Private equity market may recover, says PwC report

The novel coronavirus outbreak has had an impact on the private equity market in the short term, but the high demand for internet services in the areas of online education, telecommuting and cloud services will continue to make them investment hot spots for some time, a new report released by global accounting firm PwC said.

The report said the country has called for speeding up the construction of "new infrastructure" projects, including 5G networks, data centers, artificial intelligence and the industrial internet, which will also be investment hot spots over a period of time.

Vincent Cheuk, PwC China South assurance markets leader and Southern China private equity group leader, said the COVID-19 outbreak which emerged in late 2019 caused inevitable challenges to the overall economic performance in the short run and private equity market activities will be restrained as well.

"Despite this, the continued implementation of various favorable policies is expected to attract investments to stimulate a continuous rebound of the private equity market," he said.

The PwC official added that as the contagion comes under increasing control in China, the number of private equity and venture capital investments is expected to rise in the second half of this year.

"In the long run, as capital market reform deepens, more exit options will become available in the private equity market, which in turn stimulates investment activities and access to financing," he explained.

The report also said private equity/venture capital (PE/VC) investment in the telecommunications, media and technology (TMT) sector rebounded in the second half of 2019 compared to a declining trend in the first half of that year. The industry saw a steady increase in investment volume and value, with the volume reaching the year's peak in the third quarter.

The total investment deals were 1,809, up 10 percent from the first half of 2019. With 908 deals that disclosed financial terms, a total value of $20.66 billion was recorded, a 39 percent rise from the previous half year.

Gao Jianbin, PwC China TMT leader and Central China private equity group leader, said the private equity market saw a recovery in the second half of last year.

With market conditions recovering, the launch of the sci-tech innovation board or STAR Market and implementation of favorable policies for technology industries, the TMT sector posted steady growth in investment volume and value.

"With the investment volume consistently accounting for nearly half of the overall industries, the TMT industry remains a hot spot for private equity investors," Gao said, while estimating PE/VC investment in the TMT industry will grow in 2020 compared with 2019.

The outbreak of novel coronavirus will bring opportunities for 5G applications, remote offices and online activities, unmanned commerce and services, fresh-food e-commerce and online education, said a forecast by market research company International Data Corp.

Charline Ni, PwC China technology leader and China North assurance markets leader, said the IT, artificial intelligence, machinery manufacturing and integrated circuits drew the attention of investors.

Similarly, internet service sectors including internet education, e-commerce and online convenience services are favored by investors because of their strong investment value.

There were only 145 investment cases in the VC/PE market in February, down 69 percent year-on-year, because of the impact of COVID-19, according to Zero2IPO, a Chinese market research institution. The total investment amount reached 20.2 billion yuan ($2.9 billion), down 55 percent compared with the same period of the previous year.

Sequoia Capital China said the venture capital firm completed investments in 25 enterprises in January and February. They covered fields such as TMT, consumer services, healthcare and industry technology.

It said leading investment institutions should grasp opportunities arising from new sectors and stick to long-term values.

Zhang Junyi, vice-president of Nio Capital, said at this time, the first thing that companies in the VC/PE sector should do is to maintain cash flow, and help invested enterprises with appropriate management moves in a bid to improve their operational efficiency.