Singapore had another strong year for private equity (PE) deals in 2021 as the rest of Southeast Asia also emerged out of the Covid-19-induced lull in 2020, said a report by global consultant Bain & Co.

However, even as the fundamental growth story for Singapore and the region remains intact, some slowdown in PE activity is likely this year amid the worsening market and macroeconomic situation worldwide, according to findings from Bain & Co’s 2022 annual Southeast Asia Private Equity Report, released on May 10. The report surveyed more than 100 PE firms across the Asia-Pacific region.

In what the firm called the most impressive turnaround ever, the total value of PE deals in Southeast Asia reached an all-time high of $25 billion, more than double the 2020 figure of $9 billion. That rebound was driven by the progressive relaxation of Covid-19 curbs in the second half of 2021, the report said.

Singapore led the region in both the number of deals and their value. It recorded 104 deals worth a total of $12.1 billion, up from 54 and $6.2 billion a year earlier.

The city-state was also ahead in exit value – the amount investors make when they sell their PE stakes – with the total reaching $7.1 billion last year from just $1.3 billion in 2020.

However, the dominance in deal and exit values mostly came from the extraordinarily large capital listing of Singapore’s ride-hailing and e-commerce giant Grab in New York. Also, Singapore’s hub status means that many firms are headquartered in the country and, as a result, investments in these firms are booked here, even though they could have significant operations elsewhere.

Indonesia and Vietnam were the closest competitors to Singapore in all categories, the report showed.

Usman Akhtar, partner and head of the firm’s Southeast Asia PE practice, said: “Southeast Asia as a region has bounced back strongly from the Covid-19 impacted year in 2020, with the 2021 activity level showing that investors were keen to make up for lost time.

“While PE investors continue to believe they can get strong returns in the region over the next three to five years, we also see them putting more emphasis on topline growth and operational improvements as expectations of multiple expansion become relatively muted.”

Akhtar said the surge in inflation, concerns about a recession in the US and the recent capital market gyrations will likely make most investors worry about the outlook for revenue, profits and valuations, especially for growth companies such as those in the Internet and technology sector.

The sector has accounted for the lion’s share of deal volume and value across the larger Asia-Pacific PE landscape in the past few years.

“Within Southeast Asia, the digital economy continues to roar ahead as tech-centric investment remains dominant in Indonesia and leads growth in both Singapore and Vietnam,” Bain & Co said.

Still, the report said, sectors like healthcare and financial services are beginning to take noticeable share as investing targets.

Findings in the report showed that despite the tough market and economic environment, most PE firms believe that Southeast Asia continues to offer investment appeal by virtue of its young, large and rapidly digitising population.

About 60 per cent of PE firms that manage a private equity fund retain their favourable outlook on regional markets and on future driven expectations, especially as the region looks primed for further post-Covid-19 recovery, the report said.

“However, several Southeast Asian tech giants have been affected by the global hit to high-growth tech stocks. In the short term, there could well be caution exercised by investors, who will aim to ensure they calibrate valuation expectations on private market tech investments to reflect the current environment,” it noted.

Bain & Co said environmental, social and governance (ESG) factors as an investment theme has shifted from a niche consideration to a top priority. “The overwhelming majority of PE funds – over 90 per cent – surveyed expect to increase efforts and focus on sustainability and ESG in the coming three to five years.”

The report said that across the spectrum of sustainability topics, the top three ESG investment themes are clean energy; safe, fair and inclusive communities; and sustainable food and health.

Other trends in the region that are seeing increased and strong investment interest are in digital assets, such as cryptocurrencies and non-fungible tokens, and consumer products, due to a post-pandemic consumption rebound.

Digital healthcare is also poised for significant growth with ample headroom for opportunities, Bain & Co said.

Tom Kidd, partner in the firm’s Southeast Asia private equity practice, said: “While PE firms are understandably eager to capture these next waves of growth, long-term success will be achieved by those who pay more attention to their core investment themes and diligence.”