Private equity investment activity held steady for emerging markets in 2013, and despite a sluggish start to the year, deal volume gained momentum in the last six months, according to the Emerging Markets Private Equity Association (EMPEA). This investment activity led to an overall capital flow of US$24 billion in emerging markets last year, representing 883 deals and a 7% decline in capital year-over-year from 2012. While fundraising was down with only 150 funds raising US$36 billion in 2013, a 19% decline in total capital raised compared to 2012, the relatively constant deal volume indicates that private equity investors continue to find investable companies across a diverse array of markets.
“Fundraising in private equity follows a cyclical pattern and we are still in a downturn phase of the cycle. The investment side is the real story, however, because where others see adversity, private equity investors see opportunity,” commented Robert van Zwieten, President and CEO, EMPEA. “Private equity continues to be the optimum way to tap into emerging market investment opportunities. We expect that these markets will adapt, greatly diverse as they are, to the new economic realities of a moderate Chinese economic slow-down and US interest rates rising gradually over time. For the time being, with asset re-pricing underway and local currencies depreciating in many emerging markets, this is a favorable time for highly discerning fund managers to put capital to work in select sectors.”
According to EMPEA’s data, some of the biggest year-over-year gains from 2013’s deployment of capital went to markets beyond the BRICs– including those in Southeast Asia, East Africa and Latin America (ex. Brazil) – a strong indication of where investors are seeing the most promising prospects for growth. Taking a closer look within each region, the following ten notable emerging markets private equity (EM PE) investment trends stood out from the past year.
- There was greater diversity in the types of deals executed across emerging markets, with venture capital (VC) investment accounting for 43% of deal activity in EM PE, following an annual upward trend since 2009, when VC made up only 17% of deals.
- While Emerging Asia accounted for 78% of VC deal activity across emerging markets, the largest disclosed VC deal took place in Latin America for Panama-based online language school Open English.
- US$2.2 billion was invested through 61 deals in Southeast Asia in 2013, a six-year high in terms of activity and a 39% increase in capital from 2012.
- In China, deal activity rebounded in the fourth quarter, with 89 investments executed—the most in a single quarter for the country since Q3 2011.
- PE investment in India proved resilient, increasing 11% in volume and holding flat in total capital, year-over-year. Investment in the country was robust in part due to a 33% increase in the number of VC deals.
- CEE and CIS showed healthy exit activity with six liquidity events valued at an estimated total of US$3.5 billion, according to third-party data. Three of the six exits were in Russia-based companies.
- Russia and Turkey accounted for 48% of deal flow in CEE and CIS.
- Seven PE deals closed in Tunisia and ten in United Arab Emirates, comprising 45% of MENA investment activit.
- Mexico witnessed a five-year high in capital invested and also saw one of the year’s top ten largest deals for emerging markets: Axis Capital’s US$200 million buyout of Oro Negro.
- For Sub-Saharan Africa, capital invested reached a five-year high of US$1.6 billion, a 43% increase since last year, and East African deals increased by 29%.