Private equity investors see carve-outs as one of the biggest opportunities in Asia Pacific, despite patchy returns for this deal type, according to Bain & Company.

More than 40% of respondents in a survey accompanying Bain & Co’s Asia Pacific Private Equity Report 2025 identified carve-outs as an interesting investment opportunity, ahead of sponsor-to-sponsor deals and take-privates. Companies with no prior sponsor involvement are seen as most attractive.

Despite this appeal, returns on carve-outs have deteriorated in the most recent cycle. The median multiple on invested capital (MOIC) for deals between 2015 and 2021 was 1.4x, on par with all private equity investments. For the 2000-2014 period, carve-outs outperformed the overall market by 3.1x to 1.9x.

“These deals are not easy to do, there are a lot of complications. At the same time, corporates have become more sophisticated, so assets aren’t being sold on the cheap,” said Elsa Sit, vice president of Bain & Co’s APAC private equity practice.

“These deals also attract a lot of attention, so there’s usually an auction and people bid up the price. Some carve-outs are hidden gems, but competition for them will be heavy.”

Carve-outs accounted for 20% of APAC buyout deals over USD 100m in 2024, up from 11% the previous year. They are notoriously chunky. At USD 5.4bn, Bain Capital’s recently announced acquisition of Seven & I’s Japan-based supermarket and specialty stores business is the seventh largest private equity buyout in the past three years.

All the carve-outs of USD 2bn or more from this period were in Japan, according to AVCJ Research, underlining the scale of the opportunity as conglomerates come under pressure to divest non-core assets. However, it is not solely a Japan phenomenon. India, Australia, and South Korea are represented in the USD 1bn-USD 2bn segment.

In recent weeks, Eric Xin, a managing partner at Trustar Capital, has predicted more carve-outs in China as multinationals offload their local operations. Meanwhile, Rohan Wolfers, a managing director at Pacific Equity Partners, told the AVCJ Private Equity Forum Australia & New Zealand 2025 that Australian corporates are moving from buying to selling mode.

Central to most carve-out investment theses is the notion that subsidiaries can perform better once separated from their distracted parent groups. Private equity owners typically crank up capital investment, identify operational efficiencies, and empower management.

Historically, these assets have sold at lower multiples than other buyouts in recognition of the difficulties involved in unravelling a subsidiary from the parent and creating a standalone business. Today, though, multiples are rising while the complexity remains. Investors must move quickly and decisively to deliver additional alpha, according to Bain & Co.

“In the past, investors were more reactive. They added value to companies, but it was mostly about trying to help when something happened,” said Sit. “Now they must be proactive. For the more complex deals, you need to go all-in from day one.”

More broadly, Bain & Co’s report offers a snapshot of an industry in which continued weakness in China – across investment and exits – was once again offset by robust activity in other markets. India was the star performer in 2024. At the same time, fundraising is difficult. On average, funds that closed in 2024 were 4.3% below their target size. In 2022, they were 8.7% above.

“The market is recovering, and people are more optimistic, but then there’s the drop in fundraising, which is happening globally, not just in APAC. LPs need to see DPI [distributions to paid-in]. If you can’t exit, you can’t provide liquidity, and your fundraising will be hard,” said Sit.

“There’s a whole bunch of ageing portfolio companies. More than 200 investments valued at USD 100m or more are now past their fourth year of ownership.”

Only 26% of buyouts above this size threshold from the 2017-2019 vintages were sold within five years of ownership. This compares to 43% for 2011-2013 and 31% for 2014-2016. The survey found that only 35% of APAC-based managers achieved the number of planned exits in 2024. Over 50% are increasing focus on portfolio management and exits as a point of differentiation.

Challenging conditions are already putting the squeeze on smaller investors. In 2024, the number of active investors declined 10% to 2,412, the second drop in two years. Japan and India posted increases of 14% and 29%, respectively. The biggest drop-off was in China, Sit noted.

The top 20 investors accounted for 41% of all activity in 2024 – relatively high by historical standards – with global and regional managers increasing their shares significantly at the expense of domestic peers.