Apax Partners exited its investment in Apollo Hospitals Enterprise in 1Q13 (Photo credit: Wikipedia)
by Anjali Piramal
The doom and gloom felt over declining private equity (PE) exits in the first quarter of 2013 was not shared by M&A experts in Asia Pacific. Globally, exits by PE firms fell by 34% to $32.8 billion versus the first quarter of 2012, according to Mergermarket.
However, Asia Pacific fared much better and experts from India and South East Asia (SEA) were positively bullish.
“In India, despite numbers being down for the quarter vis-à-vis last year, the composition of exits has improved,” said Bhavesh Shah, Managing Director at JM Financial, a diversified India-based financial services group.
In 1Q13, Indian exit deal values fell to $800 million, the firm said, compared with $1.8 billion in the first quarter of 2012. But while the first quarter last year was dominated by financial services, the first quarter of this year included exits in a range of sectors including healthcare, finance and industrials.
For example, Apax Partners sold Apollo Hospitals Enterprise, TPG sold its stake in Shriram Transport Finance and Warburg Pincus did the same in electrical equipment company Havells.
The fact that several sectors saw PE exits this quarter demonstrates the broad-based returns that India can offer, continued Shah, who heads the financial sponsor group. “Trade sales could rise on the back of demand from corporate buyers and capital market exits could pick up as markets gain momentum,” he added.
He predicted secondary exits - where PE firms sell their holdings to other PE firms - would also rise across Asia Pacific as funds seek to monetize portfolios and new investors put money to work.
"KKR’s buyout of Indian tire manufacturer Alliance Tire from Warburg Pincus, for a rumored $470 million, was one such example in India", Shah said. The deal was announced earlier this month.
“In South East Asia, PE investors generally exit via trade sales,” said Paran Puvanesan, Executive Director at PwC. This is because companies are often too small to do an IPO – especially given uncertain capital markets. Keen interest from global companies, eager to enter the region and willing to offer attractive premiums, also contributes to the level of trade exits in South East Asia, continued Puvanesan, who is based in Malaysia and part of the Corporate Finance – M&A division.
This year, PE firms could exit holdings in consumer goods (FMCG), industrial products, oil and gas and mining companies – especially those companies which have an extensive presence across SEA, Puvanesan added.
Japan and Australia, two of the region’s most developed private equity markets, are also expected to have a good year on the back of formidable first quarters. In the first quarter alone, Japan saw PE exits valued at $2.34 billion in volume, compared with $4.5 billion for all of 2012 while Australia was even stronger, with $1.7 billion, compared with $2.1 billion for 2012, according to Mergermarket.
The potential economic renaissance of Japan under Prime Minister Shinzo Abe, better known as Abenomics, has resulted in a soaring Tokyo stock market – up 30% year-to date. Restless, cash-rich corporates seem hungry for bolt-on acquisitions, which could indicate a big year for PE exits in Japan.
Australia, home to a few ill-timed IPO exits, most notably TPG-backed retailer Myer Holdings, is expected to see better days as its benchmark ASX index is up more than 18% year-to-date. Carlyle and Australia’s Quadrant Private Equity have already announced plans to exit their investments in Coates Hire and Virtus Health, respectively.
“In Korea, exits are expected to be slow but steady as portfolio companies ripen and grow to a scale where owners receive meaningful returns,” said Kate Kim, Mergermarket’s bureau chief in South Korea. Tensions with North Korea are not expected to have a meaningful impact on deals, she continued.
The only country weighing down Asian Pacific exits could be China, where private equity firms typically exit portfolios via initial public offerings (IPOs). However, last summer, Beijing dropped a bitter pill on first-time issuers, making the listing process stricter and a lot slower. This created a backlog of nearly 1,000 companies waiting to list, as per a media report in January.
The potential for PE exits throughout Asia-Pacific remains high, even despite the expected slowdown in Chinese IPOs. The question is will this be a year of liquidity for private equity in Asia? Investors certainly hope so.
Anjali Piramal is head of strategic development for Mergermarket and Dealreporter in Asia-Pacific. She can be reached at anjali.piramal@mergermarket.com
