Taiwan exits: Tread carefully

Buyouts emerged as a hot-button issue in the wake of a KKR-backed management buyout of Yageo in 2011 that was nixed by the government for reasons that have never been fully explained.

Investor confidence collapse and so did Taiwan's private equity investment numbers. Having reached $9.4 billion in 2006-2007, deal flow has topped $300 million just once in the past four years. So far in 2014, $103 million has been committed, already within touching distance of the previous year's total.

But what of Taiwan exits? The question is worth asking because 2014 may well turn out to be the biggest year on record. EQT Partners is said to have sold its majority stake in Gala Television Corp. to the founders of Formosa Plastics Group for around $200 million. And then there is MBK Partners' sale of cable TV operator China Network Systems (CNS) to Ting Hsin International Group for a reported $2.4 billion including debt. The previous high was $2.3 billion, achieved in 2006.

Assuming the CNS deal goes through, it would leave The Carlyle Group as the last significant PE investor in Taiwan TV, with Eastern Broadcasting. During that 2006-2007 boom period, roughly 70% of the total capital deployed was split between six bank investments and five cable TV deals.

A few of the banks remain on the books of their private equity owners well past the average investment holding period in Asia. And while more of the TV assets have been offloaded, the process hasn't been an easy one.

The Carlyle Group sold Kbro to the Tsai family's Dafu Media in 2010 after seeing a previous exit attempt - to Taiwan Mobile - fall foul of the regulators. Macquarie struggled to find a buyer for Broadband Communications and ended up spinning it out via a trust listing in Singapore last year. The asset is trading below the offer price.

And then CNS, the most controversial of the lot, was supposed to be sold to Yen-Ming Tsai's Want Want China Holdings, only for the regulator to raise antimonopoly concerns. Tsai's pro-mainland leanings also stirred up a political storm.

Commenting on the sale to Ting Hsin, CNS' legal officer said the buyer was chosen based on numerous factors in addition to price, including the ability to comply with Taiwan's regulations on foreign and Chinese investment, as well as involvement with political parties, the government and the armed forces.

The takeaway for private equity? Picking a partner with which to negotiate Taiwan's regulatory landscape is just as important on exit as entry.

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• Topics
• Exits
• Greater China
• Regulation
• regulation
• Exit
• Taiwan (China)
• Trade sale