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Asia-Pacific is primed for its next 11-digit leveraged buyout
[HONG KONG] It is shaping up to be a big year for buyouts in Asia. There's over US$250 billion of capital committed to private equity in the region, according to research outfit Preqin. KKR plans to raise a fund that would be bigger than its flagship US one. Cheap debt is also available from Japan to Australia, making a mega deal all the more likely.
Jumbo Asian LBOs (leveraged buyouts) are rare. Bain led the biggest one a couple of years ago, an US$18 billion acquisition of Toshiba's memory-chip business. The region's only other 11-digit buyout, according to Dealogic data, was Singapore's Global Logistics Properties. With so many companies controlled by tycoons, governments or entrenched boards, it has been a tougher part of the world for private equity to crack.
Overall conditions are improving for buyout barons, however. Interest rates keep falling. Banks are generally willing to lend more. Debt markets in Europe and the US, often offering looser covenants, are opening to Asian deals. Ageing owners without clear succession plans are warming to private equity. And conglomerates such as Panasonic have been increasingly willing to sell off big businesses.
There are also plenty of listed companies with solid cash flows and modest borrowing which fit the buyout profile. A rough-and-ready screen for ones with a market capitalisation of over US$10 billion, at least US$1 billion in Ebitda (earnings before interest, taxes, depreciation, and amortisation) and net debt equal to no more than that measure of earnings churned out some tantalising theoretical prospects. Among them are Japanese chocolatier Meiji and advertising giant Dentsu. Chinese appliance maker Haier's publicly listed units could also be a target if a mooted take-private of the parent company fails.
At the decidedly larger end of the spectrum, there is Woolworths and 7-Eleven operator Seven & I. The Australian supermarket chain would cost upwards of US$40 billion, including a takeover premium.
Using US$20 billion of debt, or a robust 6.5 times the Ebitda forecast by analysts for its next financial year, would mean scrounging up another US$20 billion. That would take at least four buyout shops and additional co-investors, such as sovereign wealth funds, to write the full equity cheque. It'd be a stretch, for sure, but given the amount of money sloshing around the Asia-Pacific, even that kind of deal has entered the realm of the possible.
Private equity firm KKR is targeting a record US$15 billion for a new Asia-focused buyout fund, Reuters reported on Nov 7, citing three unnamed sources.
KKR's fundraising will start in the first quarter of 2020, with the aim of achieving first closing by June, the report said.
A fund of the size KKR is targeting would be the biggest by the New York-based firm in any region. Its previous record was a US$9.3 billion fund that closed in 2017. It would also be the largest US dollar-denominated private equity fund focused on Asia.