Asia Pacific is primed for its next 11-digit LBO
23/12/2019 01:38
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Alec Macfarlane
HONG KONG, Dec 23 (Reuters Breakingviews) - It is shaping up
to be a big year for buyouts in Asia. There’s over $250 billion
of capital committed to private equity in the region, according
to research outfit Preqin. KKR KKR.N plans to raise a fund
that would be bigger than its flagship U.S. one. Cheap debt is
also available from Japan to Australia, making a mega-deal all
the more likely.
Jumbo Asian LBOs are rare. Bain led the biggest one a couple
of years ago, an $18 billion acquisition of Toshiba’s
memory-chip business. The region’s only other 11-digit buyout,
according to Dealogic data, was Singapore’s Global Logistics
Properties. With so many companies controlled by tycoons,
governments or entrenched boards, it has been a tougher part of
the world for private equity to crack.
Overall conditions are improving for buyout barons, however.
Interest rates keep falling. Banks are generally willing to lend
more. Debt markets in Europe and the United States, often
offering looser covenants, are opening to Asian deals. Ageing
owners without clear succession plans are warming to private
equity. And conglomerates such as Panasonic 6752.T have been
increasingly willing to sell off big businesses.
There are also plenty of listed companies with solid cash
flows and modest borrowing which fit the buyout profile. A
rough-and-ready screen for ones with a market capitalisation of
over $10 billion, at least $1 billion in EBITDA and net debt
equal to no more than that measure of earnings churned out some
tantalising theoretical prospects. Among them are Japanese
chocolatier Meiji 2269.T and advertising giant Dentsu
4324.T . Chinese appliance maker Haier’s publicly listed units
could also be a target if a mooted take-private of the parent
company fails.
At the decidedly larger end of the spectrum, there is
Woolworths WOW.AX and 7-Eleven operator Seven & I 3382.T .
The Australian supermarket chain would cost upwards of $40
billion, including a takeover premium.
Using $20 billion of debt, or a robust 6.5 times the EBITDA
forecast by analysts for its next financial year, would mean
scrounging up another $20 billion. That would take at least four
buyout shops and additional co-investors, such as sovereign
wealth funds, to write the full equity cheque. It’d be a
stretch, for sure, but given the amount of money sloshing around
Asia Pacific, even that kind of deal has entered the realm of
the possible.
On Twitter https://twitter.com/AlecMac11
CONTEXT NEWS
- Private equity firm KKR is targeting a record $15 billion
for a new Asia-focused buyout fund, Reuters reported on Nov. 7,
citing three unnamed sources.
- KKR’s fundraising will start in the first quarter of 2020,
with the aim of achieving first closing by June, the report
said.
- A fund of the size KKR is targeting would be the biggest
by the New York-based firm in any region. Its previous record
was a $9.3 billion fund that closed in 2017. It would also be
the largest U.S. dollar-denominated private equity fund focused
on Asia.
- For previous columns by the author, Reuters customers can
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(Editing by Jeffrey Goldfarb and Sharon Lam)
((alec.macfarlane@thomsonreuters.com; Reuters Messaging:
alec.macfarlane.thomsonreuters.com@reuters.net))