Asia's buyout barons hail "control" era too soon
10/10/2016 01:35
(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
By Quentin Webb
Hong Kong, Oct 10 (Reuters) - Asia's buyout barons are too
quick to hail a new era. One top dealmaker says the region is
finally giving up its heavy reliance on minority investments and
moving towards full-blown takeovers. That would be great news
for a private equity industry flush with capital. But a profound
shift could be some time coming.
Carlyle's X.D. Yang told the recent SuperReturn Asia
conference in Hong Kong that regional "control buyouts" leapt to
$60 billion last year, up fourfold in four years, and would keep
gaining market share. They made up 44 percent of the deals by
value, up from 23 percent in 2011.
The argument rests on two pillars. First, tougher economic
times make the second generations of founding families more open
to an exit, or to shedding divisions. The same goes for distant
outposts of multinationals and for businesses owned by smaller
investors. Second, an increasingly sophisticated market means
buyers can tap Western-style leveraged buyout (LBO) financing,
and access a deeper talent pool to run the businesses they buy.
There has certainly been a flurry of corporate carve-outs.
Last week saw two big deals worth in the region of $1 billion
each from Wharf Holdings 0004.HK and Hong Kong-based Bank of
East Asia 0023.HK . McDonald's MCD.N is also selling
restaurants in North Asia.
But this is a lumpy market. And some previous drivers of
activity now look spent, like the management buyouts of Chinese
outfits languishing on U.S. bourses. So the overall figures are
unlikely to follow a smooth upward curve.
Asia's business dynasties also still typically keep tight
control of firms, and are reluctant to cede ownership.
Meanwhile, others who have experience recruiting top executives
to run portfolio companies say that it remains challenging to
find good talent, especially in China.
A sustained LBO boom would help shift the $110 billion in
unspent "dry powder" that data provider Preqin says Asian-based
PE and VC firms are hoarding. Control deals usually mean bigger
sums, plus more sway over a company's future. It also makes any
exit easier. So in theory, a shift from the status quo would be
fantastic. Reality might prove somewhat harder to control.
On Twitter https://twitter.com/qtwebb
CONTEXT NEWS
- Carlyle Group expects private equity firms and other
investors to increasingly buy control of companies in Asia
rather than minority stakes, particularly in China where slowing
economic growth is likely to convince more owners to sell.
- "The external environment is creating a situation that
control buyouts can generate attractive returns and that trend
is rising. That share of the industry is going to continue to
rise," X.D. Yang, co-head of Carlyle's Asia buyout advisory
team, told the SuperReturn Asia conference in Hong Kong on Sept.
27.
- Buyouts in Asia, excluding Japan, where investors take
control of companies rose an average 39 percent annually from
2011 through 2015, Yang said, citing data from the Asian Venture
Capital Journal. Last year, the total value of deals reached $60
billion, the data showed.
- Control buyouts reached 23 percent of all private equity
deals in China last year, compared with 44 percent for the
region, the data showed. The total deal value reached $15
billion from just $2 billion in 2011, representing annual growth
of 59 percent.
- On Oct. 4, Hong Kong's Wharf Holdings agreed to sell Wharf
T&T, its telecom unit, to TPG and MBK Partners for HK$9.5
billion ($1.2 billion). A day later, Bank of East Asia agreed to
sell share-registry arm Tricor to Permira for HK$6.5 billion.
- For previous columns by the author, Reuters customers can
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<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Carlyle sees rise in control buyouts in China as economy slows
urn:newsml:reuters.com:*:nL3N1C32WM
HK tycoon Woo's Wharf agrees to sell telecom unit to TPG, MBK
for $1.2 bln urn:newsml:reuters.com:*:nL3N1CA1W6
BREAKINGVIEWS - JD Power's new finding: Asia is flush with
capital urn:newsml:reuters.com:*:nL3N17M1K4
BREAKINGVIEWS - Fund glut will send Asia's buyout barons
off-piste urn:newsml:reuters.com:*:nL3N1432Z5
Permira to buy Bank of East Asia's Tricor unit for $838 mln
urn:newsml:reuters.com:*:nL3N1CB2AH
HK tycoon Woo's Wharf agrees to sell telecom unit to TPG, MBK
for $1.2 bln urn:newsml:reuters.com:*:nL3N1CA1W6
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Editing by Una Galani and Katrina Hamlin)
((quentin.webb@thomsonreuters.com;)(Reuters
Messaging:)(quentin.webb.thomsonreuters.com@reuters.net))
Keywords: CARLYLE GROUP CHINA/BREAKINGVIEWS