Maybank Investment Bank (Maybank IB) head of advisory Reza Mohd Zin
PETALING JAYA: Amid the headwinds, the Malaysian private equity (PE) market is set to gain further momentum this year compared with last year as PE firms eye specific sectors, namely healthcare, technology, consumer, industrial manufacturing and renewable energy (RE), according to industry players.
The market is also expected to get an additional boost, thanks to the conducive economic outlook, stronger investor confidence and various government initiatives launched to put the economy on a stronger footing.
The economy is expected to grow by 4% to 5% this year, based on official estimates. Economists generally are projecting Malaysia’s economic growth at between 4.2% and 5% for 2024.
To put into perspective, PE firms are funds and entrepreneurs that invest in private companies or engage in buyouts.
Maybank Investment Bank (Maybank IB) head of advisory Reza Mohd Zin expects PE deals for 2024 to be stronger compared with 2023.
He said this would be underpinned by a positive investment prospect, driven by factors such as favourable economic outlook, increased investor confidence and government initiatives.
Maybank IB Research is forecasting firmer gross domestic product growth at 4.4% this year versus 3.9% in 2023. It expects the key benchmark interest rate – the overnight policy rate – to remain unchanged at 3% for 2024.
Reza told StarBiz that the series of government initiatives and masterplans announced in 2023 would help accelerate investments in the identified high-value high growth sectors such as tech and digital-based industries.
“As the economy normalises from a post-Covid-19 environment, many companies have benefited from stronger financial performance in 2023. We expect sellers who had to postpone their sale plans due to the pandemic to most likely resume plans in 2024.
“On the PE exit front, we are currently working on a few potential sale transactions that will likely be launched and closed in 2024. Based on enquiries that we are receiving from potential PE sellers and buyers, we are anticipating a positive outlook for 2024.
“We expect continued strong interest in sectors such as healthcare, technology and RE,” Reza noted.
He said healthcare remains one of the top favourite sectors for PE funds, driven by resilient and rising healthcare demand and also the government’s focus on growing the medical tourism industry.
Accelerated digital adoption driven by the pandemic lockdowns have also put the spotlight on consumption-focused software companies, especially medical-techs and consumer-techs, he said.
He said in line with global environmental, social and governance (ESG) trends, the government’s RE transition plans would play a big part in driving growth for the sector, making it attractive to PE funds.
Having lifted the RE export ban, Reza said further clarity on the proposed RE exchange would provide the possibility of exporting RE to Singapore in the future.
According to global consultancy Bain & Company, the healthcare sector continued to be a hub of PE deal activity in 2023, reaching US$60bil in value despite higher global interest rates, inflationary pressures and broader geopolitical uncertainty.
Biopharma captured the bulk of dealmaking momentum, attributing 48% of global deal value, including six deals in excess of US$2bil, it said.
In 2024, the consultancy expects investors to continue to bet on the transformative nature of generative artificial intelligence, new modalities and innovative therapies such as glucagon-like peptide-1 agonists (GLP-1s), and India as a place to deploy healthcare capital at scale.
UCSI University Malaysia assistant professor of finance Liew Chee Yoong
UCSI University Malaysia assistant professor of finance Liew Chee Yoong said generally, sectors that demonstrate strong post-pandemic recovery potentials or technological innovation are likely to attract PE investments.
Industries showing resilience and growth in the local economy such as technology, healthcare and consumer goods are key areas of interest for PE funds.
“The International Monetary Fund has forecast stronger economic growth in 2024 for Malaysia together with other Asean countries like Thailand, the Philippines and Vietnam.
“With this, I foresee a stronger PE market in Malaysia, Thailand, the Philippines and Vietnam compared to other Asean nations, although overall it will still be relatively weaker compared to 2023 due to the possible external headwinds.”
He said these headwinds include the widening of the Middle East conflict, which could result in high inflation and possibly global stagflation that could reduce the growth of the PE market.
“To further fuel the Malaysian PE market, measures such as regulatory reforms to ease investment processes, incentives for innovation-driven sectors and strengthening of financial markets would be beneficial,” said Liew, who is also a research fellow at the Centre for Market Education.
He said while the global economic trends such as inflation rates and geopolitical factors can influence the PE landscape, the evolution of technology and sustainability-focused investments are expected to shape the future of PE investments in the country and in the region.
Deloitte Malaysia turnaround and restructuring leader Yap Kong Meng
Meanwhile, Deloitte Malaysia corporate finance advisory leader Yap Kong Meng expects PE deals to continue throughout 2023 and beyond 2024, since PEs as a collective group still have plenty of dry powder for investments.
Dry powder refers to cash reserves that corporations and private equity funds have available to deploy when an attractive investment opportunity arises or to weather a downturn.
Yap said PE funds commonly invest in consumer-driven businesses such as food and beverage, healthcare and education and will continue to see PE interest in such sectors.
Technology and industrial manufacturing sector would also draw PE funds’ interest but on a more selective basis within their respective sub segments, he noted.
On whether Malaysia is an attractive market in the PE business compared to its regional peers, Yap said: “Malaysia is still an attractive market for PEs, given its more developed business environment and infrastructure relative to other emerging peer countries in South-East Asia.
“In addition to its good growth potential, Malaysian businesses are also perceived to carry a lower risk profile relative to businesses in other countries such as Indonesia and Cambodia.
“Exemption for PEs from capital gains tax is a good start to encourage PE investments in Malaysia while many incentives given to PE businesses in Singapore can be reviewed and implemented in Malaysia to make the country a viable alternative for PE firms and fund managers.”
Reza said Malaysia remains an attractive market for PE funds on the back of a diverse economy, political stability and a business-friendly environment.
“Measures to promote cross-border collaboration, encourage innovation and support industries aligned with global trends will contribute to Malaysia’s competitiveness in the PE landscape,” he noted.
