• Shopping mall operator deal defies China slowdown
• Japan, India see deal drop-off amid public markets surge
• CVC final close eases pan-Asia fundraising overhang
• Country funds struggle to attract capital, apart from Japan
• Big-ticket trade sale, sponsor-to-sponsor exits collapse
• Decline in mainland IPOs draws attention to ex-China IPOs

1) Investment: Mega-deal drives China rebound, other markets fall back

Capital deployed in Asia… USD 26.6bn, down 22% quarter-on-quarter, down 46% year-on-year

China ended 2023 under a cloud. A one-third drop in deployment saw the country lose its status as Asia’s top PE investment destination, and it was uncertain how quickly global players would return.

China started 2024 by posting its biggest deal in two years and its largest-ever control transaction that didn’t involve privatisation. Moreover, the investors in Newland Commercial Management are not state-backed investors wielding renminbi-denominated capital. PAG, CITIC Capital, Ares Management, Abu Dhabi Investment Authority (ADIA) and Mubadala Investment put in USD 8.3bn.

There are caveats. This is a rehash of a USD 5.9bn deal – with a USD 2.8bn contribution from PAG – from 2021 which saw PE investors take 60% of the business, which manages shopping malls built by Wanda Group. A redemption clause was triggered when the business failed to list within a given timeframe, but investors decided to roll over at a higher valuation with ADIA and Mubadala providing fresh capital.

Newland, an asset-light business still 40% owned by the beleaguered Wanda Group, is described as a bet on the Chinese consumer, not the Chinese real estate sector. And presumably, at some point, it will list.

Without Newland, China’s private equity investment for the first quarter would have languished below the USD 9.9bn recorded in the final three months of 2023. With it, the total stands at USD 17.1bn, a two-year high, according to provisional data from AVCJ Research. Of the 10 largest deals Asia-wide in the first quarter, China accounts for the top six.

The other five are more in line with recent large-cap deal flow out of the country: a collection of electric vehicle (EV) makers, artificial intelligence (AI) specialists, satellite developers, energy producers, and semiconductor manufacturers generally considered too sensitive for foreign investors. Local bank and brokerage investment units, plus a scattering of strategic players, account for most of the capital.

The exception is DigitalLand Holdings, an international arm of US and Hong Kong-listed Chinese data centre developer GDS Holdings. Boyu Capital, Hillhouse Investment, Princeville Capital, and Tekne Capital Management contributed USD 587m to support rollouts in Hong Kong and Southeast Asia. Could this be a precursor to a full spinout that separates China and non-China assets?

China’s share of overall Asia deal flow was 64%, a level not seen since the tail-end of the growth-stage tech boom in 2020. It underlines how dismal the first quarter was for Asia ex-China. A total of USD 26.6bn was deployed region-wide, a nine-year low, with significant drop-offs in Japan, India, and Australia. One must go back six years to find a weaker quarter for Japan and eight years for India and Australia.

This belies Japan and India’s status as investment hotspots, but it’s worth noting that public equities are at record highs in both markets. Industry participants have observed that the IPO market is private equity’s biggest competitor in India, with entrepreneurs chasing higher multiples, while buoyant public markets are blamed for thwarting several divestments of listed subsidiaries in Japan.

As a broader indicator of Asia ex-China sentiment – and the reluctance to write large cheques – only two announced deals surpassed USD 500m in size, and neither were buyouts. In the prior eight quarters, an average of 14 deals crossed this threshold. The last time the quarterly total was as low as two was in 2016.

The largest announced buyout was Bain Capital‘s USD 227m acquisition of Japanese camping equipment supplier Snow Peak, secured via a tender offer.

2) Fundraising: CVC, Japan bright spots fail to alleviate regional challenges

Capital raised for Asia (excluding renminbi funds)… USD 12.7bn, down 31% quarter-on-quarter, up 34% year-on-year  

Two down, three to go. Of the global managers with large-cap pan-Asian funds in the market in early 2022, CVC Capital Partners has now joined Bain Capital in reaching a final close. PAG, TPG, and The Carlyle Group were still out there as of the end of the first quarter, where they have been joined by MBK Partners, which reached a USD 3.5bn first close – against a USD 7bn target – at the end of 2023.

CVC’s fundraising narrative was based on a track record heavy on Southeast Asia and light on China for the past two vintages. Southeast Asia accounted for over 40% of Funds IV and V, although Japan and India have recently become more prominent. This seems to have resonated with investors, who committed USD 6.8bn to Fund VI, beating the USD 6bn target.

Nearly half of CVC’s total went into a first close at the end of 2022, so its contribution to first-quarter fundraising is limited. The same can be said of the other big final close in the first three months of the year: KKR had already collected USD 6bn for its second Asian infrastructure fund and wrapped up the process in January with an additional USD 400m.

Overall fundraising did pick up in the first quarter of 2023 – reaching USD 46.1bn, up 57% on the final quarter of 2023 and the highest total in over four years – but it was largely a China story. Strip out the contribution from renminbi-denominated vehicles and fundraising fell from USD 18.3bn to USD 12.7bn. There were fewer than 70 closes. The average for the prior eight quarters is USD 21.8bn and 124 closes.

Apart from CVC and two big infrastructure funds – from KKR and Stonepeak Capital – Integral Corporation was the only non-renminbi fund to crack the top dozen closes for the quarter. The Japanese manager announced a first close of JPY 180bn (USD 1.19bn) on its fifth fund, which has an overall target of more than JPY 200bn.

Integral is continuing a scale-up that saw the firm raise JPY 73bn and JPY 123.8bn for its two previous funds. This is not an isolated example, prompting some LPs to express concerns as to whether capital can be deployed efficiently in Japan’s expanding middle market.

Yet investor interest in the country is undimmed. The Carlyle Group, which is seeking JPY 400bn for its fifth Japan fund, up from JPY 258bn in the prior vintage, noted in February that it was seeing “great demand” for the strategy. Japan Growth Investments Alliance (JGIA) closed its third fund in March on JPY 65bn following a heavily oversubscribed process. The firm raised JPY 38bn for Fund II.

Integral and JGIA were two of only nine ex-China country or sub-regional managers to close funds above USD 200m in the first quarter. They were joined by Unison Capital spinout UCK Partners, which finished off its Korea fundraise with USD 817m, Asia Partners, which claimed USD 474m for its second Southeast Asia vehicle, and VIG Partners, which reached a USD 470m first close on its fifth Korea fund.

Three Japanese players (MUFG Strategic Investment, Basic Capital Management, Keystone Partners) and one Indonesia-focused VC investor (AV Ventures) made up the numbers.

3) Exits: Big-ticket deals dry up, volume plummets to 14-year low

Proceeds realised from Asia… USD 6.5bn, down 64% quarter-on-quarter, down 42% year-on-year

The lack of large-ticket action extended to exits in the first quarter, with proceeds from transactions involving Asia-based assets amounting to USD 6.5bn, the lowest total since the aftermath of the global financial crisis. An upward revision is possible as deals are retrospectively disclosed, but it is unlikely to bring it anywhere near the average for the prior eight quarters of USD 17.7bn.

Trade sales collapsed by over half from the last three months of 2023, while sponsor-to-sponsor activity came in below USD 1bn. Only five exits surpassed USD 500m in size – compared to 11 in the final quarter of 2023 and nine in the quarter before that.

India was responsible for nine of the 25 largest exits in the first three months. Trade sales dominated – and most were sub-USD 70m – but there were also a couple of sizeable open market sales (Indus Towers, USD 629m; CMS Info Systems, USD 181m). India’s buoyant public markets have driven meaningful exit volume through block trades and sell-downs in recent years.

The country led the way in terms of exit proceeds by jurisdiction, with South Korea (which contributed a cluster of trade sales to the top 25) and China in second and third place.

The largest exit of the quarter came out of China as Mindray Technology Holdings acquired smaller peer APT Medical for USD 935m, facilitating exits for the likes of Qiming Venture Partners and Firstred Capital. M&A has extended into biotech too, with global strategic investors picking up China-based or China cross-border drug developers at attractive valuations.

China IPOs also had something of an international flavour. Listings on mainland exchanges dropped sharply to USD 2.1bn from USD 10.3bn in the prior quarter, while the number of offerings fell for the third quarter in a row. This coincides with numerous companies withdrawing their listing applications amid concerns about cumbersome processes.

Asia-wide PE-backed IPOs felt the sting as proceeds declined from USD 14.6bn to USD 4.9bn. The surge in domestic listing activity in India continued but many of the offerings are small by Asian standards, which meant only one – Medi Assist Healthcare Services – made it into the top dozen for the region.

The mainland slowdown also left space for entries from Japan and Hong Kong, but the largest offering was what might be considered a rarity: an IPO in the US by a China-related company. Amer Sports, which owns brands such as Salomon, Atomic, and Louisville Slugger, raised USD 1.36bn on the New York Stock Exchange, delivering liquidity to Anta Sports, FountainVest Partners, and Tencent Holdings.

In 2018, the Chinese investors formed a consortium with Chip Wilson, founder of Lululemon Athletica, and acquired Anta for USD 5.3bn. Accelerating brand penetration in China was part of the agenda, and the consortium – which still owns nearly 90% of the company – appears to have delivered, with the Greater China share of overall sales more than doubling to 19.4% between 2020 and 2022.