Private equity and venture capital investments in Asia-Pacific, excluding Japan, dropped 30% year over year in 2023 to $25.08 billion, representing the lowest annual total in at least five years.
Deal count also tumbled to a five-year low, falling to 210 compared to 221 transactions in 2022, S&P Global Market Intelligence data shows.
The decline in private equity investment activity in the region can be attributed to rising interest rates worldwide, as well as cooling private equity activity in China, said Ambarish Srivastava, associate director of private equity and consulting at research and analytics firm Acuity Knowledge Partners.
"China, a substantially large market of private equity deal activity, witnessed a deceleration of private equity investment due to the slowing economy and the COVID-19-related lockdowns. There was also a decline in cross-border deals between the US and China," Srivastava said.
On a quarterly basis, private equity and venture capital deal value declined 15.3% year over year in the fourth quarter of 2023, while deals were down to 40 from 49 during the same period.
The value and number of deals show a consecutive quarterly decline in the second half of 2023, and the fourth quarter booked the lowest quarterly totals since at least the first quarter of 2021.
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The technology, media and telecom (TMT) sector posted the largest number of private equity-backed deals, with 11 recorded in the quarter. The consumer sector came in second with seven deals, followed by the healthcare and industrial sectors with six each.
Looking at the subsectors of TMT, application software companies were the most attractive to private equity.
Private equity transactions accounted for $4.49 billion, or 3.44% of all fourth-quarter M&A deals in the region.
Overall M&A hit $130.43 billion in the fourth quarter, the highest quarterly value in 2023. But the percentage of private equity investment to the overall total shows a consecutive quarterly decrease throughout the year.
Top deals
Bain Capital Investors LLC's take-private transaction with Beijing-based datacenter solutions provider Chindata Group Holdings Ltd. was the largest private equity-backed deal in 2023. Transaction value stood at $3.16 billion, according to Market Intelligence data. The deal was completed Dec. 18, 2023.
Morgan Stanley Asia Ltd. and Goldman Sachs & Co. LLC were financial advisers to Bain on the deal. Citigroup Global Markets Asia Ltd. was the sell-side financial adviser.
In the second-largest deal, UCK Partners Inc. and MBK Partners acquired a 65.1% stake in South Korean dental implant company Osstem Implant Co. Ltd. for $1.82 billion. NH Investment & Securities Co. Ltd. provided financial advice to the buyers.
Outlook
Private equity firms are expected to target digital technology, financial services, infrastructure, as well as the retail and consumer sectors in 2024.
"The weak sentiments experienced in 2023 in relation to fundraising, deal volumes and valuations, are expected to continue in 2024, but likely with less intensity," Acuity's Srivastava said.
Firms are still cautious about interest rate trajectories, geopolitics and macro volatility.
But a stronger deal pipeline is starting to take shape in Asia-Pacific amid a significant amount of private equity dry powder — valued at $486 billion as of December 2023 — waiting to be deployed in the region, said Luke Pais, Asia-Pacific private equity leader at EY.