BAIN BRIEF Asia-Pacific Private Equity Report 2017

ASIA-PACIFIC PRIVATE EQUITY REPORT 2017
About Bain & Companys Private Equity business
Bain & Company is the leading consulting partner to the private equity (PE) industry and its stakeholders.
PE consulting at Bain has grown sixfold over the past 15 years and now represents about one-quarter of the
firms global business. We maintain a global network of more than 1,000 experienced professionals serving
PE clients. Our practice is more than triple the size of the next-largest consulting company serving PE firms.
Bains work with PE firms spans fund types, including buyout, infrastructure, real estate and debt. We also work
with hedge funds, as well as many of the most prominent institutional investors, including sovereign wealth
funds, pension funds, endowments and family investment offices. We support our clients across a broad range
of objectives:
Deal generation. We help develop differentiated investment theses and enhance deal flow by profiling industries,
screening companies and devising a plan to approach targets.
Due diligence. We help support better deal decisions by performing due diligence, assessing performance
improvement opportunities and providing a post-acquisition agenda.
Immediate post-acquisition. We support the pursuit of rapid returns by developing a strategic blueprint for
the acquired company, leading workshops that align management with strategic priorities and directing
focused initiatives.
Ongoing value addition. We help increase company value by supporting revenue enhancement and cost reduction
and by refreshing strategy.
Exit. We help ensure funds maximize returns by identifying the optimal exit strategy, preparing the selling
documents and prequalifying buyers.
Firm strategy and operations. We help PE firms develop distinctive ways to achieve continued excellence by devising
differentiated strategies, maximizing investment capabilities, developing sector specialization and intelligence,
enhancing fund-raising, improving organizational design and decision making, and enlisting top talent.
Institutional investor strategy. We help institutional investors develop best-in-class investment programs across
asset classes, including private equity, infrastructure and real estate. Topics we address cover asset class allocation,
portfolio construction and manager selection, governance and risk management, and organizational design and
decision making. We also help institutional investors expand their participation in private equity, including
through coinvestment and direct investing opportunities.
Asia-Pacific Private Equity Report 2017 | Bain &Company, Inc.
Contents
1. Asia-Pacific private equity: Strong results, new challenges . . . . . . . . . . . . . . pg. 1
2. What happened in 2016? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 4
Investments: The momentum continues . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 4
Exits: Still healthy, if less robust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 8
Fund-raising: A slow year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 10
Returns: The gap widens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 11
3. The changing shape of Asia-Pacific private equity . . . . . . . . . . . . . . . . . . . pg. 14
The search for new sources of value . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 14
Shadow capital: Increased complexity. . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 16
Diverse markets, different outlooks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 20
4. Creating value in a fiercely competitive market . . . . . . . . . . . . . . . . . . . . . pg. 21
Smart sourcing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 21

Narrowing the firms aperture
Building strong networks
Thesis-based due diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 23

Developing proprietary views on assets
Combining cost and growth
Making the most of advanced analytics
Proactive value creation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 27

Finding a path to control
Defining the right model
5. Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 30
Page i
1. Asia-Pacific private equity: Strong results, new challenges

For two years running, the investment environment in Asia and around the world has been as unsettled and
shock-prone as its ever been. A turbulent 2015 gave way to an even more tempestuous 2016, as a regular cadence
of macro tremors rattled markets globally. Starting with mounting concerns about Chinese debt levels, the year
delivered the Brexit vote in June, political scandal in South Korea, demonetization in India and an election that
minted a US president openly hostile to free trade, especially with Asia.
But if private equity (PE) investors have been bothered by the uncertainty, it hasnt showed. Despite the building
turmoil, 2016 marked the third year in a row that the Asia-Pacific PE industry has performed at historic or near-
historic levelsa sign that PE performance in the region is increasingly dependent on the industrys unique set
of fundamentals. Private equity deal value in the Asia-Pacific region reached $92 billion in 2016, a pullback from
2015s all-time high of $124 billion, but the second-best year on record (see Figure 1.1). Exit activity of $74 billion
was respectable, and average returns continued to outperform other asset classes, especially among a set of top-tier
firms that produced world-class results.
Fund-raising of $43 billion slightly trailed the five-year average, but thats unsurprising given the amount of
money poured into these markets over the last several years. General partners (GPs) are working with near-
record levels of unspent capital, and investors appear to be waiting for funds to work off some of that dry
powder before renewing commitments. Whats important in terms of gauging investment confidence is that
the maturing Asia-Pacific industry has locked in on the virtuous capital cycle: Limited partners (LPs) have
been cash-positive in the region over the past few years, meaning GPs continue to find ways to return more
capital to investors than they are drawing down for new investments. All signs indicate that LPs remain
bullish on the market.
Figure 1.1: Private equitys vital signs remained remarkably resilient in 2016
Deal value slowed, but remained solid Exits reverted to historical levels Fund-raising lagged its five-year average
Asia-Pacific PE investment market Asia-Pacific PE exit market Asia-Pacific-focused closed funds (by close year)
$140B 1,000 $140B 1,000 $140B

124
120 120 115 120
800 800
100 100 93 100
90 92 87
600 600
80 80 75 74 80
68 66 64 Five-year
60 53 average
60 60 60 49 48 51
52 400 400
43
40 40 40
200 200
20 20 20
0 0 0 0 0
2011 12 13 14 15 16 2011 12 13 14 15 16 2011 12 13 14 15 16
Deal value Deal count Exit value Exit count
Note: Real estate and infrastructure funds are excluded in the three graphs
Sources: AVCJ; Preqin
Page 1
As encouraging as these results are, GPs focused on the Asia-Pacific region will also face some stiff challenges in
the years ahead. In an age of superabundant capital, competition is coming from a wide variety of players, including
sovereign wealth funds (SWFs), pension funds and large corporations, such as Chinas BAT companies (Baidu,
Alibaba and Tencent). An abundance of buyers makes it increasingly difficult to find attractive proprietary trans-
actions in the Asia-Pacific region. That has helped drive already steep Asia-Pacific multiples to unprecedented
levels, even as GDP growth slows across the region and interest rates begin to rise, blunting two powerful sources
of value.
At the same time, the relationship between GPs and LPs is becoming increasingly complicated as large institutions
and sovereign wealth funds devote more and more of their PE allocations to direct investments and coinvest-
ments. This is nothing new. Large sovereign funds such as Temasek and GIC in Singapore and Khazanah in Malaysia
have been major factors in the market for years. And big foreign funds like the Canada Pension Plan Investment
Board (CPPIB) are becoming more so. But the growth of this so-called shadow capital is testing relationships
between GPs and their investors by putting them in direct competition with each other in some cases and reducing
GP economics in others.
Theres no doubt that coinvestments with SWFs and other large investors create opportunities for GPs to burnish
relationships with these massive sources of capital while participating in deals that might otherwise not be
available to them. But as shadow capital grows in the market, it becomes increasingly critical for GPs to under-
stand how to turn it to their advantage.
While capital continues to flow steadily into the region, it is landing with those PE
funds that can demonstrate sustained, market-beating returns. These same funds
are also the ones most likely to appeal to big LPs as coinvestment partners.
The combination of heightened competition, inflated multiples and a slowing macro environment hasnt removed
the ample opportunity to earn superior returns in the Asia-Pacific region. But it does mean the sources of profit
are changing. While funds operating in these markets have long been able to count on economic growth and
multiple expansion to power returns, those days may be over. Growth in the region remains strong by global
standards, but multiples are exceptional, too. This means that GPs will have to work harder than ever to find good
companies, create new value and exit them with market-beating returns.
As weve discussed in previous years, the stakes couldnt be higher. While capital continues to flow steadily into
the region, it is landing with those PE funds that can demonstrate sustained, market-beating returns. These same
funds are also the ones most likely to appeal to big LPs as coinvestment partners. At a time when the industrys
sources of profit are changing, we find that the best GPs are focused on shoring up three key areas of the PE
value chain:
Smarter sourcing, including enhanced local networks, to find more proprietary deals and develop the differentiated
insights necessary to gauge risk, assess potential and gain the confidence to outbid rivals at auction.
Enhanced due diligence that views the target holistically, incorporating advanced analytics and a thesis-based
approach to develop the kinds of insights that give a fund the ability to weigh risk and measure value effectively.
Page 2
Creative post-acquisition value enhancement to overcome two major challenges to effective portfolio
management in the Asia-Pacific region: a preponderance of deals featuring minority stakes and a marketwide
talent shortage.
In Section 2 of this report, we will break down in greater detail how the PE industrys performance unfolded in
2016. In Section 3, we will open the discussion to the key trends that will shape the PE landscape in the coming
year and beyond, including a look at each local market in the region. In Section 4, we will provide some of our
best thinking and observations on how the most successful funds are preparing themselves to thrive not just on
growth and multiple expansion, but by executing more effectively at every stage of value creationmeasuring
potential at entry, adding value during the holding period and ensuring a growth story at exit. These are heady
days for Asia-Pacific private equity. The best firms are already preparing for challenges ahead.
Page 3
2. What happened in 2016?

Given the extraordinary 39% surge in Asia-Pacific deal value in 2015, its hardly surprising that activity in
2016 backed off somewhat. What is impressive, though, is that the market continued to show strong momentum
in most phases of the business. Deal making over the past three years has risen to a new level and shows
few signs of retreat. LPs continue to view the Asia-Pacific region as an emerging market with big potential.
Heres how the year unfolded.
Investments: The momentum continues
Besides the inevitably difficult comparison with a stellar 2015, there were plenty of reasons to expect that
deal making might be disappointing in 2016. We listed some of the most obvious market shocks in Section 1,
but headwinds were already evident as the year beganmost notably slower GDP growth in China, continued
volatility in its equity markets and broad uncertainty about how the worlds second-largest economy was being
managed. The PE industry, however, chose to focus on those areas where growth is clearly evident. Invest-
ment value totaled $92 billion, and the number of deals hit 892, both measures representing the second-
highest totals ever (see Figure 2.1).
A combination of factors fueled the strong activity, including an abundance of capital, a hot Internet sector
and the continued buying power of large institutions and SWFs. Funds in the region began the year with
$137 billion in unspent capital and ended it with $136 billion, or almost two years supply at the current pace
of investments (see Figure 2.2). While this created a strong incentive to put money to work, GPs for the most
part showed great restraint in the face of inflated asset valuations. The exception was their continued appe-
Figure 2.1: Investment momentum eased, but Asia-Pacific deal value still hit its second-best year ever
Asia gold rush Downtrend Internet/China lift
$150B Global
financial 124
crisis
100 90 92
Asia-Pacific 77
PE investment 68
61 55 60
deal value 50 52
50 39
34
17 19
11 10 9
0
2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
1,250
1,000
Asia-Pacific 750
PE investment
deal count 500
250
0
2000 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
Note: Real estate and infrastructure funds are excluded

Source: AVCJ
Page 4
Figure 2.2: Asia-Pacific funds are sitting on an ample supply of dry powder, which has remained
largely flat
Unspent capital focused on Asia-Pacific
149
$150B
137 136
120 124
114
100 90
83 83
64
49
50
35
0
2005 06 07 08 09 10 11 12 13 14 15 16
Years of future 0.8 1.1 1.5 1.9 1.7 1.5 1.8 1.9 2.3 1.8 2.0 1.9
investments
(estimated)
Buyout Growth Venture Other
Notes: Other includes distressed and mezzanine funds; excludes real estate and infrastructure funds; amounts are at year-end
Source: Preqin
tite for high-growth technology companies. Internet, technology, media and telecommunications companies at-
tracted $42 billion, or 45% of total investment value last year. Internet deals alone accounted for more than
a third of the total, continuing a five-year trend (see Figure 2.3).
This focus on innovation provided a strong foundation for investment activity. Indeed, in April, Alibaba
Groups Ant Financial Services unit attracted the largest private fund-raising round for an Internet company
ever, when sovereign wealth fund China Investment Corp. (CIC) and others invested $4.5 billion in the digital
payments and financing platform. Megadeals, however, had less of an influence on investment totals than in
previous years. Except in Japan, where Kohlberg Kravis Roberts $4.5 billion buyout of auto parts maker Cal-
sonic Kansei Corp. was the largest PE investment ever in that country, megadeals fell off sharply from 2015es-
pecially in China (see Figure 2.4).
Early-stage deals, on the other hand, surged largely due to Internet fever. As GPs seek out growth and the
region becomes increasingly comfortable with the PE value proposition, the number of small-company
deals has risen steadily in recent years. The value of early-stage deals rose to $16 billion, or 18% of the total
market, with particularly strong activity in Greater China, where early-stage deal value rose 24% from 2015
and was three times higher than the past five years average (see Figure 2.5). Activity ran the gamut from
a $600 million second-round financing of electric car company Singulato Motors by Beijings Lancapital
Holdings to GGV Capitals $60 million Series B financing round of Zuoyebang, an online education company
spun off from Chinas Baidu Inc.
The wave of capital chasing deals of all sizes has kept competition at a fever pitch, which in turn has pushed
valuations into nosebleed territory (see Figure 2.6). The average multiple of EBITDA-to-enterprise value
Page 5
Figure 2.3: The appetite for Internet-related assets drove more than a third of 2016 deal activity
Internet sectors share of deal volume 201115 average deal count 2016 deal count
Oil & gas

Telco Oil & gas Telco Mining Other
40% 39 Other Agri-
Apparel House-
Media
hold
Media Construction Leisure culture
Mining Constr- Services
34 Services uction
Appar-
Agriculture el Technology
Utilities
30 Technology House-
Leisure
hold
26 Utilities Financial
Financial services
Food services
& Logistics
beverage
Food &
20 bever-
18 age
Logistics
13 Internet
12
Internet
10
Health Indus- Health
Retail
Retail trial
Industrial
0
2011 12 13 14 15 16
Note: Real estate and infrastructure deals are excluded in all graphs
Source: AVCJ
Figure 2.4: Despite a drop in the Asia-Pacific regions overall level of investment value, most markets
in 2016 beat their five-year average
Deal value by market Sample of 2016 deals
Asia-Pacific PE investment value by country

2016 vs. 2016 vs. Country Asset and value Acquirer
2015 201115 average
There were 12 deals of 26% 16% Calsonic
5 $1B or more in 2016, Kansei
Australia and Japan KKR
10 vs. 19 in 2015 50% 36% Buyout, $4.5B
New Zealand 8
7
Southeast Asia 5 42% 14% GIC;
Cainiao Network
6 Temasek;
China Technology
6 Primavera;
South Korea 15 59% 29% Growth, $1.5B
Khazanah
9
10
Japan 3 215% 53% Nirvana Asia
6 Malaysia CVC
Buyout, $1.0B
15
India 19 21% 24%
12
49 Mphasis
Greater China 72 32% 30% India Blackstone
38 Buyout, $1.0B
0 20 40 60 $80B
201115 average 2015 2016
Notes: Real estate and infrastructure deals are excluded in left-hand graph; numbers are rounded
Source: AVCJ
Page 6
Figure 2.5: Smaller venture-capital and early-stage deals are gaining steam, especially in China
New focus on start-up and early-stage deals Sample of 2016 start-up and early-stage deals in China
Asia-Pacific start-up and early-stage PE investments Asset and value Acquirer
$20B China Taiping Insurance;

JD Finance
16 Harvest Fund Management;
$1B
14 Sequoia Capital
15
China Jianyin Investment;
Ping An Health Cloud
China Mobile;
$500M
10 IDG Capital Partners
Fenqile.com CoBuilder Partners;
6
(Juzilicai.com) Huasheng Capital;
5 3 $235M undisclosed investor
2
1 GSR Ventures;
Xueleyun.com
0 Huaxin Century;
$200M
2011 12 13 14 15 16 New Horizon
Ningbo Angel Capital
JBH.com
Share of 3% 2% 6% 7% 12% 18% Guiding Fund; RRJ Capital;
$200M
total market Xinrong Investment
Greater China Other
Note: Real estate and infrastructure deals are excluded in left-hand graph
Source: AVCJ
Figure 2.6: Deal multiples climbed to new highs in 2016, far outpacing levels in the US
Asia-Pacific US
Average EV/EBITDA multiple on Asia-Pacific PE-backed M&A transactions Average EV/EBITDA multiple for US LBO transactions
18X 17.0 18X

16.6
15 15
13.8 14.0
13.4
12.2 12.6
10.3 10.1
10 9.7
10 8.8 8.7 8.8
8.5
Increases in 2015
and 2016
5 largely reflected 5
transactions with
high multiples
in China
0 0
2010 11 12 13 14 15 16 2010 11 12 13 14 15 H1 16
Median purchase price multiple
Notes: EV is enterprise value; equity contribution includes contributed equity and rollover equity; based on pro-forma trailing EBITDA; Asia-Pacific excludes extreme multiples
(<1 or >100)
Sources: S&P Capital IQ LCD for the US; S&P Capital IQ for Asia-Pacific
Page 7
for PE transactions in the Asia-Pacific region climbed to 17 in 2016 from a record 16.6 in 2015, dwarfing the
average of about 10 for US transactions. High-priced deals in China, where overall M&A multiples rose to
almost 30 from 26 in 2015, created the most upward pressure. But heavy competition and a limited supply
of high-quality targets have inflated prices throughout the region for years.
Although transactions involving large institutions and SWFs were less prevalent in 2016, these massive
investors are catalyzing the deals that grab the most and biggest headlines in the Asia-Pacific region. Over
the last five years, transactions involving some form of direct LP investment made up 29% of all Asia-Pacific
deals and a stunning 57% of deals with $1 billion or more in value (see Figure 2.7). That compares with
just 18% globally over the same period. As well discuss more fully in Section 3, this poses both opportunities
and threats for GPs operating in the region. But given industry dynamics, its clear that shadow capital is
here to stay.
Exits: Still healthy, if less robust
With multiples soaring in the Asia-Pacific region, it was clearly a good year to sell companies. But Asia-Pacific
exit value dropped to $74 billion in 2016 on only 418 exit transactions, as both measures fell below the five-year
averages (see Figure 2.8). Despite the massive $7.4 billion initial public offering (IPO) of Postal Savings
Bank of China, exit value in Greater China dropped 34% from the 2015 total, primarily because of a soft
public equity market and subdued M&A activity. A few large exits helped to push the numbers higher in
India, Southeast Asia and South Korea, but on a narrow base. Total volume in these markets benefited from an
unusual number of very large transactions, such as Affinity Equity Partners and SK Planets $1.6 billion trade
sale of Koreas Loen Entertainment and KKRs $1.2 billion exit of Indias Alliance Tire Group.
Figure 2.7: Deals involving LPs remain an important part of the PE landscape
There were fewer large deals involving LPs in 2016 But those deals remain an important source of investment
Asia-Pacific PE investments (by type of acquirer) Percentage of value of PE deals involving LPs (201216)
$68B $60B $52B $90B $124B $92B

100% 60% 57
80
40
60
All Asia-Pacific
40 deals: 29%
20
Global buyouts
20 valued at >$1B: 18%
0 0
2011 12 13 14 15 16 Asia-Pacific deals valued at >$1B
Average size of 286 373 150 251 423 188

deals involving 2016 examples:
LPs ($M) Ant Financial Services $4.5B acquisition led by CIC and a
consortium of other investors
LP directed Coinvestment GP driven Alibaba Group Holding $1B PIPE financing by GIC and Temasek
Note: Both graphs exclude real estate and infrastructure

Sources: AVCJ; Dealogic
Page 8
Figure 2.8: Exits tailed off in 2016, partly because Chinas weak equity market hobbled IPO activity
Exits were soft across all channels, especially IPOs Sample of 2016 exits
Asia-Pacific PE exit value (by type) Country Asset and value Vendors
$125B 2016 vs. Postal Savings CPPIB; Temasek; IFC;

115
201115 average China Bank of China National Council for
100 IPO, $7.4B Social Security Fund
93
87 12%
Loen
Affinity Equity
75 75 74 South Korea Entertainment
26% Partners; SK Planet
Trade, $1.6B
53 GNPower
50
3% Mariveles Sithe Global Power;
Philippines
Coal Plant Blackstone Group
25 Trade, $1.2B
24%
WH Group
0 China CDH Investments
Trade, $1.2B
2011 12 13 14 15 16
Alliance Tire
KKR;
Number 490 412 428 552 548 418 India Group
Mahansaria family
of deals Trade, $1.2B
IPO Trade Secondary
Note: Real estate and infrastructure deals are excluded in left-hand graph
Source: AVCJ
Figure 2.9: Though 2016 was a good year to sell, funds have fewer ripe assets to harvest
GPs have been trimming older vintages Older assets are not a major problem for most Asia-Pacific PE funds
Estimated unrealized fair value of Asia-Pacific PE portfolio (by vintage) Challenges posed by unexited portfolio companies getting close to
fund lifespan
100% 100%
2015 Worsened
14
80 13 80 No real challenge
12
60 60
About the same
11
40 40 Moderate challenge
10
09
20 08 20 Getting
07 Significant Getting better significantly
Some challenges
Pre-06 challenges better
0 0
December 2014 December 2015 December 2016 Challenges faced Challenges compared
with older assets with 2015
Share with 33% 36% 29%
vintage of
>7 years
Note: Left-hand graph excludes partial exits, infrastructure and real estate
Sources: Preqin; Bain Asia-Pacific Private Equity Survey, January 2017 (n=118)
Page 9
A deeper look at the exit numbers suggests that the region was due for a break. After a few years of exits well
above average, GPs have trimmed back an overhang of older companies in their portfolios, leaving themselves
fewer ripe assets to sell. From 2008 to 2014, a lack of steady exit activity in the Asia-Pacific region allowed
unrealized value to grow 27% compounded annually, setting a new record each year. Stronger exits in recent
years, however, have slowed that growth by two-thirds. Overall, more than 80% of the 118 GPs in Bains 2017
Asia-Pacific Private Equity Survey said they arent particularly concerned with the number of aging, unexited
companies in their portfolios (see Figure 2.9).
Fund-raising: A slow year
After allocating $115 billion to funds focused on the Asia-Pacific region over the previous two years, its
unsurprising that investors looked elsewhere in 2016. Total funds raised in the region dropped almost 16% from
a year earlier to $43 billion and slipped to 9% of the global total from 11% in 2015 (see Figure 2.10).
Results from the Bain Private Equity Survey indicate that GPs sitting on a mountain of dry powder may not
have been giving fund-raising their full attention during the year. Their priority has been buying companies
and working on their existing portfoliosnot beating the bushes for fresh capital. That may change in the
coming year, however. Deals and portfolio management will continue to be priorities, but many GPs indicated
they will be refocusing on fund-raising as well. Close to 70% said they will launch a new fund in the next 12
to 24 months.
What they are likely to find is that investors are becoming pickier about whom they want to work with. As
in previous years, LPs favored the largest, most successful funds in 2016, and thats not likely to change.
Data shows that about 21% of Asia-Pacific PE funds that closed last year raised their capital in 12 months or
less, and the most experienced funds met their goals the fastest (see Figure 2.11). For other funds, the
Figure 2.10: Fund-raising activity lagged as investors paused after a few strong years
Asia-Pacific fund-raising Sample of Asia-Pacific funds closed in 2016
Asia-Pacific-focused PE capital raised (by year of final close) Fund Type of fund and Focus
value raised
$60B 57
51 Buyout
MBK Partners Regional
$4.1B
43
40
Buyout
Hony Capital Greater China
$2.7B
20
FountainVest Growth
China
Partners $2.1B
0
Balanced
201115 average 15 16 Warburg Pincus China
$2.0B
Number of 244 226 147

funds closed Buyout
Primavera China
Share of 15% 11% 9% $1.9B
global total
Note: Both graphs exclude real estate and infrastructure

Source: Preqin
Page 10
Figure 2.11: A clear flight to quality among investors continues to benefit large funds with proven
track records
Only one-fifth of funds on the road reached their goals quickly The most successful were large, experienced funds
Percentage of Asia-Pacific-focused PE funds closed (year of final close) Fund Time to close in 2016 Percentage of
(months) funds that met
their 2016 targets
100%
80 Large, experienced
11 67
funds
65 67 71
60 72
40
Smaller, experienced
9 19 52
9 funds
20 24 14
24 21
10 14
0
2013 14 15 16
First-time
Less than target and/or greater than 2 years 25 36
funds
On/more than target in 12 years
On/more than target in less than 1 year
Notes: Real estate and infrastructure funds are excluded in both graphs; large, experienced funds exclude first-time funds and include funds with more than $1 billion in assets;
numbers are rounded
Source: Preqin
sales process was considerably more arduousespecially first-time funds, which were on the road for more
than two years, on average.
Returns: The gap widens
Performance, of course, is what drives investor interest, and for the past several years the Asia-Pacific market
has delivered. Funds focused on the region have posted median internal rates of return in the 12% range for
two years running, and top-quartile funds have been producing returns of closer to 20%. Most importantly,
GPs in the region have made a regular habit of distributing capital. As we noted earlier, LPs in the region
have been cash-positive for the past few years. For the first half of 2016, LPs got about $1.4 back for every $1 called
(see Figure 2.12).
On a relative basis, the industry clearly outperforms other asset classes. The gap is substantial for every
period from 1 to 20 years, which isnt lost on investors. Surveys show that portfolio performance in the Asia-
Pacific region over the past three years has largely met or exceeded the expectations of LPs and, as a result,
almost 80% of those surveyed said they plan to allocate at least the same amount of new capital to the market
in 2017 as they did in 2016. And 38% said they would increase their allocations (see Figure 2.13).
More than any other PE market globally, however, performance in the still-maturing Asia-Pacific region varies
widely. The gap between top and bottom performers is wider in this region than it is anywhere else in
the world. The differential has been widening for yearsa vestige of the gold rush period before 2008,
when capital flowed into the region liberally, propping up thousands of funds that are now slowly failing
(see Figure 2.14).
Page 11
Figure 2.12: LPs remained cash-positive in the Asia-Pacific region, and the industry generated impres-
sive returns
LPs were cash-positive during the first half of 2016 Investment returns remain solid
Capital contributions and distributions by Asia-Pacific buyout and Evolution of net IRR of Asia-Pacific-focused funds
growth funds
$25B 25%
20
20
10
15 Most LPs' expectations for emerging Asia: 16%
12.0 11.5
0 11.0
10 9.9 9.8
8.5
10
5
20 0
2006 07 08 09 10 11 12 13 14 15 H1 16 2011 12 13 14 15 Most up
to date
Net cash flows Contributions Distributions 3rd-quartile funds Median funds 1st-quartile funds
Notes: Real estate and infrastructure funds are excluded in graph on right side; results in right-side graph are at year-end
Sources: Cambridge Associates; Preqin (latest available data on performance, mostly June or September 2016)
Figure 2.13: Asia-Pacific private equity outshines other investment options, and LPs like what they see
Asia-Pacific private equity vs. other asset classes LPs satisfaction level and plans to allocate more capital
End-to-end pooled IRR (as of June 2016) Assessment of PE portfolio Plans for 2017 PE allocation,
performance over the past 3 years compared with 2016
15% 14 100% 100%

12 11 Fallen Less
10 9 short capital
80 80
5 3 Met
2 2 2 3
expec-
60 60 Same
0 tations
amount
5 40 40
10 Exceeded
9
20 expec- 20 More
1 3 5 10 20 tations capital
Investment horizon (in years)
0 0
MSCI AC Asia Pacific mPME
Global Asia-Pacific Global Asia-Pacific
Asia-Pacific buyout and growth funds based based
Notes: Includes combined buyout and growth funds in emerging markets, vintage years 19862015; Cambridge Associates modified Public Market Equivalent (mPME) replicates
private investment performance under public market conditions; the public indexs shares are purchased and sold according to the private fund cash-flow schedule, with distributions
calculated in the same proportion as the private fund; mPME NAV is a function of mPME cash flows and public index returns
Sources: Cambridge Associates; Preqin Investor Outlook: Alternative Assets
Page 12
Figure 2.14: The wide gap between high- and low-performing funds in the Asia-Pacific region is
growing again
Top-quartile funds continue to outperform expectations Polarization of returns is greatest in the Asia-Pacific region
Net IRR of funds focused on Asia-Pacific Gap between PE funds' top- and bottom-quartile net IRR
(by regional focus, in percentage points)
35% Stabilized IRR Projected IRR 30
30 Asia-
Pacific
25
Top 20
Expectations for
quartile
20 emerging Asia: >16%
Global
North
15
America
Median 10 Europe
10
5
Third
quartile Stabilized IRR Projected IRR
0 0
2003 04 05 06 07 08 09 10 11 12 13 2003 04 05 06 07 08 09 10 11 12 13
Vintage year Vintage year
Notes: Includes Asia-Pacific-focused funds for which IRR data exists; vintage year refers to year of initial investment; excludes real estate and infrastructure funds and funds with
no value
Source: Preqin (latest available data on performance, mostly June or September 2016)
That trend will likely continue as generating alpha in the Asia-Pacific region becomes ever more challenging.
More competition, sky-high multiples and moderating economic growth mean only the most accomplished
funds will find ways to create new value and generate the kinds of returns that attract fresh capital. In Section 3,
we will examine these challenges in more detail and discuss how changes in the PE market will require new
approaches to sourcing, due diligence and value creation.
Page 13
3. The changing shape of Asia-Pacific private equity

For much of its history in the Asia-Pacific region, the PE industry has leaned toward a relatively simple
value-creation formula: Look for a hot sector or market that is likely to benefit from strong macro conditions
or multiple expansion, buy a minority stake in a representative company, wait for top-line growth to kick in
and exit at a premium. Funds have put less emphasis on active portfolio management largely because minority
stakes make it difficult to get directly involved in management and value creation. The limits of this
approach became clear during the global financial crisis, when growth slowed, and aging, subpar companies
piled up in regional portfolios, creating a massive exit overhang. But GPs have whittled away at the overhang
in recent years and continue to benefit from the top-line growth that the good companies in emerging markets
tend to generate.
The search for new sources of value
As powerful as the growth story is in the Asia-Pacific region, however, there are many reasons to believe that
generating returns at current price multiples will only get tougher. Competition for deals is likely to burn
hotter in the years ahead. More than 80% of the GPs in our 2017 industry survey said that they feel the current
level of competition has increased. They are most worried about pressure from other regional and local PE
funds, as well as strategic corporate buyers looking for opportunities to expand their footprint in the region
(see Figure 3.1). As we noted earlier, this has helped push valuations into the stratosphere, increasing the
pain for GPs who are looking to put dry powder to work (see Figure 3.2).
The flip side of multiple expansion, of course, is that it can help create value at exit. But its not clear that
dynamic will hold in coming years. While competition for deals may sustain upward pressure on multiples,
Figure 3.1: Competition will remain intense and could continue to exert upward pressure on valuations
Competition is intensifying GPs view other PE firms and corporate investors as the top threats
Asia-Pacific PE funds' perspectives on the level of competition Biggest competitive threat in 2017
vs. past 12 months
100%
Decrease Regional and local PE firms
80 Stay broadly Strategic/corporate investors

the same
60 Global PE firms
Inbound corporate investment

40 Increase moderately from overseas
Direct investment by LPs

and SWFs
20
Increase significantly Cross-border PE investment

0
January 2016 January 2017 0 10 20 30 40 50 60%
Source: Bain Asia-Pacific Private Equity Survey, January 2016 (n=125) and January 2017 (n=118)
Page 14
Figure 3.2: GPs are feeling the pain of sky-high valuations in the Asia-Pacific region
Price mismatch is the biggest issue that keeps GPs awake at night and the discomfort is increasing
Top causes for concern Asia-Pacific PE funds' perspectives on current valuations
Mismatch in valuation expectations 100%

Very high
Lack of attractive deal opportunities
Sustaining high level of returns
Local economic/political challenges 80
Global macro uncertainty
Challenged exit conditions High
New types of players 60
Competition from traditional players
Talent recruitment and retention
40
Unwillingness of CEO to sell
Rising interest rates
Tax regime/regulatory changes Fair
Tightening fund-raising environment 20
Aging portfolio
Tough lending environment Attractive
0
0 25 50 75% January 2016 January 2017
Source: Bain Asia-Pacific Private Equity Survey, January 2016 (n=125) and January 2017 (n=118)
other factors may act as a cap on further growth. That means sellers may not be able to rely on pure multiple
expansion as a source of exit value in the future.
The interest rate environment is the first problem. Since the global financial crisis in 2008, rock-bottom rates
and a flood of cheap capital have contributed significantly to the Asia-Pacific regions extraordinary multiple
growth. But after a decade of global easing, interest rates in the years ahead have nowhere to go but up. More than
half of the respondents in Bains 2017 survey believe rising rates will exert downward pressure on multiples. And
that will likely create headwinds at exit for companies bought at current prices.
The other factor in flux is economic growth. While the regions diverse set of economies remain vibrant by
global standards, economists expect average GDP growth to moderate in the coming years. That, too, could
act as a brake on multiples.
This means that the sources of value that Asia-Pacific investors have long counted on are shifting. Revenue
growth has always been the No. 1 source of value in the region, and GPs in our survey believe it will remain
so in coming years (see Figure 3.3). But while almost a third of respondents cited multiple expansion as
a top source of returns five years ago, few expect that to contribute much value five years from now. Instead,
37% expect cost control and margin expansion will drive the most value, while 21% are counting on M&A
activity to help improve returns.
What we know, however, is that most PE funds around the world are not particularly good at margin expansion.
While deal strategies often include aggressive margin-expansion goals, GPs are less often successful in
reaching those goals. Bain recently looked at a subset of post-financial-crisis deals in its proprietary database
and compared deal model forecasts with actual results over the holding period. Though most had relatively
Page 15
Figure 3.3: Sources of value are shifting in the Asia-Pacific region, forcing funds to flex new muscles
External Internal
Multiple expansion Leverage Top-line growth Cost/margin M&A
Factor considered the most important source of returns for exited deals by Asia-Pacific GPs
71 68
61
37
31 31
20 22 21
12 11
7 5 6 6
5 years ago In 2016 In 5 years
Note: Respondents may have chosen more than one factor as the most important source of returns for a particular time frame
Source: Bain Asia-Pacific Private Equity Survey, January 2017 (n=118)
accurate projections of revenue growth, 69% of them failed to attain the projected higher profit margins
(see Figure 3.4). In most cases, margins actually declined during ownership. This wasnt an Asia-specific
grouping, but more than half of the emerging Asia GPs in our survey indicated that they also have struggled
to meet margin-expansion goals.
The implication from this analysis is clear. As the sources of value in the industry shift, GPs will need to add
new capabilities and exercise new muscles to remain competitive. While buying high and selling higher has
been a reliable strategy in the past, funds will have to work harder in the future to create new value from the
inside out. As well see in Section 4, the best firms are focused on a few key strategies to better identify and
capitalize on those opportunities.
Shadow capital: Increased complexity
As GPs think about how to adjust to new sources of value in the Asia-Pacific PE market, the most proactive
firms are also devising strategies to manage the growing complexity posed by shadow capital. These firms are
working from the conviction that direct investment and various forms of coinvestment by large institutions
and SWFs are not passing trends, but represent a new normal in the marketplace. Limited partners are asking
forand receivingthese sorts of arrangements with ever greater frequency and, for GPs, that has critical
implications for fund economics, availability of capital and access to deals.
Whats clear is that most large LPs are intent on changing how they engage with PE firms. They are reevaluating
the number of GPs in their PE portfolios and seeking to generate more value from those they retain
(see Figure 3.5). The California Public Employees Retirement System (CalPERS) is a prime example. In
2005, according to the Asian Venture Capital Journal, CalPERS had a PE portfolio of $9 billion placed with
Page 16
Figure 3.4: Increasing margins is harder than it looks
Based on a global sample, most companies miss their margin targets GPs in emerging Asia report similar results
Actual EBITDA margin at the end of holding period vs. original deal Perceived ability to achieve targeted margin expansion for companies
model projection exited in the past 23 years
100% 100%
Higher Not that often

80 80 (5%25%)
Flat
60 60 In some situations
(25%50%)
40 40
Lower In many situations
(50%80%)
20 20
In most situations
(>80%)
0 0
Sample of global deals, Emerging Asia GPs Developed Asia GPs
201013 vintage
Sources: Bain proprietary global deal database; Bain Asia-Pacific Private Equity Survey, January 2017 (n=118)
275 managers. By 2020, it expects to have $20 billion in PE exposure, but wants to have only 30 GP relation-
ships. As more LPs make similar decisions, relationships with a smaller set of favored GPs will become both
closer and significantly more complex. Many GPs are viewing these changes with trepidation. But the best
are making the choice to get out ahead of the trend rather than let it roll over them.
GPs in the Asia-Pacific region were split down the middle when we asked them if shadow capital poses an
opportunity or a threat. But almost 80% of them already offer some sort of coinvestment to LPs, and most
are planning to expand or maintain those opportunities in the future (see Figure 3.6). There are obvious
reasons why LPs are asking for these relationships. Not only do they give investors more visibility into their
investments and more control over outcomes, but coinvestment arrangements can offer the LP sharply reduced
costs in the form of lower fees and carry.
This, of course, is the downside for GPs, as it can significantly reduce their economics and slow down the
investment process. The upside: These relationships can strengthen ties with LPs, which gives PE firms
better access to deep pools of capital when its time to raise a new fund, as well as access to large deals that
might not otherwise come their way.
More troubling is a parallel trend in which LPs are investing directly, bypassing GPs altogether and competing
head to head for deals. At the moment, solo direct investing is limited to a small number of institutions with
the requisite heft and ability to mount such programsnotably, the largest funds in Asia, the Middle East
and Canada. But when they do show up, in the absence of fees and carry, they can afford to pay a higher
price and still achieve target returns.
As weve noted, top firms are proactively setting themselves up to make the most of the shadow capital
trend. There is no one-size-fits-all approach, but some GPs are creating funds that mimic the style of larger,
Page 17
Figure 3.5: As shadow capital grows, many LPs are looking for fewer and more-meaningful fund
relationships
Global LPs are carefully evaluating new relationships Many are shifting to more active investing to increase their profits
2017 priorities for manager relationships Proportion of LPs who don't coinvest or directly invest in companies
100% 40% 39
Other
Actively pursuing
80 new managers 30
30
26
Evaluating re-ups
60 with current GPs
21
20 19
40
Evaluating re-ups with
current GPs, with limited
new relationships 10 8
20
Evaluating re-ups with
current GPs, with
fewer relationships
0 0
Global LPs Large LPs All respondents
2013 2014 2017

Note: Large LPs are survey respondents who plan to commit $500 million or more to private equity in 2017
Source: Probitas Partners surveys, Q4 2012, 2013 and 2016
Figure 3.6: Many Asia-Pacific GPs are lukewarm on shadow capital, but most are expanding
coinvestment rights
PE funds have polarized views on but most GPs already have and plan to offer even
shadow capital coinvestment rights more opportunities
Asia-Pacific GPs' perception of shadow capital Current participation models that Asia-Pacific Plans for 2017 on managed accounts
GPs offer to LPs and coinvestments
100% Deals originated or 100%

A major 4
opportunity underwritten by LPs
More
80 80 opportunities
Somewhat an
opportunity to offer
Separate managed
19
accounts
60 60
Counderwriting or 40 Same number

40 28
Somewhat active sponsorship
a risk
Fewer
20 20 opportunities
Passive coinvestment Don't know
78
rights yet
A real risk
0 0
0 20 40 60 80%
Page 18
more conservative LPs by seeking out lower-risk, lower-return assets that they believe will hold for up to
twice as long as the typical 10-year life of a conventional fund. Such funds enable GPs to compete on equal
footing with institutional investors at auction, but a key challenge is deciding on the economics for these
vehicles and how to adjust investing accordingly.
Shadow capital is here to stay and presents both threats and opportunities as GPs
forge new, more complex relationships with their investors. But the most effective
way for funds to turn the coinvestment trend to their advantage is by using
sustained, market-beating returns to attract the best partners and gain the most
negotiating leverage.
The most effective way for GPs to gain leverage in these situations is to improve their performance. That
means sourcing more effectively, analyzing opportunities with more precision and delivering on a proprietary
strategy to create value. In the next section, well look at strategies that can help funds raise their game in
these areas.
Page 19
DIVERSE MARKETS, DIFFERENT OUTLOOKS
2016 DEALS 2016 EXITS KEY 2016 MARKET

(VS. 201115 (VS. 201115
AVERAGE) AVERAGE)
HIGHLIGHTS OUTLOOK
+ Continuing shift to
$49B $33B Solid deal momentum
path to control
(30%) (20%) Continued strength in
Internet deals + Large pool of companies
439 deals 182 exits Slow IPO activity in first Slower growth in macro
environment
(16%) (12%) half of year
Record-high corporate
GREATER CHINA leverage ratios
Steep valuations
$15B $14B Softer Internet activity + More balanced sector focus

(24%) (114%) More buyouts and + Strong growth prospects
mezzanine/pre-IPO + Rising interest from global
244 deals 107 exits Robust exit momentum investors
(14%) (29%) across the board, notably Continued LP focus on
in IPOs returns
INDIA High valuations and
broader competition
$7B $8B Larger-scale deals + Larger pool of targets

(14%) (6%) Rebound in Malaysia + Maturing GP networks
Strength in secondary High valuation and
51 deals 18 exits deals competition
(3%) (38%) Weak IPO market Some local macro
challenges
ASEAN
$6B $6B Lack of megadeals + Solid flow from distressed

(29%) (5%) Strength in consumer/ deals, cash-outs and
retail and industrial noncore divestitures
64 deals 45 exits sectors Steep valuations
(9%) (13%) Timid IPO momentum Intensified competition
SOUTH KOREA
$10B $5B Biggest market since + Noncore carve-outs

(53%) (62%) 2007, supported by fueling deal flow
largest-ever Japan Few large transactions
64 deals 34 exits PE deal Increased competition
(58%) (54%) Strong interest in
consumer and Internet
JAPAN sectors
Slow exits across all
channels
$5B $6B Subdued buyout activity, + Plenty of PE capital

(36%) (38%) despite continuous focus available
on deal making + Some secondary
30 deals 31 exits Slow exits across all opportunities
(36%) (25%) channels Scarcity of large, quality
targets
AUSTRALIA High pricing
Competition from Chinese
funds or corporations
Page 20
4. Creating value in a fiercely competitive market

Despite the gradual slowing of economic expansion in the Asia-Pacific region, top-line growth will continue
to be a central focus of most value-creation strategies. But, as we saw in the previous section, other sources
of value are becoming increasingly important in markets where asset prices have never been higher. In todays
fiercely competitive deal environment, the most effective general partners arent willing to rely on growth
alone to produce returns. Instead, they aim to develop a differentiated angle on markets and companies by
building new muscle in three critical areas:
Smart sourcing
Thesis-based due diligence
Proactive value creation
Excellence in these critical capabilities gives PE firms the ability to find more proprietary deals and the
confidence to set a price in bidding situations that will lead to real value.
Smart sourcing
When we asked GPs about sourcing in this years Asia-Pacific PE survey, a few things stood out. First the
good news: Almost half of their deals are still proprietary, which means GPs in the region are avoiding
expensive auctions in many cases. Finding attractive deals, however, is getting harder and harderalmost
three-quarters of the respondents said it was one of their most pressing challenges (see Figure 4.1). Part of
this difficulty owes to sky-high multiples in these markets, which are making it hard to justify many trans-
Figure 4.1: Amid fierce competition, Asia-Pacific GPs are having more difficulty sourcing attractive deals
Almost half of Asia-Pacific deals but its getting harder to and the lack of attractive deal
are proprietary. find good investment prospects opportunities is a major challenge
Proportion of proprietary deals in the region Sourcing attractive deals vs. 12 months ago What keeps Asia-Pacific GPs awake at night
50% 49 100% 80%

Significantly
73
easier
Easier
40 80
60
30 60 Same
40
20 40
20
10 20 More difficult
Significantly
more difficult
0 0 0
Estimated 2016 percentage Asia-Pacific GPs Lack of attractive deal opportunities
Sources: Bain Asia-Pacific Private Equity Survey, January 2017 (n=118); Preqin Private Equity Spotlight
Page 21
Figure 4.2: Few Asia-Pacific firms believe they are operating at full potential on sourcing
Asia-Pacific funds' self-assessment on sourcing
100%
80
60
40
20
0
Clarity on sweet spot, with Adequate time spent on Networking plus adequate Established network
very clear criteria for what's quality networking at compensation system at of experts and
in or out all levels senior levels industry advisers
Operating at full potential Maturing model being refined Experimental stage Early stages, with a long way to go
actions. But it may also be that many PE firms arent putting their best foot forward. In our survey, few GPs
said they are operating at full potential when it comes to the various aspects of sourcing (see Figure 4.2).
The firms that do excel in this essential phase of the PE value chain stand out in two key areas: They have
defined a sharp point of view on where to hunt, based on their unique experience and capabilities. And they
have spent years nurturing a deep and rich network of experts and market contacts, people who can help the
firm proactively identify opportunities that others may miss.
Narrowing the firms aperture. Creating a differentiated point of view on assets starts with concentrating on
what the firm does best. Firms need to clearly articulate an investing sweet spot by analyzing past successes
and taking a hard look at what capabilities the team brings to the market. This sweet spot provides clear
criteria that deal teams can use to filter prospects across sector, geography and deal size or type. It also
suggests what sort of network the firm needs to build and which capabilities demand the most attention.
That puts the firm on solid ground, ready to proactively seek out opportunities in the areas where it is most
likely to succeed.
The most clearly developed sweet spots become brands that improve deal origination by announcing the
firm to company owners and intermediaries who are looking for equity financing. A good example is
Catterton, which developed deep expertise in the consumer sector before partnering last year with LVMH
and Groupe Arnault to form L Catterton. The partnership bills itself as The Worlds Leading Consumer
Growth Investor and is building a proprietary investment process to define key consumer trends and invest-
ment themes before matching them against a set of defined industry verticals from luxury apparel to house-
hold durables. The objective is to narrow the funnel down to subcategories before the firm identifies and prioritizes
a set of attractive, midmarket growth targets. L Catterton can then offer those targets a valuable set of entice-
Page 22
ments, including sector-specific operational expertise, access to a network of strategic thought leaders and the
ability to tap a deep pool of consumer industry talent.
This kind of sharply defined focus on a sweet spot enhances a firms ability to double down on areas where
it can bring the most value. Deal teams can build a live list of companies evaluated on a predetermined
set of criteria and approach owners to develop relationships long before they are ready to sell. A clearly
stated direction motivates action, giving teams incentive to mine the firms key areas of interest for leads
and relationships.
Focusing on a sharply defined sweet spot enhances a firms ability to double

down on areas where it can bring the most value. Deal teams can build a live list
of companies evaluated on a predetermined set of criteria and approach owners
to develop relationships long before they are ready to sell.
Building strong networks. GPs in the Asia-Pacific region say intermediaries and internal networks built by
managing directors provide their biggest sources of deal flow. Networking, by definition, is an individualized,
high-touch process that should align with the firms personality. For Bain Capital, that means carefully defining
where it wants to play, based on macro analysis and its ability to take advantage of global expertise in various
sectors. It then screens and proactively contacts key players in the short-listed areas of interest. In 2014, that
led the firm to Asia Pacific Medical Group (APMG), a private hospital company in China. After the initial
introduction, the Bain Capital deal team slowly built trust and rapport with APMG management and share-
holders, using its network to secure access to key decision makers. In March of last year, the persistence paid
off. Bain Capital turned an original deal to supply minority growth capital into a $150 million buyout of APMG,
giving the firms new Asia fund a solid position in Chinas fast-growing healthcare sector.
The best firms also build relationships strategically and proactively, based on what sorts of expertise will
complement their own. They involve the whole team, including junior staff, in securing connections within
key industries and geographies. They hire senior industry leaders to help source deals and nurture relation-
ships with the investment banks and other deal intermediaries that orbit their sweet spot.
Because reputation and familiarity matter deeply when building in-market connections, many firms also tap
highly respected individuals with local star power to help establish a brand and enhance networks locally. In
2011, for instance, KKR appointed Lim Hwee Hua, Singapores former minister of finance and transport, as
a senior adviser. Last year, Wendel Group sought to enhance its network in Southeast Asia by hiring former
HSBC Indonesia Managing Director Ted Margono as an adviser. These experts can create credibility in local
markets and open doors by facilitating introductions with important contacts in otherwise closed business
circles. They can also help qualify opportunities and help their employers avoid the land mines scattered
around local markets.
Thesis-based due diligence
With multiples at record levels in the Asia-Pacific region and competition for deals as fierce as ever, the threat of
paying too much for assets is plain. But theres also the risk of offering too little and watching a rival run away
with an attractive deal. With quality targets in short supply, making the most of each opportunity is critical to
Page 23
Figure 4.3: Thesis-based due diligence produces insights that enable GPs to win deals and profit from them
Taking advantage of new data sources

and digital-based analyses to provide
Use new insights
of
ad
ts va
e
ss
nc
Developing a differentiated and
na
ed
so
unique angle on the target
an
iew
company through various
aly
Proprietar y v
investment approaches
tics
Co h
m bi wt
nin g c o st a n d g ro Taking a holistic view of target companies,
with a focus on both the top line and the
bottom line
Source: Bain & Company
keeping the flywheel spinning profitably. The most successful buyers in this environment find an edge
against the competition by ferreting out value others havent seen. That lets them bid aggressively but confi-
dently, comfortable that they will be able to create ample value over the assets holding period.
Given that the traditional sources of value in the Asia-Pacific marketGDP growth, cheap capital and multiple
expansionwont provide the same level of support to returns as in years past, due diligence has to focus
on other ways to lift a companys performance. The best funds treat this period of scrutiny as an opportunity
to build a clear investment thesis, supported by executable, proprietary insights that will eventually serve as
a roadmap for post-acquisition value creation. Most rely on a blend of approaches. We will highlight three
of them (see Figure 4.3).
Developing proprietary views on assets. Top-tier firms approach their sweet spot with a proven and familiar
investment style that has generated value in the past. This helps sharpen their focus as they look for certain
types of companies with familiar characteristics. Every firm is different, but in our experience, the most effective
approaches combine elements of several styles:
Contrarian investing. Finding out-of-favor companies that are due for a cyclical turn or show hidden potential
because they have valuable capabilities or assets that have been undermanaged.
Differentiated value-creation investing. Unlocking value that other firms cant by tailoring a proven, differ-
entiated value-creation philosophy to companies in familiar industries.
Macro trend investing. Developing a point of view on the direction of major secular trends and using it to
predict secondary or tertiary effects on markets and companies that arent yet reflected in prices.
Page 24
Cross pollination. Taking themes and investment theses that have worked in one geography or market and
applying them systematically to others.
These are not simply generic investment styles. They have been adapted and internalized to become part of
the firms culture and provide deal teams with a clear set of criteria for analyzing companies before the
acquisition. CVC Capital Partners, for instance, uses its value-creation philosophy to assess targets in the
several industries it knows most intimately. In 2010, this approach led to a 78% stake in Indonesias
Matahari Department Store through a $714 million buyout. Many thought CVC had paid too much, but
drawing on its deep experience in retail, CVC saw something else: an opportunity to significantly improve
performance by expanding the store footprint, adding talent, strengthening a private label program and dialing
up promotions. Market share jumped 12 percentage points, and annual revenue growth increased to 13%.
As it exited in phases from 2013 to 2016, CVC earned a 7x8x return on investment.
Combining cost and growth. As the traditional growth-oriented sources of value come under pressure in the
Asia-Pacific region, margin expansion is getting a lot more attention. No matter which style of investing a
firm chooses, managing costs more aggressively to improve the bottom line is becoming a more critical
component of adding value. As we saw in Section 3, however, many firms fall flat when it comes to expanding
margins during the hold period. We believe thats because they fail to take a holistic view of the challenge,
starting with the due diligence phase.
Efforts to expand margins often fall flat because firms look at cost and revenue
opportunities separately, rather than taking a holistic view of the challenge.
What do we mean by holistic? Many PE firms stumble over the challenge of expanding margins because
they break their analysis of a companys potential into two separate areas: opportunities to cut costs
and opportunities to increase revenue. The problem is that focusing on either the top line or cost initia-
tives in isolation can lead to faulty assumptions about how new initiatives will actually affect margins.
Looking for cost reductions alone, for instance, might lead to a conclusion that the EBITDA margin could
improve by 5% over five years. Yet during the hold period, the investor may discover that capturing a
particular revenue opportunity requires significant marketing investment. Or it may turn out that that
prices are declining slowly over time. Add it up, and the 5% margin improvement over five years might
have been well off targetwhich, in turn, erodes the firms value-creation estimate and threatens the
return on investment.
Taking a holistic view of the assets potential means looking at cost and growth initiatives together to derive
the optimal mix of tactics that will produce the highest level of profitable growth. The most successful firms
break it down into a rigorous review of where the company is now and where it needs to be. This involves
making sure the firm truly understands the baseline and what current management is trying to accomplish.
It can then bring in the right experts to review both top-line and margin-improvement potential. This analysis
forms the basis of a high-level transformation plan that prioritizes the few critical initiatives that will make
a big difference during ownership. That way, the firm gives itself a head start on value creation from Day 1
after the acquisition.
This kind of analysis helped one firm bid confidently for an Australian specialty retailer that was being sold
by another PE firm. Because it was a secondary deal, the buyers major concern was that the potential value
Page 25
creation had already been captured by the seller. But by working with advisers and tapping their expertise,
the firm was able to quantify significant margin-expansion opportunities that justified the deal. Looking at
cost alone might have led to a different conclusion.
Making the most of advanced analytics. The digital age has ushered in new sources of data and sophisticated
analytics capabilities that give PE firms unprecedented power to quickly derive insights about target companies
potential. Customer reviews, geographic information, compensation data, employee and organizational
data, social media sentiment and other web data all can be mined for information that sharpens due diligence.
Analytics are no replacement for business judgment or traditional valuation methods. But they can enhance
the firms understanding of almost any business function. Scraping and analyzing customer reviews from
social media websites such as Chinas WeChat or Koreas KakaoTalk can provide valuable insight into product
perception and consumer sentiment. Analyzing assortment data can shine a light on relative pricing, product
mix and discounting strategies. Mapping a companys physical locations relative to competitors or target
customers can identify white spaces. Tapping career sites such as LinkedIn and Glassdoor can build a better
picture of organizational structure and estimated personnel costs. A tangle of spans and layers, for instance,
may signal an opportunity to create a more rational, responsive organization.
Analytics are no replacement for business judgment, but digital tools can significantly
deepen a firms understanding of a company and its potential, which can mean the
difference between winning a deal at the right price or not.
Reams of raw data could bog down a due diligence effort, but PE firms also have access to valuable tools and
can speed analysis. One example is Tableau Software, which allows users to create maps, dashboards and
charts to better visualize trends and patterns that would otherwise be invisible. Clarabridge uses text analysis
and language processing to analyze customer sentiment, categorize comments and evaluate survey responses.
These tools accelerate insight discovery and automate manual due diligence processes. Analysis that used
to take months can now be had in hours or days.
Top-tier firms are already deploying analytics to sharpen insights that lead to more confident valuations.
When one global fund began its due diligence of an online retailer in India, for instance, it scraped data
directly from the web to develop a better understanding of how it might optimize pricing. The data high-
lighted several opportunities. First, the firm saw that the target company could reshuffle its brands and
SKUs to create a more profitable mix. The analysis also revealed several product overlaps and allowed the
firm to compare the targets discounting strategies with those of successful competitors. All of this might
have been possible in the past, but it would have required a less precise manual sampling process that
would have drained the firms time and resources. Analytics delivered insights on a tight timeline and
allowed the buyer to confidently assess the opportunity to coax more revenue from the product mix.
Making the most of analytics is hard. It requires significant investment of time and resources. Most of the
tools require advanced technical capabilities, which means either hiring staff in-house or working with out-
side consultants to access and analyze the data. Its also true that analytics offer no panacea; the insights
provided are only as good as the underlying data, and data quality varies widely. Whats clear, however, is
that digital tools can significantly deepen a firms understanding of a company and its potential. And that
can mean the difference between winning a deal at the right price or not.
Page 26
Proactive value creation
For a number of reasons, the Asia-Pacific region has always presented a particular challenge to PE firms that
want to take an active role in value creation. Over the past five years, only about 15% of deals qualified as buyouts,
meaning most of the other 85% involved minority stakes. Acceptance of the PE value proposition has grown over
the years in the region, but Asia-Pacific business owners still prefer to maintain a tight rein on their companies.
This means investors have fewer opportunities to influence real change, and winning buy-in is difficultsome-
thing PE firms see as a significant problem. Because the supply of management talent in the region is thin, GPs
say that existing company leaders often lack the requisite skills to drive improvement (see Figure 4.4). For
years, the regions headlong growth and margin expansion obscured some of these issues. But as sources of
value shift, the ability to engage management in a clear, rigorous value-creation strategy will become an ever-
expanding part of creating value and producing returns.
Finding a path to control. None of this is to say that there arent plenty of minority deals that succeed in the
Asia-Pacific region. After completing a two-stage exit in 2015, Carlyle Group earned a 5x return on a 9% stake
in Chinas Haier Electronics Group that it had held since 2011. KKR more than doubled its money on an 18%
stake in Vietnam-based Masan Consumer that it exited in stages in 2015 and 2016. During the ownership
period, KKR was highly involved with management, helping the company unlock its next wave of growth by
expanding into new categories and launching an active M&A program.
Taking such an active role in value creation, however, involves some measure of influence over decision
making. And increasingly, that means negotiating path to control provisions in minority situations. More
than three-quarters of the GPs in our survey said they want more control, and most expect a steady increase
in such provisions over time (see Figure 4.5).
There are several ways GPs can gain more influence over their investments. Many firms negotiate board
seats and the right to veto most major decisions affecting the company. They try to identify change-minded
owners early and work with them to formulate a value-creation strategy. Generating buy-in means producing
quick wins that demonstrate to the company that the PE value proposition is real. And top-tier firms often
bring in globally recognized experts to influence change and produce a wow effect.
Because it is hard to replace management teams in the Asia-Pacific region, the

most successful firms have developed value-creation models that clearly define
how the firm will work with existing management and what support it will provide.
Defining the right model. For most GPs focused on the Asia-Pacific region, value creation is still a work in
progress. Only half say they have a clearly defined model for creating post-acquisition value, and most are
still building out their teams and capabilities (see Figure 4.6). GPs also say they are generally successful
in putting a robust value-creation plan in place within the first six months of ownership. But they are sig-
nificantly less effective in seeing it through. A large majority say their plans fall short of intended goals at
least 20% of the time.
Page 27
Figure 4.4: Why do value-creation plans fail? Weak management teams and an inability to influence them
Main reasons for failure
Management team lacks requisite skills
Inability to influence the portfolio company
Management team not fully bought into the plan
Macroeconomic headwinds
Unfavorable shift after the close
Plan was overly ambitious
Plan lacked sufficient resources
Focus was not on the right issues
Inadequate monitoring at the board level
0 20 40 60 80%
Figure 4.5: In minority situations, locking in a path to control is critical for creating value
GPs want more control in minority situations They expect to have some control in nearly half of minority deals
Asia-Pacific funds interested in a path to control in minority situations Share of Asia-Pacific companies bought with a minority stake and a
path-to-control provision
100% 50% 13 percentage points

Not interested at all
Not really interested

80 40
60 Yes, moderately interested

30
40 20
Yes, very interested

20 10
0 0
Path to control In the past 23 years In the next 23 years
Page 28
Figure 4.6: Most Asia-Pacific PE firms are still building value-creation models and capabilities
Do you have a clearly defined model to create Do you have the right portfolio
value after an acquisition? team and capabilities?
Self-assessment on post-acquisition value-creation model Self-assessment of portfolio team and capabilities
100% 100% No dedicated value-

Early stage of
Model testing; more work to do model definition creation professionals
Early stage, with
80 80 ad hoc portfolio
support
Good progress made;
60 refining phase 60 Team and capabilities
being built out
40 40
Clearly defined model

20 to create value 20 Fully staffed team with
the right priorities
0 0
Value-creation model Portfolio capabilities
Because it is hard to replace management teams in the Asia-Pacific region, the most successful firms have
developed value-creation models that clearly define how the firm will work with existing management and
what support it will provide. Four broad approaches are gaining currency in the region:
Active value-creation model. Firms like Bain Capital and KKR take an active approach to value creation by
building a dedicated team of full-time employees that provides newly acquired portfolio companies with
deep strategic analysis, operational support and help in developing a strong value-creation plan. The team is
a firmwide resource that works directly with CEOs to engage them in creating a priority list of high-impact
initiatives to boost top-line growth and promote margin expansion.
Maestro model. This model, favored by Carlyle and Temasek Holdings, also focuses on early intervention
and continual interaction with top management. But instead of fielding a large, dedicated portfolio group,
the firm designates a maestro a senior managing director who works with a small staff and the firms
deal teams, which interact directly with the CEOs. This group coordinates the efforts of outside experts
engaged to help company management teams formulate value-creation plans.
Adviser-led model. Firms such as EQT prefer a less interventionist approach. Instead of working with every
portfolio company, they focus on the companies that need the most attention, helping management teams
shape goals and providing the resources to see them through. Often this means drawing on a large network
of outside experts who can jump in with specific know-how.
Playbook model. A playbook lays out a set of strategies, tactics and operational procedures that a firm applies
to deal after deal in a given sweet spot. Platinum Equity, for instance, applies a trademarked M&A&O
(mergers, acquisitions, operations) turnaround strategy that aims to create value through back-to-basics
business strategies combined with operational guidance and resources.
Page 29
5. Conclusion
What we saw in the Asia-Pacific region over the past year was a PE industry that is maturing rapidly. Instead of
getting blown around by global crosswinds, it performedand performed surprisingly wellaccording to its own
fundamental strengths and weaknesses. GPs paid up for growth in the Internet and technology sectors, but avoided
the temptation of putting their ample stock of dry powder to work in expensive sectors with lesser prospects. Returns
kept growing and LPs remained cash-positive, indicating that the PE investment cycle is solidly self-sustaining.
But its also true that the sources of value in the Asia-Pacific region are shifting. While top-line growth remains
the strongest catalyst for value creation, a reliance on GDP and multiple expansion is giving way to a focus
on performance improvement and improved margins. Amid fierce competition and record-setting multi-
ples, GPs in the region will need to raise their game to produce market-beating returns. They will have to
source more effectively, bring a new level of rigor to due diligence, and develop a value-creation model that
can win management buy-in for meaningful performance improvementeven in minority situations.
A key set of questions can help assess where your firm stands on its full-potential journey:
Has your firm defined a sweet spot with crystal clear criteria for identifying which deals you like and
which you dont?
Are you confident your firm knows of all the potential opportunities in your chosen markets and sectors?
Can your firm develop sharp, proprietary insights about the companies it targets?
Do your sourcing and due diligence capabilities give you a competitive advantage?
Do you have an established panel of industry advisers and an expert network that you can tap into for sourcing
deals and adding value post-acquisition?
Has your firm developed a repeatable model for creating value in its portfolio companies, with a high degree
of buy-in from the deal partners?
Overarching these questions is another one: Has your firm found a way to consistently differentiate itself
from a growing horde of competitors through sustained outperformance? While the vibrant economies of
the Asia-Pacific region will continue to present private equity investors with real opportunity in the years to
come, the capital will flow to those firms that can answer in the affirmative.
Page 30
Market definition
The Asia-Pacific private equity market as defined for this report
Includes
Investments and exits with announced values of more than $10 million
Investments and exits completed in the Asia-Pacific region: Greater China (China, Taiwan and
Hong Kong), India, Japan, South Korea, Australia, New Zealand, Southeast Asia (Singapore,
Indonesia, Malaysia, Thailand, Vietnam, the Philippines, Laos, Cambodia, Brunei and Myanmar)
and other countries in the region.
Investments that have closed and those at the agreement-in-principle or definitive agreement stage
Excludes
Franchise funding, seed and R&D deals
Any non-PE, non-VC deals (e.g. M&A, consolidations)
Real estate and infrastructure (e.g. airport, railroad, highway and street construction; heavy
construction; ports and containers; and other transport infrastructure)
Page 31
Key contacts in Bains Global Private Equity practice
Global Hugh MacArthur (hugh.macarthur@bain.com)

Asia-Pacific Suvir Varma (suvir.varma@bain.com)
Australia Simon Henderson (simon.henderson@bain.com)
Greater China Kiki Yang (kiki.yang@bain.com)
India Arpan Sheth (arpan.sheth@bain.com)
Japan Jim Verbeeten (jim.verbeeten@bain.com)
South Korea Wonpyo Choi (wonpyo.choi@bain.com)
Southeast Asia Sebastien Lamy (sebastien.lamy@bain.com)
Europe, Middle East and Africa Graham Elton (graham.elton@bain.com)
Americas Daniel Haas (daniel.haas@bain.com)
Reporters and news media Please direct requests to

Nicholas Worley
nicholas.worley@bain.com
Tel: +852 2978 8830
Acknowledgments
This report was prepared by Suvir Varma, a Bain & Company partner based in Singapore who leads the firms
Asia-Pacific Private Equity practice; Kiki Yang, a partner based in Hong Kong who leads Bains Greater China
Private Equity practice; and a team led by Johanne Dessard, practice area director of Bains Private Equity practice.
The authors wish to thank Vinit Bhatia, Michael Thorneman, Weiwen Han, Derek Deng, Sebastien Lamy, Usman
Akhtar, Arpan Sheth, Madhur Singhal, Srivatsan Rajan, Wonpyo Choi, Jim Verbeeten and Simon Henderson for
their contributions; Rahul Singh for his analytic support and research assistance; and Michael Oneal for his
editorial support.
We are grateful to Preqin and the Asian Venture Capital Journal (AVCJ) for the valuable data they provided and
for their responsiveness.
This work is based on secondary market research, analysis of financial information available or provided to Bain & Company and a range of interviews
with industry participants. Bain & Company has not independently verified any such information provided or available to Bain and makes no representation
or warranty, express or implied, that such information is accurate or complete. Projected market and financial information, analyses and conclusions contained
herein are based on the information described above and on Bain & Companys judgment, and should not be construed as definitive forecasts or guarantees
of future performance or results. The information and analysis herein does not constitute advice of any kind, is not intended to be used for investment purposes,
and neither Bain & Company nor any of its subsidiaries or their respective officers, directors, shareholders, employees or agents accept any responsibility
or liability with respect to the use of or reliance on any information or analysis contained in this document. This work is copyright Bain & Company and may
not be published, transmitted, broadcast, copied, reproduced or reprinted in whole or in part without the explicit written permission of Bain & Company.
Copyright 2017 Bain & Company, Inc. All rights reserved.

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ASIA-PACIFIC PRIVATE EQUITY REPORT 2017

About Bain & Companys Private Equity business

1. Asia-Pacific private equity: Strong results, new challenges . . . . . . . . . . . . . . pg. 1

2. What happened in 2016? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 4

Investments: The momentum continues . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 4

Exits: Still healthy, if less robust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 8

Fund-raising: A slow year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 10

Returns: The gap widens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 11

3. The changing shape of Asia-Pacific private equity . . . . . . . . . . . . . . . . . . . pg. 14

The search for new sources of value . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 14

Shadow capital: Increased complexity. . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 16

Diverse markets, different outlooks. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 20

4. Creating value in a fiercely competitive market . . . . . . . . . . . . . . . . . . . . . pg. 21

Smart sourcing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 21

Thesis-based due diligence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 23

Proactive value creation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . pg. 27

1. Asia-Pacific private equity: Strong results, new challenges

$140B 1,000 $140B 1,000 $140B

Deal value Deal count Exit value Exit count

2. What happened in 2016?

Investments: The momentum continues

Asia gold rush Downtrend Internet/China lift

Note: Real estate and infrastructure funds are excluded

Unspent capital focused on Asia-Pacific

Buyout Growth Venture Other

Oil & gas

Deal value by market Sample of 2016 deals

Asia-Pacific PE investment value by country

201115 average 2015 2016

Asia-Pacific start-up and early-stage PE investments Asset and value Acquirer

$20B China Taiping Insurance;

Greater China Other

18X 17.0 18X

Median purchase price multiple

Exits: Still healthy, if less robust

$68B $60B $52B $90B $124B $92B

Average size of 286 373 150 251 423 188

Note: Both graphs exclude real estate and infrastructure

$125B 2016 vs. Postal Savings CPPIB; Temasek; IFC;

IPO Trade Secondary

Fund-raising: A slow year

Asia-Pacific fund-raising Sample of Asia-Pacific funds closed in 2016

Number of 244 226 147

Note: Both graphs exclude real estate and infrastructure

Returns: The gap widens

15% 14 100% 100%

35% Stabilized IRR Projected IRR 30

3. The changing shape of Asia-Pacific private equity

The search for new sources of value

80 Stay broadly Strategic/corporate investors

Inbound corporate investment

Direct investment by LPs

Increase significantly Cross-border PE investment

Top causes for concern Asia-Pacific PE funds' perspectives on current valuations

Mismatch in valuation expectations 100%

Multiple expansion Leverage Top-line growth Cost/margin M&A

5 years ago In 2016 In 5 years

Shadow capital: Increased complexity

Figure 3.4: Increasing margins is harder than it looks

Higher Not that often

2013 2014 2017

100% Deals originated or 100%

Counderwriting or 40 Same number

Source: Bain Asia-Pacific Private Equity Survey, January 2017 (n=118)