Asian buyers are back

TPG Capital has just sold its 23.9% stake in Singapore hospital operation Parkway Holdings to Indian healthcare group Fortis Healthcare in a $685.3 million deal, securing roughly a reported 3x return on its original $358 million 2005 investment, after dividends and borrowings. This was promptly followed by the news that CVC Asia Pacific has agreed to sell its $212 million Malaysian pulp and paper investment, Paperbox Holdings Ltd, to one of the world's largest paper producers, Japan’s Oji Paper Co Ltd., for an undisclosed – but apparently very rewarding – sum.

Furthermore, there were strong common drivers behind both deals, despite the disparate sectors. “It’s no coincidence,” said one AVCJ source. Apparently, in both cases, the acquirers won out over a cluster of their corporate peers, all from Asia Pacific and all well-funded. And there is every indication that corporate appetite will remain high throughout 2011. “You’re going to see Asian strategics flexing their muscles this year,” AVCJ’s source said.

Acquirer’s accretive plans

In both cases, the corporate buyers appear ready to realize value from the deals. Fortis will combine Parkway's 16 hospitals across Southeast Asia, as well as India, China and the UAE, with its own 46 Indian hospitals into what is ostensibly Asia's largest regional healthcare provider. Under the deal, Fortis will become Parkway's largest single shareholder, just above Malaysia's Khazanah Nasional, but apparently has no plans to seek a majority stake. Fortis will assume TPG's four board seats at Parkway as part of the transaction. Fortis Chairman Malvinder Mohan Singh will assume chairmanship of Parkway.

Oji will reportedly buy all the shares in Paperbox, and said it expects to close the deal by April 2010. Japan’s paper industry has been consolidating over the past years, and many companies are looking at acquisition opportunities among industry peers abroad. Furthermore, Malaysia is significant in Oji’s core customer base, bringing added advantages to the deal.

As AVCJ sources note, Japanese corporates, although handicapped by a stagnant domestic market, have nothing like the levels of debt that are constraining their Western peers. According to sources, many Japanese strategic players, with considerable cash resources of their own and access to plentiful cheap credit, have apparently concluded that their only option is to buy growth by expansion into other markets, especially Asia’s more dynamic regions.

Asian groups domiciled in other markets, meanwhile, have all the advantages that the Japanese acquirers enjoy, plus fewer handicaps in home market saturation. Helped by tighter bank debt spreads and – AVCJ sources confirm – bank consortia ready to offer attractive facilities, regional corporates are already participating in other situations, and are likely to stay active for the foreseeable future.

Pedigree of the deals

CVC AP originally acquired the pulp and paper business of Malaysia's GS Paper & Packaging including two pulp mills and two corrugated cardboard box plants, in 2007 from Genting Group, a Malaysian conglomerate with interests from gaming and hospitality to plantations and power generation, via its Paperbox SPV. The deal freed Genting to devote more attention to its new core focus of hospitality and gaming – the group operates the only licensed casino in Malaysia. In the course of its holding, CVC AP reportedly improved the business’s EBITDA and made some core management changes to strengthen the group. 

TPG originally invested in Parkway in 2005, acquiring its original 26% stake from the Tan family for $188 million, and bringing it in alongside existing investor Anil Thadani’s Symphony Capital Partners (formerly Schroders Private Equity Asia). Symphony retained an 8% stake after the transaction.

Symphony benefited from more than one investor into Parkway during its tenure from 1999. Malaysian SWF Khazanah Nasional bought into the business in 2008 by acquiring an 18.33% stake from Symphony to add to its 2.46% position, for some S$581.46 million ($417 million), giving Symphony a very healthy exit.

Thadani confirmed to AVCJ that Parkway was attractive enough to bring the firm back in to the asset even after its initial exit. “After our funds sold out of Parkway, the stock price fell quite dramatically down to levels where we felt it was good value. As a result, we started buying shares into Symphony, and have built a sizable position for our portfolio.”

According to a TPG spokesperson, during the investor’s holding period of 2005-09, revenue and EBITDAR almost doubled, while TPG helped Parkway grow internationally through acquisitions, including Pantai in Malaysia and World Link in China. As a result, the EBITDAR contribution from Parkway’s Singapore home base went from about 90% to about two thirds over the holding period. As an AVCJ source said previously, “the globalization of healthcare is not going to stop,” and Parkway’s value improvement obviously owed much to its transition from a Singapore-focused to an Asiawide operation. Back in 2005, at the time of the acquisition, TPG was already highlighting this opportunity for “a different strategy on a go-forward basis” as a key value driver for the investment.

TPG also pointed out that, during the investment period, Parkway had invested in a new state-of-the-art hospital in Singapore called Novena, still currently under construction, and also launched a REIT (Real Estate Investment Trust) for its assets in August 2007. The Parkway Life REIT is the largest healthcare REIT in Singapore, according to TPG, with potential to grow further.

“I would like to think that it was the things we did to Parkway that attracted TPG to the company in the first place,” adds Thadani. “During the period we controlled the company, we repositioned it from a real estate company with some healthcare assets to a pure healthcare company, resulting in a rerating of the stock by the market.”

TPG was advised by Goldman Sachs and RBS, with related company Religare Capital Markets advising Fortis. JPMorgan, meanwhile, had been seeking an acquirer since late 2009 for CVC AP on the Paperbox deal, reprising its relationship with Genting on the original investment, while Macquarie acted for Oji.

M&A drivers opening the exits

One of the drivers behind the latest deals is an overall trend in developing-markets M&A already under way in the second half of 2009, driven by cheap capital availability in the equity and debt markets. KPMG recorded over 100 such deals in 2Q09, a 20%+ increase on the first half of the year. Emerging markets buyers have reportedly stepped up the pace recently, with China’s CNOOC and India’s Oil and Natural Gas Corp. both involved in large outbound deals. Most of the largest Asia Pacific M&A deals of 2009, including Canada Pension Plan Investment Board and Ontario Teachers Pension Plan’s almost $11.4 billion investment in Australia’s Transurban Group, came in the second half of the year.

Asia Pacific trade sale exit appetite was already showing surprising robustness during 2009, despite the dire conditions for many businesses and financial institutions. According to AVCJ Research figures, overall private equity-related M&A fell just $2 billion from 2008 levels, from $56.6 billion in 2008 to $54.6 billion over 2009. The overall Asia Pacific M&A market dropped by roughly the same order of magnitude, from $419.6 billion in 2008 to $347.4 billion in 2009, and private equity’s share of that activity actually increased, from 13.5% in 2008 to 15.7% in 2009.

“We have always felt that strategic/corporate buyers represent the best exit option for private equity investors,” Thadani affirms. “Given the trend in acquiring control or large stakes in companies, the public markets do not represent a viable option in many cases.”

This illustrates another key driver in recent M&A activity: the attraction of assets at a bargain price. Although there is no suspicion that the Parkway Holdings exit, at least, was anything but attractively priced for the seller, valuations for both assets would almost certainly have been higher in better times. The private equity backers, meanwhile, can take satisfaction in having secured exits in environments that have been tardy worldwide in delivering returns to LPs.

“This is going to be a very exciting year,” AVCJ’s source concluded.

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• Topics
• Exits
• Buyouts
• Southeast Asia
• Performance
• Goldman Sachs
• TPG Capital
• Anil Thadani
• CVC Capital Partners
• Symphony Asia Holdings