Financial sponsor (FS)-backed transactions in Asia-Pacific have flopped to their lowest volume year-on-year (YoY) since 2019, with private-equity (PE) activity remaining subdued in China and India, and Japan a rare bright spot for dealmakers in the region.

Between January and July, APAC generated USD 65.3bn across 202 deals, down 53.4% from the same period last year, as geopolitical tensions and macroeconomic headwinds dampened risk appetite. Buyouts accounted for 79.6% of total deals, with low valuations deterring PE firms from cashing in and exiting their investments.

FS-backed transactions in China hovered above USD 3bn, up from USD 2.5bn in 2022, but well short of the boom years in 2020 (USD 53bn) and 2021 (USD 23.6bn). The only major deal has been a proposed take-private of US-listed Chindata Group [NASDAQ:CD] by Bain Capital for USD 2.7bn.

Dealmaking in the world’s second-largest economy remains sluggish amid escalating US sanctions. China accounted for 53.4% of all FS-backed transactions in APAC during the first seven months of 2020; but this collapsed to only 4.7% in the same period this year.

The Biden administration is to impose new restrictions in mid-August to stem the flow of technology and capital into China, while a US House committee is investigating investments by four US venture capital firms – GGV Capital, GSR Ventures, Walden International and Qualcomm Ventures – into Chinese AI and semiconductor companies.

Dealmaking in India slowed to USD 14.1bn, well short of the record USD 81.5bn generated in the same period in 2022. Rising interest rates and an upcoming general election are prompting Indian financial sponsors to pause activity.

By contrast, FS involvement in Japan leapfrogged that of its Asian peers thanks to a strong stock market, relatively cheap valuations, a weakening currency and stubbornly low interest rates set by the central bank.

Activity in Japan soared 76.5% YoY to USD 30.2bn from 65 deals, the highest volume on Mergermarket record. The country was home to the two largest transactions in APAC this year:

• A USD 16.1bn proposed acquisition of Japan’s Toshiba [TYO:6502] by a consortium led by Japan Industrial Partners (JIP).
• A USD 6.9bn takeover of JSR Corp – the country’s largest manufacturer of a chipmaking compound – by government-backed JIC Capital.

South Korea also performed strongly, surpassing Australia to become the third-largest market for FS dealmaking with USD 9.5bn, marking a 14.7% YoY rise. Two deals feature among the top 10 transactions in APAC:

• The acquisition of a 65.7% stake in security operator SK Shieldus by EQT Partners.
• The takeover of dental specialist Osstem Implant by MBK Partners and Unison Capital Korea.

China seeks to break US investment blockade with favorable regulation, policies

US dollar funds are set to face further obstacles when investing in China, with Washington widely expected to continue curbing the flow of technology and capital to the Middle Kingdom.

However, Chinese policymakers are not sitting on their hands, with central and local governments intensifying efforts to attract foreign investment, particularly from Saudi Arabia and the UAE. Moreover, state capital and government guidance funds are to partner with domestic private venture capital to invest in state-selected priority sectors.

The China Securities Regulatory Commission (CSRC) is to enable the PE industry to support tech SMEs throughout their entire lifecycle. CSRC vice chairman Fang Xinghai also met with global VC and PE funds, including representatives from HongShan and Warburg Pincus, to hear their concerns about investment in the country. The firms are calling for expedited overseas IPO registrations, accelerated listings in mainland China, and the relaxation of M&A rules.

Chinese financial sponsors could also capitalise on low-valuation, high-quality assets coming to market from some Western enterprises keen to divest operations in the country. For example, Mundipharma International’s owner is reportedly exploring a potential carveout of its business in China after receiving expressions of interest from potential suitors.

What lies ahead?

Asian and Western foreign sponsors will continue to hunt for high-profile transactions in APAC ex-China. Among them:

• The promoters of Cipla Limited [NSE:CIPLA, BSE:500087], an Indian pharma giant, have opened talks with PE firms, including Blackstone and Baring Asia, to divest a part of its stake in a possible multi-billion USD transaction.
• Fujitsu [TYO:6702] has short-listed candidates to acquire its 50% stake in Shinko Electric Industries Co [TYO:6967], which has a market capitalization of around JPY 770bn (USD 5.39bn).
• A sale process for Australian hospitals owner Cura Group, which is expected to fetch up to USD 400m, is believed to have attracted 20 interested parties.

Separately, Singapore-based sovereign wealth fund GIC plans to boost infrastructure investment in India and Vietnam in a quest for stable returns amid global stock market uncertainty.

Analytics by Manu Rajput