TPG in rare China leveraged buyout

Buyout opportunities are thin on the ground in China, a result of sizable assets either being in the hands of entrepreneurs who are unwilling to sell or government-linked entities that are unable to. Even if a control transaction is available, financing it is a problem: offshore banks are uncomfortable lending against onshore assets, while their domestic counterparts have yet to develop an appetite for such deals.

To be a credible buyout target, a company that generates the bulk of its revenue from mainland China must have an offshore structure that allows foreign investors to inject and extract money from the business. As a result, five of the 10 largest China buyouts are take-private deals for US- or Singapore-listed firms.

HCP meets these requirements in that, although now headquartered in Shanghai, it started out as a Taiwanese company more than 50 years ago. The Chen family, HCP's founders and, until TPG got involved, the majority owners, took the business into China in 1995, when they established manufacturing operations in Suzhou.

HCP has since become China's leading primary packaging company and the third largest globally, with three production bases in China, one in the US and one in Mexico. It has a particular focus on the cosmetics, skincare and fragrance industries.

"The Chen family has built a superb company that has grown from its Chinese heritage to a global leader in its sector," said Stephen Peel, managing partner of TPG. "We believe our capital and operational experience can help HCP accelerate its growth and ensure success in the next stage in its development."

Eddy Wu, formerly Asia Pacific president at VWR International, is to become CEO of the company. Current CEO Jeff Chen will stay on as an executive director, while Joanne Chen will continue as COO.

According to sources familiar with the transaction, TPG was attracted by HCP's strong cash flow and solid client base. The Chinese company, meanwhile, wanted third-party capital to further expand its business and was very selective as to who it was willing to bring on board. TPG's global exposure to the retail and packaging sectors - current portfolio companies include US-based Graphic Packaging - was helpful in securing the deal.

Roughly half the transaction value is covered by debt, plus a smaller working capital provision. It has been reported that a consortium of banks, including several Taiwan lenders, are responsible for the financing package.

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• Topics
• Buyouts
• Greater China
• Consumer
• TPG Capital
• buyout
• Consumer
• Morgan Stanley Private Equity Asia