Asia-Pacific remains a heavyweight in the global private equity (PE) arena and continues to outperform other asset classes. What's your comment about Vietnam’s market in the region?
Vietnam has recently become one of the more important Southeast Asian destinations for PE investment. It hit US$3 billion in 2018 and US$1.9 billion (excluding real estate and infrastructure) in 2019, which represented significantly higher numbers than any of the years from 2013 to 2017. Along with Singapore and Indonesia, Vietnam-domiciled businesses have been part of the three largest PE markets in Southeast Asia in the last two years.
The ongoing concerns surrounding the coronavirus outbreak in the region and globally are also affecting the 2020 dynamic. How would they affect PE investors' decision to invest in Vietnam this year?
The pandemic is developing day by day so it is unlikely that many investors have had the time to think through how it might affect their investment strategies in Vietnam. In the short run, there is no doubt that PE deal processes will slow down or pause completely. Much depends on how Vietnam’s own economy copes with in the coming weeks and months.
We already are seeing signs of coronavirus tipping large swathes of the world into recession. Vietnam has attracted a lot of attention from PE investors in the last two-plus years, and that interest will not simply dry up, depending on how Vietnam’s economy responds after the virus peaks. The ideal scenario would come true if Vietnam emerges from this period of pandemic and deal processes open up again. In the short-run (i.e. this quarter and part of the next) it would be prudent to expect slow deal activity.
According to your latest report, deal value in the region decelerated sharply, down 16% in 2019 compared to 2018. What are your predictions for growth in deal value and size in 2019?
Specifically, in Southeast Asia, PE deal value was about US$12 billion in 2019 versus US$14 billion in 2018. This means two years in a row of numbers that have slightly declined. In an immature market like Southeast Asia, single year fluctuations are not uncommon and can reflect the impact of certain mega or large deals.
In fact, the primary driver of the decline since 2018 was a reduction in total deal value put into Singapore-domiciled companies, which includes some large global or regional businesses that have attracted mega-deals in the past.
What will PE investors consider when expanding their investment portfolios to Vietnamese firms?
There are many things for PE investors to consider. Factors that have been on the mind of investors for years, but many have grown more comfortable about on Vietnam recently, including the potential for foreign currency drag (which was a bigger issue in the times in the past when the Vietnamese dong was having a weaker run), and corporate governance.
More recent issues include companies adhering to environment and sustainability standards that PE firms are increasingly adopting (and which their Limited Partners expect to see them adopt). And one extremely important consideration is exits.
The exit performance in Southeast Asian PE has been relatively muted recently, with only US$7 billion of exit value for PE in Southeast Asia in 2019 (coming off a quiet year of $8 billion the year before). PE firms will want to show their Limited Partners that they can put cash back in their hands from their Southeast Asian investments, and Vietnam’s increased importance in the regional PE landscape means that this consideration applies firmly to Vietnam.
How would you comment on the capacity of founders/CEOs at Vietnamese firms in the internet & technology sector? Which weaknesses should be dealt with at the firms?
It’s a dynamic space in Vietnam and there are a number of exciting businesses that have been attracting attention from the VC and PE firms active in internet and technology in the region. Consistent with a general theme regionally and even globally, we see that the founders/CEOs will need to show a clear goal to drive a path to profitability as investors are emphasizing profitability more now, as opposed to just growth.
How does the investing landscape look in region and particularly in Vietnam in 2020? Would the decline last year continue in 2020 and why?
Covid-19 makes it even more difficult to predict. It is likely to have a short-term impact for sure. We do not forecast the market but Vietnam does have strong fundamental drivers for the interest in the country for private equity and we are hopeful that if it can emerge on the other side of the Covid pandemic, it will attract continued interest in 2020 and much beyond that.
Bain & Company is a global consulting partner of the private equity (PE) industry and its stakeholders. PE consulting at Bain has grown eight-fold over the past 15 years and now represents about one quarter of the firm’s global business. The company maintains a global network of more than 1,000 experienced professionals serving PE clients. |
