5 February 2014, Washington, DC – Private equity investment activity held steady for emerging markets in 2013, and despite a sluggish start to the year, deal volume gained momentum in the last six months, according to the Emerging Markets Private Equity Association (EMPEA). This investment activity led to an overall capital flow of US$24 billion in emerging markets last year, representing 883 deals and a 7% decline in capital year-over-year from 2012. While fundraising was down with only 150 funds raising US$36 billion in 2013, a 19% decline in total capital raised compared to 2012, the relatively constant deal volume indicates that private equity investors continue to find investable companies across a diverse array of markets. Access the Q4 2013 EM PE Industry Statistics »

“Fundraising in private equity follows a cyclical pattern and we are still in a downturn phase of the cycle. The investment side is the real story, however, because where others see adversity, private equity investors see opportunity,” commented Robert van Zwieten, President and CEO, EMPEA. “Private equity continues to be the optimum way to tap into emerging market investment opportunities. We expect that these markets will adapt, greatly diverse as they are, to the new economic realities of a moderate Chinese economic slow-down and US interest rates rising gradually over time. For the time being, with asset re-pricing underway and local currencies depreciating in many emerging markets, this is a favorable time for highly discerning fund managers to put capital to work in select sectors.”

According to EMPEA’s data, some of the biggest year-over-year gains from 2013’s deployment of capital went to markets beyond the BRICs– including those in Southeast Asia, East Africa and Latin America (ex. Brazil) – a strong indication of where investors are seeing the most promising prospects for growth. Taking a closer look within each region, the following ten notable emerging markets private equity (EM PE) investment trends stood out from the past year.

Ten Notable EM PE Investment Trends in 2013

1. There was greater diversity in the types of deals executed across emerging markets, with venture capital (VC) investment accounting for 43% of deal activity in EM PE, following an annual upward trend since 2009, when VC made up only 17% of deals.
2. While Emerging Asia accounted for 78% of VC deal activity across emerging markets, the largest disclosed VC deal took place in Latin America for Panama-based online language school Open English.
3. US$2.2 billion was invested through 61 deals in Southeast Asia in 2013, a six-year high in terms of activity and a 39% increase in capital from 2012.
4. In China, deal activity rebounded in the fourth quarter, with 89 investments executed—the most in a single quarter for the country since Q3 2011.
5. PE investment in India proved resilient, increasing 11% in volume and holding flat in total capital, year-over-year. Investment in the country was robust in part due to a 33% increase in the number of VC deals.
6. CEE and CIS showed healthy exit activity with six liquidity events valued at an estimated total of US$3.5 billion, according to third-party data. Three of the six exits were in Russia-based companies.
7. Russia and Turkey accounted for 48% of deal flow in CEE and CIS.
8. Seven PE deals closed in Tunisia and ten in United Arab Emirates, comprising 45% of MENA investment activity.
9. Mexico witnessed a five-year high in capital invested and also saw one of the year’s top ten largest deals for emerging markets: Axis Capital’s US$200 million buyout of Oro Negro .
10. For Sub-Saharan Africa, capital invested reached a five-year high of US$1.6 billion, a 43% increase since last year, and East African deals increased by 29%.

Venture Capital Continues Upward Trend in EM PE Deal Activity, Spurred by Interest from US Firms

2013 was marked by greater diversity in the types of deals executed across emerging markets, with VC investment accounting for 43% of deal activity in emerging markets, following an annual upward trend since 2009 when VC made up only 17%. The increase in VC activity is largely due to the uptick of investments in Emerging Asia, where opportunities diversified away from the traditionally dominant growth capital space. Investors look to these markets for technology innovation, products and services that can meet the growing demand from businesses and consumers. Computer software and retail sectors led VC deal activity for emerging markets overall in 2013. Developed market investors, primarily in the US, see the potential in this growth and five of the ten most active investors in VC deals were US-based firms, led by Sequoia Capital, which executed 30 VC deals in emerging markets. The year’s largest disclosed VC deal, however, was in Panama, where online language school Open English raised US$65 million from Technology Crossover Ventures, Insight Venture Partners and Redpoint Ventures.

Investors Continue to See Opportunities in Beyond BRIC Markets but China and India Remain Resilient

With the Organization for Economic Cooperation and Development (OECD) reducing global growth forecasts from 4% to 3.6% in 2014 and the fundraising trail across emerging markets remaining difficult, deal activity in 2013 shows where private equity investors are finding the opportunities on the country, sector and company levels. Capital invested into the BRICs slowed, but increased for the third consecutive year into markets beyond the BRICs. While the BRICs continued to make up the largest proportion (65%) of EM deal flow, beyond BRIC countries attracted more investment capital in 2013 than they have in any of the previous five years. US$10.5 billion invested into these markets accounted for 44% of overall EM capital.

Notably, Southeast Asia investment activity hit a six-year high at US$2.2 billion deployed for the year, a 39% increase in capital from 2012. Active deal flow into markets including Vietnam, Indonesia, Malaysia and Singapore helped to bring Emerging Asia’s share of capital invested to 66% of the total for global emerging markets. Investment activity in Southeast Asia should remain robust over the next few years as the sub-region hit a six-year fundraising high in 2013 with 18 funds raising US$2.9 billion. Mexico and Peru also saw six-year highs in fundraising, but in terms of investment, Mexico deployed more capital this year than any of the previous five years, including one of the top-ten largest deals for emerging markets, Axis Capital’s US$200 million buyout of Oro Negro.

In China, despite lingering uncertainty on the closure of the domestic IPO markets, deal activity continued and Q4 2013 ended on a positive note with 89 investments executed, the most in a single quarter for the country since Q3 2011. The largest emerging markets investment in 2013 also took place in China: The Carlyle Group, CITIC Capital Partners and FountainVest Partners’ US$1.1 billion buyout of China-based Focus Media. India also proved resilient in terms of deal flow. While the Rupee dropped 22% from its highest point in February to its lowest point in August, the volume of investments increased from last year, matching total capital invested in 2012. Investment in Brazil and Russia, on the other hand, was off pace in 2013, witnessing a decline in deal activity of 31% and 33%, respectively, as well as a decrease in capital invested.

“2013 saw GPs continue to deploy the US$88 billion total raised in 2011 and 2012 for emerging markets funds,” commented Maryam Haque, EMPEA’s Head of Data and Analysis. “While capital continued to flow to the BRICs, fund managers also looked to traditionally less active markets and segments as they seek the next wave of growth. The less favorable macroeconomic conditions in some emerging markets can actually make it easier for fund managers to more clearly view the finances and operations of a company to better identify value. By mapping where long term investors are deploying capital, we begin to see the next wave unfold.”

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For more information, please contact:  Olivia Weiss, +1 646 315 6737, press@GPcapital.org

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Access the Q4 2013 EM PE Industry Statistics »