Dec 16 edotco Group Sdn Bhd Malaysia Telecommunications 600.0
Khazanah Nasional Bhd

Geophin George
Partner,
Transaction Advisory
Services,
Ernst & Young Solutions LLP

While downside risks to economies still exist, there is an overwhelming confidence

from our clients that conditions are improving.

Private equity briefing: SEA 7

 03 Exits

Exits Figure 3: Exits by country

There remains limited disclosure around PE exits in

the region, with a number of deals going unreported 1 1
and therefore not captured by the analysis. 1
1
1
Of those that disclosed, there was a decrease in the 1
total deal value of US$2.7b for exits in 2016, 2015 2016
8
compared to US$3.1b in 2015. 3
8
A major driver of the activity in 2016 was the
privatization of Nirvana Asia Ltd by CVC Capital
Partners and the sale of Lazada to Alibaba, which
accounted for US$1.1b and US$1.0b respectively. Singapore Malaysia
Singapore generated the largest number of exits, Thailand Indonesia
recording involvement in 8 out of 11 exits. Vietnam Philippines

Source: Thomson One, Dealogic and Mergermarket

Figure 4: Exit activity

2,500 8

2,000
Deal value US$m

Deal count

1,500
4
1,000

500

0 0
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16

Mid Large Deal count

Source: Thomson One, Dealogic and Mergermarket

Private equity briefing: SEA 8

Table 2: Top exits in 2016 (annual)

Completion Value
Company Country Sector Sponsor Type
date (US$m)

Trade
Undisclosed Lazada Group China Technology 1,000.0 Alibaba Group Holding Ltd
Sale

Trade
Oct 16 Nirvana Asia Ltd Malaysia Funeral Services 1,052.0 CVC Capital Partners Ltd Sale

Source: Thomson One, Dealogic and Mergermarket

Vikram Chakravarty
Asean Managing Partner,
Transaction Advisory
Services
Ernst & Young Solutions LLP

PE exits remain mostly to trade, though we expect to see an increase in

secondaries. Good preparation in articulating the value story is well rewarded by
the market.

Private equity briefing: SEA 9

 04 Fund-raising

In 2016, there was a huge decline in the number of There was continued interest in real estate funds in
funds closed and the total value of these funds 2016 although the majority of the funds raised had a
compared to 2015. A total of eight funds closed growth focus.
(2015: 24) in the year, raising US$2.4b (2015:
US$16.5b).
The largest fund raised during the year was the Asia
Property Fund (US$630m) raised by PGIM Real Estate.
This was higher than any of the funds raised in 2015.

Figure 5: PE fund-raising with Southeast Asia focus

8,000 8

6,000 6

5
Count
US$m

4,000 4

2,000 2

0 0
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016

Funds raised Fund counts

Private equity briefing: SEA 10

Table 3: Top funds closed with Southeast Asia focus in 2016 (annual)

Fund name Manager Type Commitments Closed Industry focus

(US$m)

Arch Capital-TRG Asian Partners III ARCH Capital Management Real Estate 355.0 27-Jun-16 Property

Asia Property Fund III PGIM Real Estate Real Estate 630.0 1-Mar-16 Property
Health, Retail,
Consumer Services,
CDH Growth Fund III (USD Parallel) CDH Investments Growth 330.0 12-Dec-16
Internet,
Health care IT
Creador III Creador Management Company Growth 415.0 13-Dec-16 Diversified
Consumer
Falcon House Partners Indonesia Fund II Falcon House Partners Growth 400.0 22-Nov-16 Products,
Consumer Services
Source: Preqin

Purandar Rao
Singapore Head, Transaction
Advisory Services
Ernst & Young Solutions LLP

We expect to see an uptick in fund raising in 2017 and an accelerated pace of

deployment.

Private equity briefing: SEA 11

 5 Sector in focus:
Financial services

PE firms increased focus on the financial services sector

For PE investors, the financial services industry has never quite delivered to the lure of Asia Pacifics large, youthful
populations, rising discretionary spending, and low penetration levels. Deals have been stymied by regulatory
resistance, asset quality, valuation, or governance concerns leading dealmakers to adopt niche strategies.
Despite the US$180b of capital available to PE funds, dealmaking in the financial services sector has been subdued
with a total count of 21 completed transactions in 2016.
Across Southeast Asia, despite the availability of capital foreign investors, only four deals were completed last year;
Oceania and China saw six and five investments respectively. Based on EY analysis and interviews with some of the
most active large and mid-sized players, it appears that PE firms are reconsidering their approach.

Figure 6: Financial services deal volume (buy-side) Figure 7: Deal count by market (2016)
deals across Asia-Pacific (2011-2016)

Deal value (USD bn) Number of deals

22
20 Others
17 21
15 2 Oceania
15
Hong Kong 6
4
13.5

2.7 3.5 5.3 4.5 6.9 China

SEA (Mainland)
2011 2012 2013 2014 2015 2016 4 5

Oceania China SEA Hong Kong Others

(Mainland)

Private equity briefing: SEA 12

Key trends observed in the financial services sector
Specialization: more PE firms focus their investment
strategies on a handful of sub-segments of the financial
services sector, allowing them to create expertise and Figure 8: Deal count by sub-sector
leverage experiences throughout their portfolio companies (2016)
across geographies. Some examples of specialization
include investments in peer-to-peer lending or internet-
based finance companies in Hong Kong and mainland China;
investments in rural banks for micro and small-and-medium
enterprises plays in Philippines and India; and investments
in consumer finance businesses across Asia-Pacific. Fund
managers then often further specialize the investment
thesis by focusing on a specific product, channel or other
competitive edge, such as advanced underwriting skills and
technologies.

Operating strategies: investors and their limited partners

are increasingly wary of buy-and-hold strategies that
depend on broad macro-economic growth alone; we see PE
firms increasingly taking majority stakes and playing Banking and capital markets
FinTech
broader roles in management to create long-term value.
Insurance (life and non-life)
This may include strengthening the management team; Wealth and asset management
taking on turnaround opportunities; introducing operational Consumer finance
best-practices from more advanced markets; as well as Other financial services (e.g., fund administration)
looking at channel development, often with significant focus
on digital strategies.

Distressed assets and portfolios: depressed commodity

prices, slowing economic growth, and the threat of
protectionist policies have caused a doubling of non-
performing-loans in Asian banking sector since 2011 to
some US$290b, with some estimates pointing to over
US$1t. Regulators and banks are adopting a range of
strategies to deal with the issue, including forcing
consolidation and government-run special asset
management vehicles. However, we expect to see an
increase in distressed portfolios for sale in the market
from large individual exposures to wholesale portfolio
divestments across consumer and corporate segments.

Median FS sub-sector focus

Figure 9: Sub-sectors for future investment

2 (out of 8)
12 of 19 PE firms interviewed focus on
only two FS sub-segments with only one
focusing on five.

A few niche sub-segments are gaining

increasing interest: Corporate services
0 2 4 6 8 10 12 (e.g., fund administration), micro and
Other financial services MSME FinTech Consumer finance
small-and-medium enterprise (MSME)
Banking and capital markets Non-performing loans lending and non-performing loans
Wealth and asset management Insurance (significant interest). These sub-sectors
will require unique and specialized skills
to whet assets, formulate an investment
plan and create post-deal value.

Source: Based on interviews with and analysis of investments of 19 PE firms across Asia-Pacific by EY
Private equity briefing: SEA 13
 Key financial services sub-sectors in focus

Middle class in There will be further investment by PE in consumer finance businesses, as it

Asia-Pacific is a proxy for consumer growth and increase in disposable incomes.
2020 expected While the sector remains less regulated than the banking sector and pricing
remains very high in many markets, consumer finance businesses have the
1.74billion potential to fill the gap between the traditional banking and informal lending
markets.
Consumer 2009 Potential focus markets include Indonesia, Vietnam and Philippines, which
finance 525million have large unbanked populations and high domestic consumption growth.

Large FinTech conglomerates in SEA are cash-rich, deal-hungry and have

strategic reasons for investing in other FinTech ventures, making them
pseudo-competitors to traditional PE firms. Greenfield FinTech start-ups in
SEA need these strategic investors to navigate a regulated industry.
Largest number o It is not fully clear if global venture capital or PE firms will be attracted by
f deals valued sub-scale businesses albeit with rapid multiple expansion potential, in the
limelight of above-mentioned regional incumbents.
>US$1b Key areas of focus include payments, distribution (e.g., in asset
management) and regulation, as FinTechs promise quicker or cheaper
FinTech across Asia
processes and customer access.
Populist and recessionary economic undertones globally have impacted
Non-performing loan asset quality across the region, with some estimates pointing to NPLs in
portfolios excess of US$1t in Asias banking sector. Thus, certain funds, especially
>US$1t those with credit-focused investors are building increasingly NPL-specialized
teams in Asia-Pacific.
China NPL 1.9x We expect to see a pick-up in the value and volume of NPL transactions
Non- between 2011 and broadly across Asia-Pacific, particularly in China, where the 2015 NPL ratio
performing 2015 (banking increased above 2011s level having dipped in the intervening years and it is
yet to be seen whether regulatory measures have sufficient impact in
loans (NPL) institutions) addressing the issue.
Premium CAGR Some of the largest and most successful conglomerates have globally used
(2010-2015) insurance or reinsurance businesses as the backbone of their portfolio.
Given the sub-sectors core characteristics (e.g., risk-pooling, premium-now-
claim-later and stability of float) and SEAs strong economic and
demographic fundamentals, PE is showing interest.
Specialized PE firms are set up and are playing an active role in managing
SEA Global insurance business, optimizing management operations, introducing new
products such as micro insurance, while looking at digitalization and
Insurance 9.0% 1.0% optimization of distribution channels.

Stuart Last
Partner,
Transaction Advisory
Services, Financial Services
Ernst & Young Solutions LLP

"This is an exciting time for investing in the financial services sector in Asia. Macro
trends such as fee pressure, rising NPL, technology development, capital needs, and
skill gaps are coming together to provide opportunities for PE to create value. We
expect to see an increasing momentum of financial services deals going forward.

Private equity briefing: SEA 14

 6 Our services:
PE value creation

EY PE value creation (PEVC) team

comprises experienced professionals
focused on PE and is supported by
our 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

PE value creation team

Private
equity
fund

Focus: provide value creation
services across the PE investment
life cycle
Dedicated PE experience:
dedicated teams comprising former
PE operating partners, seasoned
operating executives and
management consultants
Our capabilities
Broad functional knowledge:
capabilities in strategy, M&A and
all core operating functions;
experience in revenue
enhancement, cost reduction,
human capital and
change management
Deep sector experience: primary
focus in oil and gas, consumer,
industrial, and health care; ability to
tap into sub-sector professionals
Accelerated approach: customized
approach that is highly responsive
and provides accelerated realization
of benefits
Global capabilities: dedicated
teams that has extensive cross-
border experience with access to
more than 30,000 consultants
operating in 140 countries with
deep industry and functional know-
how

Private equity briefing: SEA 15

EY 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 Hertanu Wahyudi

hertanu.wahyudi@id.ey.com
Karambir Anand
+62 21 5289 5684
karambir.anand@sg.ey.com
+65 6309 8089 Malaysia
Transaction Support George Koshy Preman Menon
Seng Leong Teh george.koshy@my.ey.com preman.menon@my.ey.com
seng-leong.teh@sg.ey.com +60 3 7495 8700 +60 3 7495 7811
+62 21 5289 5007
Philippines and Guam
Transaction Tax
Renato Galve
Darryl Kinneally renato.j.galve@ph.ey.com
darryl.kinneally@sg.ey.com +63 2 891 0307
+65 6309 6800
Singapore
Valuation & Business Modeling
Purandar Rao Vikram Chakravarty
Andre Toh
purandar.rao@sg.ey.com vikram.chakravarty@sg.ey.com
andre.toh@sg.ey.com
+65 6309 6560 +65 6309 8809
+65 6309 6214
Thailand
Sector contacts Ratana Jala Piyanuch Nitikasetrsoonthorn
Consumer Products Financial Services ratana.jala@th.ey.com piyanuch.nitikasetrsoonthorn@th.ey.com
+66 2 264 0777 +66 2 264 9090
Geophin George Patrick Hanna
geophin.george@sg.ey.com patrick.hanna@sg.ey.com Vietnam
+65 6309 8168 +65 6309 6720
Toan Quoc Nguyen Du Vinh Tran
Stuart Last toan.quoc.nguyen@vn.ey.com du.vinh.tran@vn.ey.com
Stuart.Last@sg.ey.com +84 8 3824 5252 +84 8 3824 5252
+65 6309 8012
Global contact
Health care Infrastructure
Global
Abhay Bangi Lynn Tho
abhay.bangi@sg.ey.com lynn.tho@sg.ey.com Herb W Engert
+65 6309 6151 +65 6309 6688 herb.engert@ey.com
+1 212 773 6202
Oil & Gas Power & Utilities
Sanjeev Gupta Gilles Pascual
sanjeev-a.gupta@sg.ey.com gilles.pascual@sg.ey.com
+65 6309 8688 +65 6309 6208

Real Estate TMT

Benedict Lim Joongshik Wang

benedict.lim@sg.ey.com joongshik.wang@sg.ey.com
+65 6309 8786 +65 6309 8078

Private equity briefing: SEA 16

Private equity briefing: SEA 17
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Private equity briefing: SEA 18