99 Problems but an Exit Ain’t One: Navigating Private Equity Exits in Southeast Asia

As the landscape of private equity changes in Southeast Asia, thesis and data-driven strategies become all the more relevant.



Private equity investing has gained significant traction in Southeast Asia over the past decade, driven by the region's rapid economic growth and a burgeoning startup ecosystem. While the focus has primarily been on identifying promising investment opportunities, the exit stage of the investment lifecycle often poses unique challenges for private equity firms.

Exit value in SEA has already fallen 46% year-on-year. In the medium to short term, the exit problem will be exacerbated by increasing interest rates, re-rating of public market valuations, lack of IPOs, a softening economic environment, and general uncertainty.

Let’s explore the exit problem private equity investors face in Southeast Asia and how a thesis and data-led approach helps navigate this complex landscape.

Understanding the Southeast Asia Exit Landscape

Limited Capital Markets

One of the key challenges in exiting private equity investments in Southeast Asia is the relatively underdeveloped capital markets. The region lacks deep and liquid markets, making finding suitable buyers for portfolio companies more difficult. The limited number of initial public offerings (IPOs) and mergers and acquisitions (M&A) transactions means that private equity investors have fewer exit options than more mature markets. IPO markets have been improving in the region, but liquidity is still a problem. SPACs targeting Southeast Asian companies and global listings of Southeast Asian companies have also been growing.

Reliance on Strategic Buyers

Without robust public markets, private equity investors in Southeast Asia often rely heavily on strategic buyers for exits. Strategic buyers, such as larger corporations in related industries, are more likely to acquire a portfolio company to expand their own business lines, or gain market access. However, the challenge lies in identifying and negotiating with the right strategic buyers who perceive value in the investment and can offer an attractive exit opportunity.

Southeast Asia’s attractive long-term growth fundamentals are routinely referenced in the context of rising strategic interest in the region: a population of 675m with a median age of 30; a middle-class consumer base of 190m that is expected to double in size over the next few years. The challenges of greenfield expansion also push companies towards M&A.

Regulatory Hurdles

Navigating the regulatory landscape in Southeast Asia can be a complex task for private equity investors. Each country has its own unique set of regulations governing foreign investments and acquisitions, which can vary significantly regarding transparency, ease of doing business, and legal protection. Complying with these regulations and securing necessary approvals can often delay or complicate the exit process.

Limited Secondary Market Opportunities

Another challenge in Southeast Asia is the lack of developed secondary markets for private equity investments. Secondary transactions, where investors sell their stakes to other investors, can provide an alternative exit route. However, the limited number of institutional buyers and the relatively small scale of secondary transactions make it a less frequently utilised option in the region however, this is increasing.

Navigating the Exit Problem: Aura Private Equity’s Back to the Future Thesis

To effectively navigate the exit problem in Southeast Asia private equity investing, Aura Private Equity believes adopting a thesis and data-led approach can provide a valuable edge. This approach incorporates several key strategies and best practices focusing on optimising risk and reward while enhancing exitability. Critical in this endeavour is the private equity teams’ skills and requisite experience to manage the region’s unique challenges.

Here are some core components of Aura Private Equity’s evolving approach to addressing the exit problem.

Identify Sectors with Strong Private Funding and Sponsor Activity

A thesis-led approach starts with identifying sectors that demonstrate strong private funding, sponsor activity, and positive M&A and IPO trends in more advanced reference markets. By analysing trends and market dynamics in mature markets, private equity investors can gain insights into sectors that are likely to experience growth and attract investor interest. This proactive approach helps identify promising investment opportunities with a higher likelihood of successful exits in Southeast Asia.

Prioritise Businesses with Strong ESG Considerations and Impact

Incorporating strong environmental, social, and governance (ESG) considerations into investment decisions is becoming increasingly important in the private equity landscape. Investors should prioritise businesses that are committed to sustainable practices, ethical operations, and positive social impact. Companies with robust ESG profiles are more likely to attract strategic buyers and generate interest from socially responsible investors, thereby improving exit options and potentially enhancing investment returns.

Identify Companies with Market Leadership and Pricing Power

Investing in companies that have achieved market leadership and exhibit pricing power can significantly improve exit prospects. Businesses with strong market positions and the ability to control pricing have a competitive advantage and are more likely to attract potential buyers. Private equity investors should target companies with unique products or services, established customer bases, and a proven track record of profitability, as these factors enhance the chances of a successful exit.

Utilise Structuring to Optimise Risk and Reward and Enhance Exitability

An important aspect of a thesis-led approach is employing structuring techniques to optimise risk and reward while improving the exitability of investments. This involves carefully designing the investment structure, such as utilising convertible debt or mezzanine financing, to align with the specific characteristics of the target company and the market dynamics. Structuring investments appropriately can provide flexibility and potential exit alternatives, ensuring investors can adapt to changing market conditions and maximise exit opportunities.

Focus on Capital Efficient Businesses That Can Use Leverage for Dividend Recaps or Buybacks

Another effective strategy in navigating the exit problem is to focus on capital-efficient businesses that can potentially leverage their financial position for dividend recaps or share buybacks. Such businesses can generate excess cash flow and utilise it to return capital to the private equity investor. This approach provides an additional avenue for realising value and can contribute to a more favourable exit outcome.

Where to from here?

By combining these strategies, private equity investors can enhance their ability to navigate the exit problem in Southeast Asia. A thesis-led approach enables investors to focus on sectors with strong growth potential, prioritise ESG considerations and impact, target companies with market leadership and pricing power, utilise strategic structuring and focus on capital-efficient businesses. These strategies improve the chances of successful exits and contribute to sustainable and impactful investments in the region.

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