Asian club deals: Big ambitions

The transactions through which Asia came to prominence as a buyout market in the late 1990s and early 2000s were by necessity club deals: the restructurings arising from the Korean credit crisis created a seam of opportunities beyond the scope of any individual fund active in the region.

Newbridge Capital’s $415 million acquisition of Korea First Bank was four times the size of the firm’s debut fund, necessitating the inclusion of a string of co-investors. Subsequent buyouts of Haitai Confectionery & Food and various bits of Mando Group were completed by alliances featuring the likes of Affinity Equity Partners (UBS Capital), CVC Capital Partners and Unitas Capital (J.P. Morgan Partners Asia).

The industry came full circle ahead of the global financial crisis as readily available debt allowed private equity firms to think bigger than they ever had before – to the extent that they had to rely on peers to fill out the equity portion of deals. And now, as investors pursue even larger buyouts, the mega club deal has reemerged in Asia, albeit with a few twists.

AVCJ Research has records of approximately 40 buyouts of Asia-focused businesses announced since the start of 2014. About a dozen involve energy and infrastructure – a function of the spate of large Australian infrastructure privatizations, which account for four of the top five entries. Even there, the number of deal participants has grown in line with investment size as sovereign wealth funds and superannuation funds vie for positions in consortiums headed by specialist infrastructure GPs.

Since Focus Media was privatized by a PE-backed consortium in 2012 at a valuation of $3.7 billion, eight deals have been announced worth $4 billion or more. Only two of these are take-privates of US-listed Chinese companies – club deals but only in the sense that local investors flock to them in the expectation of a quick flip into a domestic listing. For example, the $9.3 billion take-private of Qihoo 360 featured 36 equity commitment letters from insurance companies, asset managers, banks, corporate investment arms and high net worth individuals, as well as a few PE firms.

There will almost certainly be co-investment in other deals but it will mostly be syndicated by PE firms that are set up to oversee the private management of portfolio companies for multiple years. For the $11.5 billion privatization of Global Logistic Properties, Hopu Investment and Hillhouse Capital are working alongside management, with support from Bank of China’s investment arm and existing investor GIC Private. Meanwhile, Hillhouse and CDH Investments are the only listed external participants in the $6.8 billion buyout of Belle International.

Given the size of the deal, KKR is expected to bring some co-investment into its $4.5 billion acquisition of Japan’s Calsonic Kansei Corporation. Other transactions, however, point to the changing nature of LP participation in private equity, with large institutional players coming in as underwriters from an early stage rather than taking a piece of the downstream syndication.

The other club members in MBK Partners’ $6.4 billion purchase of Korean retailer Homeplus in late 2015 were three of its LPs: Canada Pension Plan Investment Board (CPPIB), which put in $534 million on its own, Temasek Holdings and the Public Sector Pension Investment Board. More recently, CPPIB has teamed up with another portfolio GP, Baring Private Equity Asia, on a $4.3 billion privatization of Nord Anglia Education – a business Baring took public three years ago and has yet to fully exit.

While the structure and the nature of the participants in these club deals may have changed, the underlying rationale is the same: GPs are looking for additional capital to take on larger deals. Part of this may reflect a broader evolution in the industry – fund size might not increase in tandem with deal size due to larger amounts of capital from unconventional sources seeking co-investment – but there also appears to be an element of cyclicality.

Last time around, when debt was available on cheap and buyer-friendly terms, not all deals turned out as planned. Of the 20 largest private equity investments in Asia announced between 2005 and 2007, there are at least four confirmed complete or near write-offs and approximately six have yet to be exited.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• GPs
• Buyouts
• North Asia
• Greater China
• Newbridge Capital
• Affinity Equity Partners
• CVC Capital Partners
• Unitas Capital
• Hopu Investment Management
• Hillhouse Capital Management
• GIC Private
• CDH Investments Management
• KKR
• MBK Partners
• CPPIB
• Temasek Holdings
• Baring Private Equity Asia
• Asia