Permira cashes out of Galaxy at 2.8x

As result, the PE firm's maiden investment in Asia has turned out to be one of the most profitable in its latest global buyout fund.

Permira first backed the Hong Kong-listed Galaxy in October 2007, paying $838 million for a 20% stake and becoming the second-largest shareholder. A year later, it purchased a further 0.6% stake for $20 million.

"We had a conviction on Macau's strong and rational growth," Henry Chen, partner of Permira tells AVCJ. "It is the only legal place for gambling in China and at the time there were just six casino operators at an early stage of development, we were very convinced of the growth and in hindsight we were proven right."

Prior to the private equity firm's investment, Galaxy - a subsidiary of property conglomerate K. Wah Group - was the only casino operator in Macau without any gaming background. Needing support for its plan to build a $2 billion entertainment resort, the group approached Permira for financial expertise and gaming know-how. The PE firm claims some past experience in Europe's gaming indsutry.

"The company only ran a relatively small hotel, StarWorld, when we invested. We were so excited about the development of Galaxy Macau," Chen adds. "We liked the opportunity because the company was entering a transformation stage. In these situations, if we can contribute value, returns come with it."

Galaxy's revenues reached HK$41.1 billion ($5 billion) last year, up threefold from 2007. The firm also reported a full-year profit of HK$3 billion for 2011, compared to a net loss five years ago.

Permira's divestments began last September, when it sold approximately 6.6% in the casino operator for $614 million. Another exit came in August when 6.7% was offloaded to a select group of investors, raising $753 million. Last Wednesday, the private equity firm sold its remaining 5.94% for $873 million. The 249.6 million shares were sold at HK$27.17 apiece, a 0.5% discount to that day's closing price.

This is the fourth exit from Permira IV, a $14 billion buyout fund launched in 2006. Other Asia investments include agrochemical company ArystaLifeScience and AkindoSushiro, both in Japan, and Hong Kong's Asia Broadcast Satellite. The fund is close to fully invested.

"We still have a number of portfolio companies within the fund and it's not the case that we need to exit whenever an investment reaches its fifth or sixth year," Chen adds. "Value is created from the business plan we bring into companies. When the management has executed its plan and the value is created, that is an appropriate time to exit."

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• Topics
• Exits
• Consumer
• Greater China
• Permira Advisers
• China
• Exit
• Sell down
• Consumer