Study: Asia to dominate 2012 deal activity

Emerging Asia, especially India and China, should expect increased deal activity during the next 12 months, according to a private equity report from Ernst & Young.

Over the next 12 months, the vast majority of private equity firms surveyed by Ernst & Young said they plan to increase their acquisition activity in emerging Asia more than any other market worldwide.

The survey included 150 private equity investors from 22 countries. It revealed that 87 percent expect more activity in Asia, a 10 percent increase on the same question asked in October 2011. Emerging Asia was followed by the US, India and then China in the rankings.

Surprisingly, firms have high expectations for India. Eighty percent of respondents believed India will have increased deal activity over the next 12 months, a huge increase from the 42 percent response the question attracted in an identical survey carried out last year. India even scored higher than China, where 77 percent of investors say they will do more deals.

India’s lacklustre capital markets have dampened investor interest in the country as firms struggle to make deals and exits. However, findings show that GPs expect to do more deals there. Sentiment is likely to improve even more since the recent suspension of India's General Anti-Avoidance Rule, which includes tax regulations that could hit foreign investors.

More generally, respondents were optimistic about the availability of credit going forward. More than 70 percent believe that globally, levels of credit availability are “positive” or “stable”. While 31 percent indicated they are likely to divest assets over the next year, 44 percent of the firms with more than $5 billion of assets under management said they are likely to make acquisitions.

Commenting on the report, Jeff Bunder, global private equity leader at Ernst & Young said: “Corporate M&A activity is an important component of a healthy private equity environment. The increase in divestitures on the part of corporates is a welcome sign for private equity buyers and is an indication that asset pricing has stabilised. Additionally, there is growing confidence in the availability of credit, a key component to private equity deal-making.”