State-owned Enterprises

Old family firms are ripe for the picking

Cashed up investors will find there will be businesses to buy out because the patriach is retiring and the children do not want to carry on

PUBLISHED : Friday, 09 November, 2012, 12:00am
UPDATED : Friday, 09 November, 2012, 8:47am

Hong Kong family businesses are increasingly becoming targets of takeovers by institutional investors as the older generation of entrepreneurs retires, bankers say.

Hundreds of listed companies controlled by wealthy families may be taken private in the coming decade because they face operational difficulties or the younger generation is not interested in holding on to them.

One example would be companies in the garment industry, which is considered a sunset sector in Hong Kong.

Potential buyers for such businesses could be capital-rich global private equity firms or powerful state-owned enterprises from the mainland that often consider Hong Kong a stepping stone before they expand into European and American markets more aggressively.

Many investment banks and management consultancy firms have already pitched the idea to local family businesses for possible merger and acquisition (M&A) plans this year.

"Taking a company private is not just the trend in the US, it is also going to happen in Asia and in Hong Kong. We've got the same question from many clients this year - what are the potential takeover targets that are worth pitching to in Hong Kong?" said an investment banker with an American firm in Hong Kong.

The depressed valuations at which some Chinese companies were traded on stock markets in the United States, for example, Focus Media and Shanda Interactive, have prompted their controlling shareholders to take the companies private with financial support from some private equity funds.

Brian Gu, head of corporate finance for China at JP Morgan, told the South China Morning Post in a recent interview that the take-private trend in American stock markets would continue next year.

David Chin, head of UBS's Asia investment banking business, said there are plenty of firms in Hong Kong which could be taken private as the founders or the first-generation leaders are getting close to retirement age with no clear succession plans.

"Apart from taking those once high-flying listed firms private, I definitely see other options such as outright M&A (merger and acquisitions). New blood may help the firm to turn around," he added.

So far this year, a handful of Hong Kong tycoons, including Cheng Yu-tung of New World Development and Li Ka-shing, Asia's richest man who controls his Cheung Kong business empire, have announced succession plans, creating some market speculation over how the next generation of managers will deal with the challenge.

The city also has a handful of family-controlled local banks, such as Wing Hang Bank and Chong Hing Bank, and they have been widely considered potential takeover targets for foreign or mainland banks.

"In 10 years, Hong Kong will see first-generation leaders or founders exit. The privatisation trend applies to hundreds of privately-held listed companies in this city," said Chin.