Baring Asia to merge with EQT

“We realised that we would never become – maybe never is a strong word, probably never become – one of the leaders. So, what are the alternatives? These things build upon each other, stone upon stone,” Christian Sinding, CEO and managing partner of EQT, told AVCJ.

The merger, one of the largest of its kind globally, was conceived last autumn, initially over a six-hour dinner in Europe during which Sinding and Jean Eric Salata, CEO of BPEA, “discussed all aspects of the businesses and there was a match everywhere – strategy, culture, investing, future-proofing.” The working name for the project became “game-changer.”

EQT will acquire 100% of BPEA’s management company and the general partner entities that control its funds, according to a statement. It will have the right to invest in future BPEA funds and get 35% of the carried interest from those funds. This includes Fund VIII, which had accumulated more than USD 8.5bn by the end of last year and is expected to end up around USD 10bn. EQT will also get carry from certain existing funds.

Salata, members of BPEA’s management team, and Affiliated Managers Group (AMG) – AMG bought 15% of BPEA in 2016 – will receive approximately EUR 5.3bn in EQT stock and EUR 1.5bn in cash.

The combined Asia private capital business will be rebranded as BPEA EQT Asia and continue to be led by Salata and his existing senior management team. It will have around 300 professionals across nine offices in the region and invested assets under management (AUM) of more than EUR 20bn across private capital and real assets.

Most of this comes from BPEA, which has EUR 17.7bn in fee-paying AUM in private equity, real estate, and credit. The valuation of EQT’s acquisition is 6x more than AMG paid in 2016, although Salata estimates that BPEA’s fee-paying AUM has grown approximately 5x since then.

“Our business is all about scale,” Salata added. “When you grow in fund size from USD 2.5bn to USD 4bn to USD 6.5bn and now the target for the new fund is USD 8.5bn and we are likely to exceed that, you end up with a very different economic profile to the business. We have also scaled the real estate funds since then.”

In addition, he noted that EQT trades at a premium valuation by virtue of unique positioning and an ability to demonstrate strength across multiple product areas while continuing to expand and diversify its business. This means M&A can happen at higher valuations and still be accretive – “and it becomes a competitive advantage because others don’t have the currency to do that,” Salata said.

On listing in 2019, EQT resolved to build out its presence in Europe, continue expanding in North America, and achieve scale in Asia. Previously, the firm’s private equity activity in Asia had focused on the middle market, but it wanted to bring its global model to the region, characterised by a narrower sector focus, a bulked-up portfolio support team, and larger equity cheques.

“We started the organic route in infrastructure, real estate, and private equity, and we thought maybe there is a team we can combine with in some way,” Sinding said, adding that EQT met with several different players before things clicked with BPEA.

For BPEA, there was a recognition that being global would be integral to maintaining a competitive edge as the private equity industry continues to grow. The firm has bulked up in terms of scale, operational capabilities, sector insights, and talent, but it envisioned more significant rewards as part of a global platform than as an Asia-oriented independent.

“It is about building something that has a shot at being number one in the world and being part of that,” said Salata. “We could try to do it ourselves, but it’s not easy. The reality is the industry is huge and global and the bar is getting higher.”

BPEA EQT Asia will sit alongside EQT Private Capital Europe & North America as a division of EQT Private Capital. BPEA’s real estate business will be integrated into EQT Exeter and EQT Infrastructure will continue to operate on a global basis. BPEA EQT Asia is expected to roll out a suite of strategies much like EQT in Europe and North America, from venture to extended hold funds.

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• Topics
• GPs
• Buyouts
• Asia
• Europe
• Baring Private Equity Asia
• EQT Partners
• M&A