Favorable economic conditions to bolster PE activity in 2019
Across ASPAC, there has been increasing PE interest in banking targets and special situation opportunities, particularly in ASEAN. With growing dry powder, PE funds should continue to focus on banking and wider financial services, given fundamental macro growth trends, an emerging consuming middle class, large unbanked populations and improving technology accessibility through platforms. Recently, both PE and SWFs have made significant investments in leading Vietnamese commercial banks with a number of smaller funds following suit. Potential targets include commercial banks, consumer and micro finance companies, to take advantage of rising levels of income, urbanization and financial inclusion. This has also driven interest in fintech and payments sectors, enabled by increased smartphone penetration across the region. PE funds are also eyeing platform companies who are able to develop ecosystems through proliferation of new technologies and tap into the banking space through payment capabilities. With growing competition in this area from new market entrants, disruptor companies and investors, platforms are seen as a hotbed of activity.
"In the next few years we expect 20–30 percent of the regional dry powder raised by PE funds in 2017 and 2018 to be deployed in ASPAC in financial services deals. Their key focus is to develop value, harnessing the regional macro trends alongside technology and digital disruption." - Stephen Bates, Partner, Deal Advisory Financial Services, ASPAC
PE available to invest
PE investment trends are expected to continue in the face of record levels of dry powder at PE firms, digital disruption in banking and continued deleveraging in Europe. Globally, the PE industry currently sits on approximately USD3 trillion AuM with over USD1 trillion as dry powder to invest — and no sign of a slowdown.
"PE investors continue to remain interested across the FS spectrum from Banks, NPLs, specialty finance, payments, insurance distribution and European life sector consolidation. More PE houses are looking actively in the insurance sector both for assets and also how long term insurance liabilities can be deployed in credit strategies (e.g. Apollo Global Management & Athene Holdings and TPG & Clara-Pensions)." - Jeremy Welch, Partner, Deal Advisory Financial Services in UK
The US PE market remains buoyant
PEs continue to work hard to put excess mounds of dry powder to work, amid ever-increasing competition from peers and cash‑laden corporates. Additionally, sector-dedicated funds are still entering the market, often co-investing with generalist funds. While traditional bank M&A remains challenging for PE, due to regulatory-imposed ownership limitations, specialty finance remains attractive as investors seek out the next niche lending business. Furthermore, auto lending and adjacent sectors show signs of returning to popularity after a long respite. Payments, asset/wealth management and other business services that serve financial services firms should continue to be arenas for investment. Fintech, however, remains challenging for PEs due to inflated valuation expectations in line with tech companies in the US. 2019 is likely to be the year in which investors figure out whether the time is ripe to apply robotic process automation and AI to mainstream financial institutions.
"As more established fintechs transition to the next phase of maturity, PE investors should be watching carefully to see who can achieve mainstream credibility as a differentiated service offering." - Miguel Sagarna, Partner, Deal Advisory Financial Services, KPMG in the US