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(SINGAPORE) Private equity players in the region are turning their backs on pre-IPO and venture deals amid challenging times for the industry, according to a Deloitte & Touche survey.
'We do not play on this field any more. The market for 2009 is terrible for (venture capital),' said one respondent.
Deloitte surveyed 20 unnamed 'key practitioners' in the South-east Asian private equity market on trends in the industry. 'Pre-IPOs are dead and it will take a long time for them to come back. They are bull market-friendly transactions,' said one.
Others pointed to the fact that the exit door is now shut: 'IPOs will be very difficult and will not reach their full value. Viable exit routes will be very limited.'
Most of those surveyed said development capital - investments in established and profitable firms seeking funding - as well as buyout and privatisation deals, are likely to be the most common in the next 12 months.
But such deals are likely to be smaller than in the past, almost half of the respondents said. 'First, the general value of businesses has declined over the past six months, and second, there is a lack of debt for gearing up investments,' said one.
'In South-east Asia there is greater comfort with smaller deals due to general nervousness in the market,' said another.
The volume of deals is still uncertain. While conditions are challenging because there is less opportunity to take on debt, the outlook is more certain than it was. 'There was an element of price re-discovery, with people waiting to see what would happen after the financial shakeout,' one partner said. 'Activity will increase after the initial slowdown of the past six to 12 months.'
The key target sectors are power, oil and gas, mining, consumer companies and financial services, respondents said. 'Industry sector growth patterns vary by country. In Indonesia it will be commodities, in Singapore electronics and property, and in Thailand a more diverse choice of sectors,' said one.
Singapore, the most developed market for private equity players and where most funds are based, is likely to be the focus of activity, the survey found. Indonesia and Malaysia are also popular destinations, while Vietnam is seen as a growing target market.
Restrictions on foreign investment continue to be the top bugbear for investors. While Singapore has a virtually unlimited flow of capital, controls exist in other South-east Asian nations, respondents said.
As well, corporate governance is still a novelty in the region - another barrier to external investors. 'This is treated too lightly. There has not been enough attention here. Families get too involved and this leads to underhand dealings and a conflict of interests,' said one respondent. In general, there is too little distinction between owners and managers, the private equity partners said.
'The mentality of founder shareholders and problems privatisating listed companies are major challenges,' said one respondent. 'There is a strong personal attachment to firms in South-east Asia, How do you crack it? How do you truly 'corporatise' a company?'
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