Nearly 70 percent of private equity firms in Asia Pacific expect an increase in the number of deals in the next 12 months on the back of strong economic growth in China, up from less than half in the previous year, according to a survey by Grant Thornton Private Equity Report.
It also shows that two-thirds of 175 senior industry practitioners around the globe covered by the survey expect exit activity to increase, driven by higher valuations, initial public offerings and a positive macro-economic environment.
At the same time, firms are expected to buy rather than sell assets in anticipation of a strong recovery in the global economy.
“We have China to thank for much of the optimism in the region,” said Barry Tong, advisory partner at Grant Thornton Hong Kong Ltd.
“Its macro economy has been on an upswing over the past year and the significant growth in industries such as technology, media and telecommunications, energy and healthcare has led to the strong performance in the private equity markets both in China and Hong Kong,” he said.
The study shows that more than two-thirds of private equity firms globally expect an increase in the number of deals in the secondary market.
“Historically, Chinese private equity firms have shown preference for the IPO exit approach, but on the heels of the cooling IPO markets in China and Hong Kong last year, firms turned to channels like secondary transactions as well with increasing maturity of the PE market,” Tong said.
Another factor driving this trend is the view that businesses bought through secondaries are lower-risk assets with better governance, he said.
Meanwhile, more than 80 percent of private equity firms in China and Hong Kong said they are willing to pay a premium for businesses acquired through the secondary market.
Growth potential is most often cited as the key factor for paying a premium, according to the study.
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