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Takeaways from Bain's 2024 China Private Equity Report

贝恩公司 · 公众号 · · 2024-04-24 14:13

正文

Greater China's private equity (PE) market will remain challenging in 2024 due to macroeconomic slowdown, tightening IPO market and continuous divergence in valuation expectations, according to Bain & Company's Greater China Private Equity Report 2024 .

The region's deal activity continued its structural decline to a 10-year low in 2023, where deal value fell 58% to $41 billion compared to the previous five-year average (2018-2022) and deal volume dropped 31%, consistent with the industry globally. Growth deals continued to dominate, representing 60% of total deal value.

Following last year's trend, domestic GPs, particularly RMB funds, were the most active players in the market, accounting for 42% of deal value in 2023, a 21-percentage point increase compared to 2022. These players, especially government affiliated ones, also led the surge in interest in sub-sectors such as semiconductors and automotives. Domestic dollar GPs continued to invest in traditional sectors such as automotive & mobility and pharmaceuticals & biotechnology.

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Hao Zhou

Head of Bain's Greater China PE and M&A practices

Like the rest of the world, Greater China has not been spared from the global slowdown and macroeconomic uncertainties. Our survey with Greater China industry players shows that challenging exit conditions are some of the top-of-mind concerns this year. For now, 2024 is looking to be another challenging year.

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GPs are under pressure given continued high dry power to deploy. There is a mismatch between the sell side and buy side. The sell side faces increasing urgency on deal exit, while pursuing high multiple to cover cost. On the other hand, buy side appears more cautious and are only pursuing high-quality assets. As a result, Bain's survey shows that GPs are more inclined to target large buyout opportunities with stable cashflow and solid fundamentals.

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Nancy Zheng

Partner, Bain & Company

GPs will need to focus on quality over scale while they focus on rationalizing portfolios on hand and proactively manage exits to generate positive DPI given the long holding period. Valuation correction is also to be expected, as the industry targets more exits from secondary funds or M&As and relies on dividend payment.

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Similar to last year, 95% of Greater China IPOs took place in mainland Chinese bourses instead of in Hong Kong and the US. Most of these IPOs are owned or invested in by government-affiliated funds and RMB funds. IPO challenges are expected to continue with stricter listing requirements as China slows down its IPO approval process to stabilize valuations of listed companies. As IPO exits remain strict and constrained, secondary funds are likely to further gain traction in Greater China driven by the large number of assets held by PE funds.

Respondents of Bain's survey expect fundraising to be challenging in 2024. While RMB fundraising made a modest increase, China-focused dollar fundraising dropped 44% year-on-year in 2023. A key reason is LPs tightening their purse strings, and allocating their funds to other regions, deterred by ongoing tensions and economic uncertainties. As a result, some established dollar GPs are expanding into the RMB market for additional fund sources particularly in insurance and private wealth.

To stay the course and succeed in Greater China's PE market, funds need to consider the following:

(1) Reassess fund strategy by articulating fund's 'sweet spot' on where to play, with higher scrutiny in deal selection, especially for new business/deal focus.

(2) Unlock portfolio's full potential via cost improvement / better capital deployment given lower growth expectation, while assessing Generative AI disruption/ opportunities.