Private-Equity Deals Soar in Asia While Collapsing in Americas

Private-equity deals have surged in Asia and fallen in the Americas this year, highlighting the uneven impact of the coronavirus pandemic, a new study shows.

The value of acquisitions in the Asia-Pacific region by private-equity firms more than doubled this year through September compared with the same period last year, according to research from Ernst & Young Global Ltd.

In the Americas, investment fell by 44%, while in the region comprising Europe, the Middle East and Africa it was roughly flat, the accounting and consulting firm said in a report to be released Thursday.

Globally, deal value fell 12% in the first nine months of the year compared with the same period in 2019, while the volume of transactions dropped 30%, the report said. Private-equity firms invested $353 billion this year through September and $401 billion in the same period last year.

Private equity is honing its focus on Asia as that area’s economies have recovered from the pandemic-related slowdown faster than other regions in the world. The International Monetary Fund last month projected China to be the only major economy to grow this year, with a 1.9% expansion. The U.S. economy is projected to shrink by 4.3% and the eurozone by 8.3%.

Major private-equity investors are finding investment opportunities are more weighted toward Asia. For private-equity firm KKR & Co., for instance, Asia was the busiest geography for private-equity deployment in the third quarter, the firm said Oct. 30. The firm’s weighting toward Asia has helped because that region recovered from the pandemic earlier than others, firm executives have said.

KKR’s emphasis on Asia “should help as most Asian economies haven’t seen the recent spike in Covid trends that we’ve seen across several states in the U.S. and European countries,” said Craig Larson, KKR’s head of investor relations, on an Oct. 30 call with investors.

The EY report says that deal making began picking up this fall. Merger volume was strong in the first few months of the year before bottoming out in March and April. As lockdowns ease and international travel slowly picks back up, deal activity is rising, EY said.

The third-quarter rebound in private-equity investment was evident in the financial reports of some publicly traded firms. Blackstone Group Inc., for instance, pulled back as the pandemic first hit the U.S., with firm President Jon Gray telling The Wall Street Journal in April that “we’re not rushing to invest.”

By the third quarter, investment opportunities were starting to return, with the firm committing $9 billion during the period, Mr. Gray told investors on Oct. 28. Blackstone had a further $19 billion in deals that were pending but not yet closed, “the largest outstanding commitment pipeline in the firm’s history,” Mr. Gray said.

Globally, the largest private-equity investment of the first nine months was China Investment Corp.’s $34.9 billion acquisition of a stake in China Oil & Gas Pipeline Network Corp., followed by a $19 billion deal for Thyssenkrupp Elevator AG by Advent International and Cinven, EY said.

The technology sector made up the highest proportion of deal value, at 22%, followed by utilities, including energy, with 14% and financials with 12%, EY said. Overall, the sectors that saw the biggest increases in activity compared with last year were retail and utilities, while real estate and oil and gas saw the biggest declines.

Private-equity exits also slumped, declining 17% globally through September compared with the same period last year. The largest exits were Thoma Bravo’s $11 billion sale of mortgage-software firm Ellie Mae Inc. to Intercontinental Exchange Inc. and the $11 billion blank-check deal involving health-care services company MultiPlan Inc., which was sold by Hellman & Friedman and Leonard Green & Partners, EY said.

Private-equity fundraising declined from the extremely strong levels of last year. The $542 billion committed to funds this year through September was 19% less than during the same period of last year, but was still strong by historical standards, EY said.

Source: Wall Street Journal