Welcome to Taiwan
Some of you would remember that for a short period in 2006/2007, Taiwan was the hottest buyout market in Asia. Deals such as China Network Systems ($1.5 billion in 2006, Eastern Multimedia ($1.5 billion), Taishin Financial ($840 million)in 2006 and EnTie Commercial Bank ($696 million) lit up the league tables, and legions of PE professionals were knocking on the doors of local banks in an attempt to extract value from the consolidation of the banking sector. Deals soon dried up, although Taiwan is back in the press recently with the news of the pending exits from MBK Partners and the Carlyle Group.
In a recent trip to Taipei, I got to meet up with a few industry friends to chat about the market. I was pleasantly surprised that no deals have been made in a while, the opportunities in Taiwan are recovering`- largely thanks to big brother China and the Economic Cooperation Framework Agreement (ECFA) signed earlier this year. But there are other forces at work.
While almost everyone agreed that private equity investments into regulated industries such as financial services and cable are largely out of the question - yes, a lot of money could be (and has been) in these sectors but most it will be hard to find any deals that can move substantial capital - there are plenty of opportunities in consolidating second/third tier companies in the traditional manufacturing space. This is now made possible the availability of direct flights into the mainland (bye-bye to the tedious Hong Kong stopover).
Mainland Chinese companies, however cash-rich or profitable, can still learn a lot by tapping their Taiwanese counterparts for operational knowledge. This expertise can also apply to other parts of Asia but the potential synergy with China is strongest. Private equity firms can play a significant role in this technology transfer and here are a few areas they can consider:
First, there are a large number of smaller companies in the computer peripheral space that have significant technical knowhow and can boost the manufacturing capabilities of a PRC counterpart, and change the outlook of the acquirer. BOE Technology's acquisition of flat screen display maker JEAN is a good example.
Many family owned businesses in traditional industries are finally facing succession issues - overseas educated second/third generations simply don't want to run ageing factories. These companies, in such diverse industries as bicycles, scissors and food products, are ideal targets for PE firms that want either to enhance existing portfolio companies or bring their products, which many Chinese consumers would recognize, to China.
These are but a few of the opportunities that private equity firms can tap into the Taiwanese market. The recent appetite of the Taiwanese capital markets for Mainland issuers, such as Digital China's $200 million of TDRs, can help extract maximum value from Chinese investments. Watch this space.
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