Permira hits jackpot with Galaxy

Although the price represented a more than 5% discount on Galaxy's previous closing price, Permira has more than doubled its money. In 2007, the private equity firm acquired a 20% stake in Galaxy for nearly $840 million or HK$8.42 a share. The Permira IV fund still owns 528 million shares, which equates to a 12.8% stake.

"We are confident of further appreciation in the value of the company and the investment. As such, the Permira funds currently have no immediate plan to dispose of further shares in the company and intend to continue to hold the remaining shares as long term investment," Permira announced in a statement.

It explained the rationale behind the sale was to recover a substantial part of its initial investment cost without diminishing its significant minority stake in Galaxy.

Permira's desire to stay involved is undoubtedly tied to an industry-wide bullishness on Macau. Casino revenue in the territory grew 58% year-on-year in 2010 to a record $23.51 billion. Analysts said this figure was four times higher than takings on the Las Vegas Strip, and the gap is expected to widen to five times in 2011.

Galaxy Entertainment is one of only six licensed casino operators in Macau and holds two key casino properties: Starworld, which remains one of Macau's top properties in terms of VIP volumes, and the newly opened Galaxy Macau. The group claimed less than 10% of the gaming market in February but the launch of the Galaxy Macau saw its share rise to 20% in July, according to CLSA. Galaxy is also the largest land owner in the Cotai district of Macau, giving it ample room for expansion.

One day before Permira announced its partial exit, Galaxy reported an 84% year-on-year rise in underlying profit for the first half of 2011, attributed to strong spending by mainland Chinese gamblers. The company reported EBITDA of HK$1.8 billion, up from HK$990 million a year earlier. Those figures exceeded market expectations, prompting Galaxy's share prices to rise more than 5% to HK$20.2 on September 1. However, trading slipped to $17.42 a day later as the private equity firm made its announcement.

Galaxy's growing success also resonated to Permira's top LP SVG Capital, which announced a 25% increase in its asset value for the first half of the year. SVG cited Galaxy Entertainment as the second-best performing company in its global portfolio. Only Hugo Boss and Valentino Fashion Group, also backed by Permira, performed better.

 

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• Topics
• Consumer
• Exits
• Greater China
• Permira Advisers