Asia Awards: PE Professional of the Year – Roy Kuan

Hong Kong Broadband was a rare buyout on the private equity industry's doorstep. For CVC Capital Partners, winning it was arguably the crowning achievement of a 12-month period in which the firm committed more than $1.1 billion in equity across five deals and completed two sizeable exits.

Yet groundwork for the $644 million acquisition of the internet service provider dates back years rather than months. "We had been marketing to the company for several years to do a buyout of this business," says Roy Kuan, managing partner at CVC, who led the transaction. "A deal wasn't feasible at first, but we maintained a dialogue for a long time."

The breakthrough came when City Telecom, Hong Kong Broadband's parent, decided to enter domestic television and needed capital to support these ambitions. CVC's was the logical buyer for the fiber-optic network plus a handful of international direct dialing businesses.

One curiosity is why such a large, high-profile divestment didn't end up in an auction process. "We were able to meet the seller's goals - an acceptable price and reliability in terms of deliverability," Kuan says. "There is also an ongoing relationship with the seller because Hong Kong Broadband provides services to City Telecom, so it's important to have chemistry there."

Burgeoning buyouts

While another buyout of this scale in the telecom space seems unlikely, Kuan argues that the market is conducive to such transactions in other sectors. He cites the existence of diverse corporations that may choose to focus on core business areas, the availability of debt financing, and the plentiful supply of talented executives who might consider management buyouts.

This broadening of the deal environment is already apparent in mainland China, where CVC is seeing investment opportunities emerging against a backdrop of a slowing economy, weak capital markets and tighter liquidity.

"Although China is still challenging, the situation is better now than it was 24 months ago because the public markets have slumped and people are finding it difficult to raise capital or do IPOs," says Francis Leung, CVC's managing partner and chairman for China. "Entrepreneurs are generally more receptive to PE investors than before, while in some cases entrepreneurs are aging and they are willing to sell control."

Take-private deals for overseas-listed Chinese companies are proving to be another rich source of deal flow. CVC has yet to get involved in a transaction, which is perhaps a reflection of the challenges involved. Kuan notes that winning shareholder and board approval can be difficult, especially when some independent directors shop deals around in search of alternative buyers.

CVC's two most recent investments in China, drug developer Venturepharma and ladies footwear manufacturer C.BannerInternational, were both significant minority deals.

It is Southeast Asia that claims the plaudits for creativity following the acquisition of Malaysian fast-food chains QSR Brands and KFC holdings in a joint deal worth $1.65 billion with Johor Corp. and Employees Provident Fund (EPF). Others have tried and failed to pick up the asset, which includes more than 900 KFC, Pizza Hut and RasaMas outlets across Southeast Asia.

According to SigitPrasetya, CVC's managing partner for Southeast Asia, the bid was successful because the private equity firm partnered with Kulim Malaysia - the Johor-controlled largest shareholder in QSR and KFC - rather than buy out its interest. "Deals like this are difficult to execute and we are grateful to all parties for their support," Prasetya adds.

Forging partnerships with local business groups has underpinned much of CVC's success in Southeast Asia, and Indonesia in particular, since 2007. Four deals have come and only one of them by auction. Nevertheless, the private equity firm is cautious about making big calls on bumper deal flow from Southeast Asia, especially when valuations are still so high.

The exit angle

The sub-region has delivered more in terms of exits, including the $850 million sale of Singapore-headquartered fastener manufacturer Infastech to Stanley Black & Decker in July. CVC and co-investor Standard Chartered Private Equity are said to have secured a 3x return after a holding period of just two-and-a-half years.

The principal challenge was integration. Infastech was previously two divisions of Acument Global Technologies: one supplies nuts, bolts and screws to the Asia electronics sector; the other is a London-based rivets producer for the European auto industry. CVC consolidated the various entities into a single distribution platform, enabling the two divisions to cross-sell.

The integration process only took about six months, by which point prospective buyers were already circling. It bodes well for trade sales in Asia in general, but Kuan warns that targets must offer scarcity value, a strong brand or technology, and the ability to merge with a global platform.

"We do see more interest from strategic investors," he adds. "We have already sold two businesses to Japanese companies and there was some Japanese strategic interest in Infastech."

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• Topics
• Buyouts
• Expansion
• Exits
• Greater China
• Southeast Asia
• North Asia
• CVC Capital Partners
• Exit
• buyout
• Growth capital
• Asia
• AVCJ Awards