Bright spots in private equity deals

PETALING JAYA: Despite the challenging economic scenario fuelled by the United States’ tariffs and uncertainties on the global front from these tariffs, there are bright spots in private equity investments in Malaysia, according to experts.

Malayan Banking Bhd (Maybank) managing director of client coverage for sector specialist and private equity Rajiv Vijendran told StarBiz that “dry powder” in Asia focused private equity funds still remains very high and general partners of firms remain under pressure to deploy capital.

Dry powder refers to cash reserves that corporations and private equity funds have available to deploy when an attractive investment opportunity arises.

“Domestically, the newly formed funds under Retirement Fund Inc’s (KWAP) Dana Pemacu and Khazanah’s Dana Impak initiatives will also be looking to make their maiden investments and these will be strong drivers for private-equity activity in Malaysia.

“However, the United States tariff and trade war uncertainties and volatility in capital markets and interest rates are a possible dampener, given that Malaysia is a trading nation and the United States is a key trading partner.

“Potential targets of private equity may be more reluctant to do deals until there is more clarity on how the current uncertainties are going to play out.

“A further challenge will be if the trade turmoil results in weakening the global economy and a wider impact on consumer demand,” explained Rajiv.

Private equity firms are funds and entrepreneurs that invest in private companies or engage in buyouts.

He said there remains a number of deals, which Maybank is actively both pitching and executing, and expects 2025 to be another good year for private equity deals.

The total value of private equity deals was around US$2bil in last year with the largest deal being the sale of Island Hospital for about RM4.2bil.

Overall, Rajiv said the outlook remains bright and continues to see opportunities for both exits as well as new entries for private equity investors.

“We think both the healthcare and broader consumer sectors will be the primary focus of private equity investors, along with other sectors that are focused on the domestic market which will remain resilient to the United States tariffs,” he noted.

On April 2, the US government launched baseline tariffs of 10% on all imports and reciprocal tariffs on trade partners on April 9.

Malaysia is one of the countries which has been levied with a 10% tariff, which is willing to negotiate with the United States.

Negotiations during the tariff pause will decide whether tariffs on Malaysia would be lifted, maintained at 24% or reduced.

Meanwhile, OCBC Bank (M) Bhd managing director, senior banker and head of investment banking Tan Ai Chin expects private equity firms to adopt a more cautious approach towards merger and acquisitions (M&As) in the interim.

This is due to conditions remaining fluid in terms of the implementation of trade policies and tariffs, and the impact of US tariffs on the businesses of Malaysian corporates as it continues to unfold, she said.

She said the government has confirmed that Malaysia will not retaliate against the new US tariffs, but instead efforts are ongoing to negotiate with the US.

“A positive outcome from the negotiations will provide additional confidence to PE in approaching potential investments, as well as further clarity in deciding on the appropriate business plan and strategy for their existing portfolio companies, in responding to the evolving macroeconomic conditions.

“Once further clarity emerges, in terms of the outlook of trade and business prospects for corporates, we expect it to be “business as usual” for PE in terms of capital deployment, given that many of the private equity are still sitting on vast amounts of “dry powder,” Tan noted.

In the midst of the current market turmoil as a result of the on-going tariff war, she said PE firms would continue to favour strong companies operating in defensive sectors such as healthcare and education.

She said these sectors are relatively insulated from the on-going tariff war and which are expected to continue to grow on the back of favourable sector trends.

“We expect PE firms to be more careful and selective in terms of investment into companies operating in export driven sectors such as manufacturing and advanced manufacturing, or companies exposed to inflationary pressures and changing consumer spending behaviour such as the consumer discretionary sector,” Tan said.

Yap Kong Meng, Mergers and Acquisitions partner of Deloitte Malaysia,

Deloitte Malaysia mergers and acquisitions partner Yap Kong Meng said the continued uncertainties due to the tariff and geopolitical risks would dampen M&A volume.

Notwithstanding this, he still expects to see PE deals in 2025, especially for deals involving targets with a main revenue of domestic consumption with little to no significant dependence on imported supplies or raw materials.

“We can continue to expect M&A transactions in evergreen sectors like consumer, industrials and healthcare.

“Within such sectors, we are likely to continue seeing good opportunities to invest in companies that have strong competitive advantage in the local market, especially those with a potential for regional expansion,” Yap added.

Ernst & Young Tax Consultants Sdn Bhd Malaysia tax leader Farah Rosley

Ernst & Young Tax Consultants Sdn Bhd Malaysia tax leader Farah Rosley said the uncertainty related to the tariffs imposition may have an adverse impact on valuations, supply chains and M&As deals.

In order to manage this, she said PE firms would look at assessing supply chains, enforcing or strengthening due diligence and potential balancing the risk or exposure by seeking opportunities in less tariff affected sectors or countries with lesser tariff implications.

She said key drivers that would help propel PE investments and activities in Malaysia for 2025 will be, amongst others, certainty on tariff effect and M&A activities.

“Another key driver to propel PE investments activities will be strong financial markets and identification of value driven investments such as technology-driven investments where firms are pivoting towards investments related to artificial intelligence (AI) or generative AI to stimulate value creation.

“This is also influenced by investor confidence,” she noted.

Overall, Farah said for PE firms the main concern lies on how any changes to tariff or international trade policies trickle down to affect their valuations of investment and thus the attractiveness of their portfolio companies.

_{Images are for reference only.Images and contents gathered automatic from google or 3rd party sources.All rights on the images and contents are with their legal original owners.}