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Private equity-backed buyouts in Asia reach record high in 2017

Asian company owners are more receptive to private equity sponsors as they are more willing to cede control of their businesses, Bain & Co report says

PUBLISHED : Thursday, 15 March, 2018, 9:04am
UPDATED : Thursday, 15 March, 2018, 11:35pm

Buyout deals backed by private equity in Asia rose to record high in 2017, with Asian company owners increasingly willing to cede control and turn to private equity sponsors for new capital and talent as the first generation of owners retired and planned their succession, according to a new report.

In its “Asia-Pacific Private Equity Report 2018”, released on Thursday, consulting firm Bain & Company said the value of private equity buyout deals in the region almost doubled to US$72 billion last year. That represented 45 per cent of total deal values in the region, higher than the 38 per cent average recorded between 2012 and 2016.

The report noted a sharp rise in “public-to-private” deals last year, in which private equity sponsors first delist a company and then, in some cases, relist it typically on another exchange as they seek to exit from the investment at a higher valuation than the initial price tag.

“The public-to-private transactions … show that the pool of companies available [for buyout] is increasing, and the private equity owners are increasingly successful in tapping into large public companies,” said Kiki Yang, a partner in Bain’s private equity practice and co-author of the report.

Last year, such deals more than doubled in value to a record US$27 million, the report said. In one example, Hong Kong-listed footwear retailer Belle International, was taken private by a consortium led by Chinese private equity firm Hillhouse Capital in April 2017 in a HK$53.1 billion deal.

More private equity-backed cross-border deals in China and Asia this year, says Grant Thornton

The report found that deal values in the Asia private equity market as a whole, including venture capital and other forms of investments, were also at an all-time high last year at US$159 billion, up 41 per cent from 2016 and 19 per cent above the previous peak in 2015. However, the number of deals was down slightly, at 1,015. Yang added that the increase in values came from bigger sized deals, at an average of US$521 million each, more than double than average value between 2012 and 2016.

She said what supported the shift among Asian company owners was that the owners were now seeing the need to “build new muscles” within their enterprises amid a slowdown in economic growth and disruption from new technology. Such a challenging operating environment lowered the resistance to approaches from private equity sponsors.

Greater China drew in the highest amount of capital last year, with deal values rising 15 per cent to US$73 billion, while the southeast Asian market saw values more than double to US$20 billion, a record high.

Exit values rose 25 per cent over the previous five-year average to US$115 billion. There were 710 exits in 2017, also a record high number. The largest came from Singapore’s sovereign wealth fund, GIC, with its US$10.4 billion sale of Global Logistic Properties, the report said.

The most popular avenue for exits was secondary sales, or selling to other private equity sponsors. Such sales accounted for 46 per cent of total exit values. Exits through IPOs accounted for only 7 per cent.

However, the fundraising environment was tougher in 2017, particularly for first-time funds with less proven track records in performance. This was reflected in the 35 per cent decline in the total number of funds closed, to 194, whilst the average fund size grew by almost 65 per cent.

“Pan-Asia regional funds expanded their fundraising activity at the expense of country-focused funds,” the report said.

KKR set a record in 2017 by closing the largest Asia-Pacific focused fund, a regional buyout fund that raised US$9.3 billion.

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