A robust recovery is underway in emerging markets private equity as investment pace is picking up significantly post-crisis and appears on track to beat 2009 totals.
In the first half of this year, investment totals stood at USD13bn versus USD8bn at this time last year, an increase of 55 per cent, according to Emerging Markets Private Equity Association.
The total value of private equity investments made in the first two quarters of 2010 was USD4.5bn more than that invested through the same period last year, led by an investment surge in Latin America and continued strong activity levels in China and India.
“Investment conditions in emerging markets private equity are revitalising. There are more and better quality deals in the pipelines; the continued easing of price expectations among sellers means managers have been more successful in closing transactions. Emerging market fund managers are increasingly bullish in light of stabilising markets and lower valuations,” says Sarah Alexander, president and chief executive of Emerging Markets Private Equity Association.
Fundraising levels are showing signs of rebounding, with USD11bn raised in the first half of 2010 versus USD9bn raised in the same period last year. Asian funds continue to account for more than half of the total (55 per cent), with China continuing as the leading destination for new capital. China-dedicated funds accounted for two-thirds of the 46 Asian funds that raised capital through mid-year, 60 per cent of total capital raised for Asia, and one-third of the total capital raised for emerging markets during that period.
Beyond Asia, notable upticks in Sub-Saharan Africa and Latin America accounted for a significant portion of the overall increase in capital raised.
“African funds raised through June already exceeded the full year 2009 total, and some sizeable funds being raised point to a return to pre-crisis levels,” says Alexander.
According to the research, 90 per cent of the rise in both transaction volume and in total investment can be attributed to increased investment activity in China, India and Latin America.
Forty four per cent more deals were completed, with 402 deals done this year to date versus 280 deals this time last year, and quarterly transaction volume is tracking slightly ahead of pre-crisis pace.
There has been an increase in large transactions, pushing average deal sizes up 27 per cent (from USD40m to USD51m), driven by 28 deals topping USD100m versus only 17 of similar size in the first half of 2009.
Brazil has made an appearance for the first time as a destination for two of the five largest private equity deals in emerging markets through mid-year. Investment totals made into the country increased 53 per cent in the first six months of 2010 against year-end totals in 2009, at USD1,513m (1H2010) versus USD989m (FY2009).
Alexander adds: “This trend towards further investment into Brazil looks set to continue. Of all the funds recently raised for Latin America, as much as two-thirds of capital raised could feasibly be directed to Brazilian opportunities. We’re also seeing marked interest in the investment potential of other regional opportunities, particularly in Colombia and Peru. It is encouraging to see the markets recognise the growth potential of Latin America.”
