Deal focus: Tricor attracts a scarcity premium

The HK$6.47 billion ($835 million) Permira will pay for Tricor Holdings - at a valuation of 15x EBITDA - underlines the appeal to private equity of companies in the corporate and investor services space that offer a combination of high recurring revenues, strong cash generation and structural growth. It also reflects scarcity value.

"Opportunities of this scale to acquire a market leader in the space are rare, it's one of the key drivers for us," says Robin Bell-Jones, a partner at Permira. "It is a very fragmented industry, with the major players only holding a relatively small percentage of the market."

The acquisition means the GP joins several of its peers in owning the crown jewels of the outsourced corporate services space. In an Asian context, another large deal came last year, when Baring Private Equity Asia bought Vistra Group (which is said to have been among the bidders for Tricor). Both firms are headquartered in Hong Kong, have strong Asian client bases, and are targeting industry consolidation through M&A. But Permira sees only a partial overlap between the business models.

The areas of commonality primarily cover two of Tricor's three divisions: corporate services such as company incorporation, trust, fiduciary and fund administration functions; and business services, which encompasses taxation, accounting and payroll processing. The third, not typically offered by competitors, is investor services and share registry management, where Tricor has a particularly strong presence in Hong Kong.

The breadth of the company's product offering can be traced back to its origins in 2000, when Bank of East Asia (BEA) engineered a spin-out from the Big Four accounting firms. Tricor now has 2,000 staff in 37 cities across 20 countries and territories. Net asset value and net profit reached HK$1.99 billion and HK$292.8 billion, respectively, last year, while EBITDA came to $55 million. There is said to be a reasonably even split in the three divisions' contribution to top line earnings.

Permira will acquire BEA's 75.61% stake in Tricor, plus a 24.39% interest held by a listed unit of Hong Kong conglomerate New World Development. The management team will take a minority position in the business. M&A is a priority, whether expanding Tricor's footprint within Asia or bringing in additional technology competencies to improve service delivery.

Bell-Jones compares the buy-and-build strategy to those Permira has employed in Europe in the financial services space with wealth manager Tilney BestInvest and receivables manager GFKL Lowell. However, the Tricor opportunity distinguishes itself due to the level of fragmentation in the market and the significance of the growth opportunity in Asia.

"FDI [foreign direct investment] coming into Asia helps drive company formation and the number of corporate entities in the region, and then those companies themselves are growing rapidly and hiring more people in different geographies," he says. "In addition, there is a strong driver globally - increasing complexity and regulation - which is having an impact on Asia."

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• Topics
• Greater China
• Support services
• Buyouts
• Permira Advisers
• professional services
• Hong Kong (China)
• Asia