Asian GPs see strong demand across multiple exit channels - AVCJ Forum

Public markets have been a particularly lucrative source of capital across the region. The growth is most noteworthy in India, which LPs have generally considered a difficult market in which to achieve exits and IPOs have historically had a mixed record.

"Five years ago if you were taking a company public and there was a large secondary piece to it, a lot of public market investors would shy away, thinking that if supposedly smart capital is exiting, why should we buy into these companies?" said Gaurav Ahuja, a managing director at ChrysCapital.

Based on the performance of ChrysCapital's public market exits this year those fears seem to have dissipated. The firm exited Eris Lifesciences and Au Small Finance Bank via public listings that were oversubscribed, in the latter case 54 times. 

Strategics have also exhibited strong interest in 2017, with GPs receiving proposals from Asian corporate players and those outside the region. Drew Chen, managing director for Bain Capital Asia, pointed to Unilever's recent acquisition of cosmetics supplier Carver Korea in a deal worth EUR2.27 billion ($2.7 billion) as an example of both the appetite among strategic players for Asian assets and the ability of PE owners – in this case Bain and Goldman Sachs – to make their investees attractive.

"We bought the business for a Korean market multiple, and sold it for the Chinese market multiple," said Chen. "Obviously everything happened much faster than we had anticipated, but the goal was always to reposition the asset and try to take advantage of the growth in demand in China for Korean cosmetics assets."

Secondary sales are becoming a greater source of deal flow as well, despite a historical reluctance on the part of Asian managers to buy assets from other GPs. Participants say PE firms are increasingly drawn by the ease of doing business with sellers who understand their priorities, and by the prospect that investees' management teams will already know how to work with private equity investors.

"When I first started covering private equity it was kind of a no-go area," said Paul DiGiacomo, a partner at BDA Partners. "There was concern about what it signaled to your LPs about your sourcing if you had to go and buy from another fund, and concern that all of the juice was out of the business if you're buying from another fund. That still exits, but it's much less of a concern than it was."

Despite the attractive exit environment, GPs say it is very important to maintain a disciplined approach to their investments, even if that means resisting the urge to take advantage of the current upswing and exit a company before its time. At the same time managers must also be willing to take a good exit opportunity now, even if it means giving up an attractive but uncertain opportunity later.

"When things are going well there's a slight tendency for monitoring teams to want to hang on longer," said Alex Emery, partner and head of Asia at Permira. "They see a higher upside, they think there could be a higher multiple of money, and they may assume that the same exit multiple might be available next year as well. It's important to have the right processes internally to say no, this is one where it's mature, and to have the discipline to go ahead and exit."

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• Topics
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• ChrysCapital Management
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