Private-equity giants like Carlyle are inking more deals in Asia – Where do they see the investment opportunity?

As Asian economies experience a relatively quicker recovery from pandemic-induced recession than the United States, private-equity giants are taking the opportunity to strike mega-deals throughout the region. 

The capital is coming from a mountain of money PE shops have raised from investors, as executives see growth in Asian countries after companies gain their footing following the earliest wave of the coronavirus, experts told Business Insider.

“China took the early hit and because of the drastic action taken by the government, it really had a tough first quarter in terms of impact — both health and economic impact,” Xiang-Dong “X.D.” Yang, who leads Carlyle’s corporate private-equity investments in Asia, told Business Insider.

“But we have over 20 portfolio companies in China and they have all recovered quite well,” he said.  “Most companies are at 2019 levels; some are higher. The portfolio [companies] as a whole, if you look at July or moving into August, are running at year-over-year growth.”

Now, data from Bain & Co illustrates an uptick in private-equity deal volume in the second half of 2020 and more deals are being struck in other parts of Asia, like India.

The outlook in Asia was a big talking point during recent earnings calls for private-equity firms, as execs from KKR and Carlyle Group pointed to Asia as a position of strength in their investments.

Scott Nuttall, co-president of KKR, told analysts that about 25% of the firm’s portfolio was in technology, media, and telecom, with investments in data and e-commerce performing well, and that KKR has a “heavier weighting toward Asia” consisting of about 30% of its private-equity portfolio.

“So when you put all that together, we’ve actually been quite encouraged by the data we’re seeing,” he said. 

And Carlyle’s co-CEO, Kewsong Lee, acknowledged on his own firm’s earnings call that “Asia is out ahead” compared with other regions in its economic recovery, and that, by Carlyle’s estimates, “China probably won’t even enter into a recession this year.”

Asia, with deal activity scattered throughout countries including China, India, Australia, Japan, and Korea, saw $71 billion in private-equity investment throughout the first half of 2020, up from $64 billion during the same period in 2019, according to data from Bain & Co.

The total number of deals struck declined, however, meaning some multi-billion-dollar deals involving PE behemoths pushed up the volume.

“People are putting a lot of money to work here,” said Kiki Yang, a Hong Kong-based partner with Bain & Co.

Of the large U.S. investors active in Asia, KKR, Carlyle, Blackstone, and Warburg Pincus are among the most prominent, staffing deal teams with local investment professionals. And their buyout funds keep getting bigger, with KKR reportedly amassing $10 billion for its largest Asia buyout fund in June. 

Deals are pervasive in online businesses and healthcare

Yang, who studies private-equity activity in Asia, was one of several experts who identified sectors in Asian economies that are bringing attractive deals to private-equity firms. These sectors include companies in healthcare services, grocery sales, and communications that are converting or expanding their businesses online.

India, of all Asian countries, is proving to be a growth market, she said. 

One Indian-based digital services company, Jio Platforms, received commitments of $9.5 billion this summer, from investors including KKR, Saudi Arabia’s Public Investment Fund, Vista Equity Partners, Silver Lake Partners, and Mubadala Investment. 

Source: Business Insider

By Casey Sullivan

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