SINGAPORE (July 8): Private equity (PE) and venture capital (VC) investment activity across Southeast Asia reported a slowdown in 1Q20 amid the Covid-19 pandemic.

According to the EY Private equity briefing: Southeast Asia (June 2020) report, a total of 141 deals worth US$1.4 billion ($1.95 billion) were announced, representing a 9% and 65% dip y-o-y in the total number of deals and value respectively.

Announced PE and VC-backed exits declined to six deals in 1Q20 from nine in 1Q19.

The report, which provides a roundup of the PE and VC deals, as well as capital activities across major sectors in the quarter, also found that dry powder reached record levels of US$439 billion by the middle of May 2020.

EY says 2Q20 is expected to be a slow quarter as well. In light of the Covid-19 outbreak over the past eight to 12 weeks, the report says that PE funds have focused on dealing with issues and making short-term adjustments to ensure the business has sufficient resources and support to weather the storm.

Issues include liquidity, protecting employees, and accessing incentives.

Following these issues, PE funds are increasingly transitioning to dealing with post-Covid issues such as resumption of trading and making operating adjustments to the business.

The top five focus areas PE firms are working with their portfolio companies include liquidity management, strategy and business model validation, supply chain assessment, tax impact, and value creation with a strong focus on technology.

“There is a lot of uncertainty in the market. However, fund managers are now more prepared to encounter a recession than they were a decade ago. While the full-blown impact of the COVID-19 pandemic is yet to be seen with disruption continuing to unfold, we strongly believe that the industry is well-positioned to adapt and respond. We expect activity to pick up pace by the last quarter of 2020,” says Luke Pais, Asean M&A and private equity leader at EY.

“Having taken stock of the liquidity position and scenario planning for their portfolio over the past couple of months, PE funds are also now actively assessing new opportunities... We expect to see activity in the areas of structured finance, public to private, capital recycling, non-core divestments, and sector and segment consolidation,” he adds.