20220316-安永_中国_-Greater_China_Private_equity_briefing_Key_trends_in_2021_and_outlook_for_the_current_year_15页_1mb

Private Equity Briefing: Greater China Summary

Executive Summary

2021 was a landmark year for private equity (PE) in Greater China, with deal activity surpassing the US$100 billion threshold for the first time. Despite regulatory challenges and the impact of the Omicron variant, the market demonstrated resilience. PE firms saw a 21% increase in deal value compared to 2020, driven by pent-up demand for capital in sectors focused on innovation and growth. Fundraising also rebounded, with US$87 billion committed across 105 closed funds. ESG and technology remain central themes, while exits remained robust, particularly in the technology, healthcare, and advanced manufacturing sectors.

Key Trends in Investments

• Total Investment in 2021: US$103.1 billion across 682 deals
• Deal Value Increase: 21% compared to 2020
• Average Deal Size: Rose to US$152 million from US$112 million
• Top Investment: Tsinghua Unigroup raised US$9.4 billion in December 2021
• Preferred Sector: Technology, which accounted for 51% of total deal value and 49% of deal volume
• ESG Focus: Growing emphasis on climate targets, with PE firms investing in renewable energy, clean tech, and carbon-neutral initiatives
• Regulatory Shifts: Sectors like education and consumer tech faced increased scrutiny, prompting a strategic pivot to less regulated areas such as semiconductors, AI, and advanced manufacturing

Exits

• Total Exit Value in 2021: US$23 billion across 64 exits
• Exit Value Increase: 172% compared to 2020
• Exit Volume Decline: 35% decrease in the number of exits
• Top Exit: Permira sold 100% of Tricor Group to Baring Private Equity for US$2.7 billion
• Main Exit Sectors: Technology (35%), healthcare, and advanced manufacturing
• Exit Routes: Strategic acquisitions (78%) dominated, followed by secondary sales
• New Listing Opportunities: Hong Kong and Beijing introduced new listing regimes, offering exit routes for portfolio companies
• IPO Pipeline: 11 PE-backed IPOs in 2021, up from 8 in 2020

Fundraising

• Total Fundraising in 2021: US$87 billion across 105 funds
• Fundraising Increase: 49% compared to 2020 (US$58.3 billion)
• Mega Funds: 15 final closes of funds over US$1 billion, up from 9 in 2020
• Notable Fund Closures:
  • KKR Asian Fund IV (US$15 billion)
  • TA XIV (US$12.5 billion)
  • Apax X (US$11 billion)
  • Boyu Capital Fund V (US$6 billion)
• Hong Kong's Role: Became a preferred location for fund setup, with regulatory reforms supporting its growth
• Sector Agnostic Funds: Gained an advantage due to their flexibility in navigating regulatory shifts
• State-backed Vehicles: Dominated fundraising, reflecting strong government support for PE development

Managing Regulatory Risk

• Regulatory Challenges: Increased focus on education, consumer tech, and data governance
• Impact on Education Sector: Regulatory crackdowns on private tutoring companies led to a shift in investment focus
• Data Security Measures: New laws and regulations on data transfer and cybersecurity reviews affect PE exit strategies
• Strategic Adjustments:
  • Thorough risk assessment
  • Shifting to less regulated sectors like semiconductors, healthcare, and renewable energy
  • Prioritizing on-site due diligence and agile value creation strategies
  • Emphasizing ESG, particularly governance, in investment decisions
• LPs' Response: Reassessing exposure and relationships with GPs, with a cautious approach to new allocations

Outlook for 2022

• Market Resilience: Despite regulatory headwinds, the PE market is expected to remain robust
• Drivers: 'Dual circulation' strategy, 'industrial upgrade' programs, and SOE reforms
• Valuation Pressure: Potential near-term pressure from regulatory uncertainty, inflation, and economic outlook
• Exit Activity: Expected to be strong, with a focus on technology and ESG-related companies
• SPAC Listings: Expected to grow, with Hong Kong and Singapore leading the way
• Geopolitical Impact: Increased listings from ESG-focused companies will help mitigate negative effects of geopolitical tensions
• LP Trends: Shift in investor base toward Asian and Middle Eastern LPs, with North American LPs decreasing
• Long-term Confidence: PE's track record in delivering strong risk-adjusted returns continues to attract investors

Conclusion

The Greater China PE market remains a critical and dynamic player in the global landscape. While regulatory changes and macroeconomic factors pose challenges, the region's long-term growth potential, technological innovation, and ESG momentum continue to attract significant investment. PE firms are adapting by focusing on resilient sectors and enhancing their value creation strategies. The outlook for 2022 remains positive, with continued fundraising, robust exit activity, and emerging opportunities in technology and sustainability.