Profile: FCC Partners’ CY Huang

Southeast Asia is currently top of mind for C.Y. Huang, president of Taipei-based investment bank FCC Partners. He wants to foster business connections between Taiwan and the countries in the region, with a view to helping local companies expand overseas.

The strategy is driven in part by China’s increasingly convoluted collection of international relationships. On one hand, Taiwanese companies might need to move their supply chains outside of the mainland – or even sever ties with mainland partners – to retain business elsewhere. On the other, if China is prioritizing domestic substitution over global outreach, there could be a vacuum in Southeast Asia for Taiwan to help fill. And it’s not just about technology.

“The government has a south-bound policy, but it has done little because Taiwan doesn’t have any diplomatic relations with Southeast Asian countries,” he says. “I see potential in consumer markets as well as manufacturing. Three of China’s largest brands, – Master King, Want Want China, and Uni-President, – are from Taiwan. If it’s too early for US and European conglomerates to go into Southeast Asia and Korean and Japanese companies don’t have the regional presence, why not Taiwan?”

Huang, who is perhaps best known as the founder of the Taiwan M&A and Private Equity Council (MAPE), is not averse to talking big or thinking big. He moves with ease from discussing the intricacies of specific deals into sweeping debates about what those deals might mean – for Taiwan, for mainland China, for relations between the US and China, for companies and industries bound up in this complex geopolitical matrix.

This is not uncommon among Taiwan-based dealmakers, who spend their days negotiating political and regulatory terrain that can shift without warning. Huang has also demonstrated a willingness to take the path less traveled. To some extent, this defined his early career. He is the US-educated Taiwanese who returned home while classmates stayed on Wall Street; the banker who went to mainland China before it was fashionable; and the venture capitalist who returned to the buy-side.

“Sometimes you must take risks, be contrarian, and not go down the same career path as everyone else,” he observes. “I came back to Asia from the US early, and I went to China when no one wanted to go to China – and those decisions really made a difference in my career.”

A nascent market

The first contrarian step was a source of familial angst. Huang’s father, who made his living as an importer of German machinery, was disappointed that investing in a US education did not translate into a US-based career. In the 1980s, business school frequently led to consulting with the likes of McKinsey & Company or banking on Wall Street. Many of Huang’s peer group were expected to follow this path, given Asia ex-Japan had yet to become significant in global finance.

Huang graduated from Stanford Business School in 1987 and then spent barely a year in New York with J.P. Morgan before taking the job of head of Taiwan investment banking at Jardine Fleming. His return was accelerated by the Black Monday stock market crash, but it was still somewhat unusual.

Taiwan in the late 1980s was seeing the first stirrings of venture capital activity, with many of the early investees going to form the bulwark of the island’s globally dominant PC components industry. Huang chose to study at Stanford in part because of the west coast’s reputation as a nascent technology hub – he had previously worked as a software engineer – and it proved a prescient move.

He secured a summer internship at Hambrecht & Quest, a US investment bank that specialized in technology, around the time it was negotiating a joint venture in Taiwan. This offered an inside track on the establishment of the $20 million H&Q Han Tech Fund in 1986, led by Ta-Lin Hsu. A pioneer of private equity in Asia, Hsu went on to establish H&Q Asia Pacific.

Lip-Bu Tan of Walden International was making similar moves, establishing a venture capital joint venture with the Taiwan government a year later. Tan worked alongside Peter Liu, who subsequently formed WI Harper. They offered Huang a route into VC, but he didn’t bite.

“Venture capital had only just started, and no one understood what it was. Perhaps because of my background, I always found it more interesting than typical investment banking,” he recalls. “Lip-Bu and Peter approached me several times in the 1980s about joining Walden. I didn’t accept until 1998 when Peter was at WI Harper.”

In the meantime, Huang switched allegiances from Jardine Fleming to CLSA. China’s B-share market – comprising stocks listed in Shanghai and Shenzhen but traded in foreign currencies – began to take off in the early 1990s. Huang was often called upon as the Mandarin-speaking investment banker to help execute those deals. Moving to another bank in Taiwan wasn’t appealing, but his head was turned by the prospect of leading the build-out of CLSA’s China investment banking business.

Mainland China was often described as the Wild West for dealmakers and CLSA, which already had a strong research operation, wanted a piece of the action. However, the Asian financial crisis curtailed activity – “I thought investment banking was dead, IPOs were being put on hold and it was hard to do deals,” Huang says – just as technology was taking off. WI Harper’s offer was duly accepted.

Initiatives he worked on included the Beijing Technology Development Fund, a $50 million vehicle established by WI Harper and state-owned Beijing Enterprises Holdings. Several Hong Kong real estate tycoons came in as anchor investors, among them the family offices of Sun Hung Kai and Stanley Ho. Another fund was established in conjunction with the Singapore government.

Going solo

In 2000, Huang struck out on his own, establishing a dual securities broking and private equity investment operation in Hong Kong. This time, the bursting of the internet bubble intervened. “I thought that would be easy after raising two funds for WI Harper, but the market crashed and suddenly things weren’t so easy. I burned through a lot of money initially,” he recalls.

Polaris Securities, then one of Taiwan’s leading brokerages, was approached about an equity investment to keep things running, but the chairman counteroffered with a full takeover, promising Huang full autonomy. Polaris made its name with two bumper deals in the mid-2000s, Citi’s purchase of Bank of Overseas Chinese and AIG’s acquisition of Central Insurance. This was also a prolific period for private equity with $9.4 billion deployed in Taiwan in 2006-2007, two-thirds of it in buyouts.

Having helped internationalize Polaris, including an expansion into Hong Kong, Huang departed in 2010, a year before the business was acquired by Yuanta Securities. He went solo again with FCC and made it stick, helped in no small part by an early breakthrough with restaurant chain Golden Jaguar. What was supposed to be an IPO became a $300 million sale to Apax Partners, with FCC advising.

Polaris and Deutsche Bank were joint lead managers for the Hong Kong IPO and one day Huang noticed the chairman of Golden Jaguar sitting outside the meeting room, exhausted. The chairman said he was exhausted and might be better off selling the company. When Huang told him not to make jokes like that immediately before an IPO, the chairman replied that he wasn’t joking and had received an offer from a private equity firm earlier that day.

“I told him that, if he were willing, I could approach other private equity firms. And that’s how it came about – I brought in Apax within two months,” Huang recalls. “It was meant to be an IPO, not an M&A deal. But as an investment banker, while understanding a deal is one thing, understanding the client is most important. You have to recognize whether their heart is in it.”

Other private equity deals followed, including acquisitions of HCP Packaging and Xiabu Xiabu for TPG Capital and General Atlantic, respectively. What these transactions – and Golden Jaguar – had in common is that they involved mainland China-based assets held by Taiwan family owners. They represented the available pickings in a market that had become hostile to leveraged buyouts.

Private equity investment never rebounded after the global financial crisis, famously reaching $57 million in 2012. This placed Taiwan 16th th in the Asia Pacific rankings, in between Sri Lanka and Pakistan, despite being the region’s seventh-largest economy.

The regulatory risks captured by two high-profile attempted privatizations contrived to spook dealmakers. In 2007, The Carlyle Group withdrew its bid for Advanced Semiconductor Engineering after repeatedly failing to win over the advisory panel. Five years later, KKR’s move for Yageo, devised with the founder and approved by a majority of minority shareholders, was blocked.

“In the early days, M&A was discouraged by the government – they saw it as attacking other people – and then private equity got a reputation as vulture capital,” says Huang. “The KMT [Kuomintang] government wasn’t keen on private equity because there were some bribery issues under [former president] Chen Shui-Bian. And then the head of the FSC [Financial Supervisory Commission] had a bad impression of private equity. It made things difficult, 2010-2015 was a dark period.”

Return to form

Average annual private equity investment since 2016 is $1.7 billion, up from $272 million for the preceding five-year period. KKR even completed a landmark privatization of LCY Chemical. While industry lobbying has played a role, Huang believes the most significant drivers of change are structural. Companies in Taiwan are facing succession issues, they are under pressure to pursue consolidation and international diversification, and they must find ways to upgrade their technology.

Japan is in a similar situation and there are already signs of private equity benefiting as businesses consider their options. The distinction Huang draws between the two jurisdictions is that Japan has a meaningful domestic private equity industry supported by local capital. Taiwan has sophisticated institutional investors active in the asset class, but most of their commitments go overseas.

“Every year, insurance companies like Cathay and Fubon invest in 10-20 international private equity firms, reputable names like KKR, Blackstone. They rarely put money into domestic funds,” he observes. “The government wants to channel more insurance money into developing domestic businesses and stimulating domestic industry.”

In recent years, the National Development Council (NDC) has led the policy response, establishing a National Development Fund under the management of Taiwania Capital. It follows the government’s “5+2” industrial transformation plan, which favors the internet-of-things, biomedicine, green energy, smart machinery, and defense as pillar industries, as well as agriculture and the circular economy.

Other moves to mobilize local capital include allowing mutual fund managers to raise third-party capital under dedicated private equity units, permitting banks to wholly own venture capital businesses, and raising the cap on unlisted investments by financial institutions. LPs will still have predominantly international programs, but the goal is to increase domestic allocations from a low base.

For a Taiwan industrial base that is mindful of what must be done to stay competitive and suitably structured and capitalized to achieve it, the opportunities could be wide-ranging. This is where the China angle swings back into view, with Huang suggesting that Taiwan companies could compete for assets that are deemed too sensitive for mainland peers. He points to the recent $7.2 billion merger of MiTAC Holdings-owned Synnex and US-based IT distributor Tech Data Corporation.

Huang has shed 30 kilos with a view to extending his career – he wants to work for another 10 years – and there is a characteristic bullishness about what the decade might offer.

"China is more sensitive these days, so there is a new focus on markets like Southeast Asia. I hear a lot from private equity funds that are interested in helping Taiwanese companies invest abroad,” he says. “I’ve already worked for 35 years but I feel more energetic than ever. I hope the best is yet to come. Maybe time is finally on Taiwan’s side, and the world is looking at us.”

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• Topics
• Greater China
• Advisory
• Southeast Asia
• Taiwan (China)
• M&A
• buyout
• China