4Q analysis: Still selling

1) Exits: Asia continues to shine

In Queensland Motorways, Oriental Brewery and Arysta LifeSciences, 2014 delivered three of the four-largest trade sales ever seen in Asia. They helped propel exits to a record level of $62.9 billion, with trade sales accounting for 54% of total proceeds, according to preliminary data from AVCJ Research. 

The final three months of the year saw a larger trade sale contribution than in any of the previous quarters: $10.7 billion out of an overall exit figure of $17.6 billion, or a 61% share. This compares to $6.68 billion out of $15.2 billion in the third quarter.

Permira's sale of Japan-based Arysta LifeSciences led the way on $3.51 billion, but Japan was well represented elsewhere: it was responsible for nine of the 25-largest exits region-wide, up from one in the previous quarter. These included MBK Partners' sale of Yayoi to Orix Corp. for $696.2 million and Tokio Marine Capital's $665.2 million exit of Bushu Pharmaceuticals to Baring Private Equity Asia.

Australia also featured prominently, with Affinity Equity Partners' exit of deli meats producer Primo Smallgoods for $1.26 billion and the $693.2 million sale of cinema chain Hoyts Group by Pacific Equity Partners.

While Japan and Australia were the most active markets for private equity exit activity, on $7.67 billion and $3.21 billion, they ranked second and third by proceeds from PE-backed IPOs, trailing only China. However, the China total is distorted by two offerings in which the private markets involvement came in the form of cornerstone commitments to CGN Power and Dalian Wanda Commercial Properties, which between them raised $7.69 billion, or nearly two thirds of the China total.

Japan was responsible for four of the largest IPOs, up from zero out of the top 25 for July-September. There were substantial partial exits for Bain Capital and Japan Industrial Partners as restaurant operator Skylark raised $689.6 million and CVC Capital Partners, which sold the majority of its stake in staffing business TechnoPro Holdings through a $390.1 million offering.

In Australia, there were IPOs for two outdoor advertising businesses - APN Outdoor and oOh!media - which provided liquidity events for Quadrant Private Equity and Mercury Capital, and CHAMP Private Equity. Quadrant also took aged care provider Estia Health public, taking its IPO count for 2014 to four.

2) Investment: Frothy tech deals, bumper buyouts

It speaks volumes for the size and valuation of private markets funding in the technology space that three of the six-largest investments in the final three months of 2014 were late-stage institutional rounds. Chinese mobile phone maker Xiaomi raised $1 billion; Indian e-commerce platform Flipkart got $700 million; and Beijing XiaoJu Science & Technology, the company behind Chinese taxi-booking app Didi Dache also received $700 million.

With a valuation of $45 billion, Xiaomi can now claim to be the world's most expensive VC-backed start-up. Meanwhile, for Flipkart, this was a third round of funding in 12 months. The first, worth $210 million, valued the company at a reported $2.5 billion; the last, worth $700 million, was made at a valuation of $11 billion.

The debate continues as to whether these asking prices are justified, given the target companies are established leaders in their respective markets, or yet another symptom of an increasingly frothy market. Certainly, technology companies in China and India are following the US trend of ever larger private rounds at ever higher valuations.

There are plenty of arguments why the dotcom boom and bust of 1999-2000 is not being repeated - companies are more mature when they go public, the internet business model is proven, Asia in particular is seeing rapid growth due to the proliferation of mobile devices - but there are still risks. When abundant capital is chasing deals, investors may spend less time on due diligence and companies that aren't worth supporting get funding.

At the top end of the scale, and at the highest valuations, this is no longer a concern for conventional venture capital. The roster of investors in Xiaomi and Flipkart's most recent rounds includes sovereign funds GIC Private and Qatar Investment Authority, later-stage private equity investors DST Global and Hopu Investment, and hedge funds Baillie Gifford & Co. and Steadview Capital Management.

Their largesse contributed to a fourth quarter in which private equity investment in Asia reached $21.5 billion, just short of the third quarter figure of $21.6 billion. The $85.3 billion committed in 2014 as a whole is the highest annual total since 2007.

However, it was also a quarter of buyout dominance, with $8.7 billion transacted - the highest three-month total in more than two years. Growth deals slipped to $7.3 billion from $11.5 billion the previous quarter in the absence of an investment of the scale of September's Sinopec Marketing bonanza.

South Korea, as always seems to be the case, weighed in with a couple of bumper buyouts, notably a $3.6 billion acquisition of Visteon Corp's 70% stake in Halla Visteon Climate Control Corp. by Hahn & Co. in partnership with Hankook Tire. CDH Investments also weighed in with the purchase of a majority interest in Fujian Nanping Nanfu Battery for around $600 million - a rare corporate carve-out in China and an even rarer case of a PE firm returning to invest in a former portfolio company.

A final trend worth noting is the spate of investments in Australian mining service providers that are being squeezed by falling commodities prices and having to offload assets or undergo restructuring in order to support their balance sheets.

First Centerbridge Partners said it would support a $352 million restructuring of Boart Longyear. This was followed by The Blackstone Group agreeing to buy Orica's chemicals division for $653.7 million on and Apollo Global Management announced plans to buy half of Leighton Holdings' maintenance services business for $578.5 million.

3) Fundraising: China on the slide - again

A handful of mid-cap China funds are currently in the market or about to enter it. They represent a welcome boost following a final quarter of 2014 in which just one US dollar-denominated vehicle reached an incremental or final close: Cathay Capital Private Equity scooped up $49.8 million to close its Sino-French fund at $675.1 million.

Further closes may yet emerge but they are unlikely to alter the fact that this was one of the weakest China private equity fundraising quarters on record - in recent years, only the aftermath of the global financial crisis was worse. The tech-focused VC and PE funds that closed in the first half of the year tailed off; the $8.1 billion China Minsheng Investment Fund that massaged the third quarter figures has not been emulated.

Approximately 10 renminbi funds reached a close between October and December, generating collective proceeds of $1.7 billion. This was actually an improvement on the second quarter, but only marginally. A $967.7 million infrastructure fund raised by Xingjing Capital - which is controlled by Fosun Group - accounted for the bulk of the proceeds. Other contributions came from small-scale renminbi VC vehicles.

By contrast, India continued its recent uptick, with five GPs raising just over $800 million for the quarter. They included IDFC Alternatives, which topped off its second India infrastructure fund with $256 million for a final close of $900 million and Everstone Capital's first close of $261.5 million on its third India and Southeast Asia-focused vehicle. The full target it $650 million.

India fundraising surpassed $3 billion for 2014 as a whole, the first time this has happened in three years. The region as a whole finished the year with $53.8 billion in commitments, slightly better than 2013 and slightly worse than 2012. It should come as little surprise that the number of managers dropped substantially to below 230 compared to 379 in 2013.

This headline numbers were impacted by the assortment of GPs raising large pan-regional vehicles over the past year, and the last vestiges of this tide were apparent in the fourth quarter, with Baring Private Equity Asia reaching a first close of $3 billion on its sixth fund. A final close at the hard cap of $3.85 billion is expected shortly.

However, Baring Asia's effort was not enough to turn around a disappointing three months for fundraising, with total commitments of $9.1 billion, less than half the previous quarter's total. The drop-off in China was impossible to counterbalance.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Exits
• Venture
• Buyouts
• Fundraising
• Venture
• buyout
• Fundraising
• Exit
• Asia
• IPO