Emerging markets, fewer buyouts

So, to definitions. Emerging markets are generally described as economies undergoing rapid growth, usually driven by industrialization and urbanization. Between 30 and 40 nations fall into this category, with China – the world’s second-largest economy – leading the way. The other Asian representatives are easy to name. Interestingly, the Morgan Stanley Capital Index and The Economist still include South Korea among their number, despite the county’s well-established industrial prowess.

Is Asia really an emerging market to private equity professionals? The data seems to point to this being true. In a recent conversation with a regional buyout baron, I asked which markets he sees as emerging in Asia. He answered that, as a buyout firm, his definition is based on the level of activity. Consequently, China, India, Taiwan and Southeast Asia (although he’s been quite active there) are what he would call emerging markets.

For a number of reasons – such as deal flow, the dominance of family-owned businesses, and uncertainty of law – buyouts are very difficult to conduct in the emerging markets.

AVCJ Research extracted some numbers on the level of buyout activity in a number of key Asian destinations since 2008. The “developed” markets of Australia and Japan lead the way, with China and India far behind. South Korea is on the borderline with a larger aggregate value than China although it lags in volume.

The likes of KKR, The Carlyle Group and CVC have responded by adapting their approach to these countries, becoming more flexible in their deal making.

This strategy proved lucrative. Carlyle has taken $3.64 billion in cash out of China Pacific Insurance, having made a minority investment of $740 million in 2005. It is already one of Carlyle’s most profitable deals and it still holds about 5% of the company. CVC exited its 47% stake in Magnum for $410 million in cash plus an 11.1% holding in the Malaysian gaming company’s parent group.

It’s fair to say that being part of an emerging market pays off if you come in with the right kind of plan. And then there is fundraising – global investors would have an allocation for what they term as emerging markets even for buyout funds.

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• Topics
• Buyouts
• Greater China
• South Asia
• North Asia
• KKR
• The Carlyle Group
• CVC Capital Partners