Asia

Americas
Monitor

Australia awakes
Australia is showing signs that it is entering a significant pick-up phase for private equity activity, both in terms of local investment and a growing appetite for overseas commitments. Ricky Morton reports.

“Australia has been something of a sleeper market in the past, although the situation is definitely starting to change,” says Les Fallick, founder of placement advisory group Principle Advisory Services. Fallick backs the assertion up with some interesting figures. “Ten years ago, around £100m, or £200m in a very good year, was invested in private equity by pension funds and institutional investors. The annual figure has now reached the £1bn mark.”

Part of this can be attributed to a change in regulation for superannuation funds, the most prominent investors in private equity in Australia. Investors in these funds have been obliged to increase their level of contributions from five per cent to nine per cent. Superannuation is a key element in the government's long-term objective of moving retired Australians off dependence on the age pension and increasing the level of national savings. “The government introduced new regulations which are likely to increase the capital flowing into Australian private equity by ten to 20 per cent per year,” explains Fallick. “We expect the volume of capital to double every four to five years.”

Australia's private equity and venture capital industry currently has 140 funds with roughly A$10bn ($6.4bn) of assets under management. At present however, two out of every three private equity dollars invested by Australian investors in the asset class have flowed out of the country, according to data from the Australian Venture Capital Association. Last year, the government introduced a number of measures designed to boost local private equity activity. The biggest change saw the government introduce a fiscal flow through arrangement for US, UK and several other European countries that will prevent overseas investors from incurring additional tax charges.

Local fundraising
A number of fundraising initiatives have been launched this year, partly the result of a strong economy, which Fallick says is growing at about four per cent per year. Advent Management Group, which bought itself out of Advent International in 1997, is hoping to close its Advent IV Private Equity Fund on around A$110m within the next month. As Brian Ball, director at Advent explains though: “The market remains still difficult because there is a lot of overhang from 1999 and 2000, when investors committed a lot of capital to early-stage.” The fund, which will invest in midmarket opportunities, has so far taken fifteen months to raise A$85m and has secured commitments exclusively from local superannuation funds. “For our next fund, we would like to seek international investors.”

Grant Samuel Private Capital (GS) also commenced fundraising for its third fund earlier this year, although this was subsequently suspended. GS said it would need to invest a further A$30m from its 2001 fund, the A$192m GS Private Equity's Fund II, in order to proceed with the latest fundraising program. Also embarked on a fundraising programme this year is Wilshire Associates, the US firm that is planning to launch a fund of funds product for the Australian market.

The coming to prominence of Australia's superannuation funds has also created a greater demand for access to overseas funds. In August, Principle Advisory Services announced a link-up with UK placement agent Helix Associates which could help to bridge the gap. According to Fallick, Principle Advisory Services will place Australian and foreign funds with Australian investors and, via the Helix link-up, advise Australiandomiciled funds on appetite for their offerings with international investors.

“The Australian market is becoming increasingly prominent, but it won't happen overnight,” according to Charles Cecil at Helix. “The country has a developed economy with its roots in Anglo-Saxon structures.” “It is important for Australian LPs to have access to more established markets overseas,” adds Fallick. “Our link-up with Helix should facilitate this.”

Perhaps the greatest challenge for Australian funds will be to shake off the legacy of past overenthusiasm for early-stage investment. This has, as with many firms elsewhere, left some with a fundraising difficulty. “Like everywhere else, the past few years have been very difficult for raising capital,” says Fallick, who has placed more than A$1bn with private equity funds from local and international investors. “Nonetheless, there are strong signs that 2004 will be a much more positive year.”

Ultimately, the biggest proof of Australia's awakening will come when the local market can produce returns comparable with its overseas competitors. As one UK-based professional put it: “Top quartile returns are slightly lower in Australia that in Europe. Anecdotally, what might be considered superior there would be second quartile over here.”

Americas
News

Ripplewood completes landmark deal
US-based private equity house has backed Japan's largest ever leveraged buyout, agreeing to pay a total of Y261bn ($2.2bn) for the Japan-based fixed-line phone business of Vodafone Group.

Ripplewood, which has doubled its total commitment to the Japanese market with this transaction, intends to borrow 80 per cent of the financing for the acquisition from a consortium of eleven banks. Ripplewood will pay Y228bn yen in cash and a further Y32.5bn yen in preferred stock, which Vodafone's Japanese holding company will retain until 2004.

“Ripplewood is committed to building and growing Japan Telecom, which has a singular focus on the Japanese fixed-line telecommunications business,” said Jeffrey Hendren, managing director of Ripplewood Holdings, speaking at a news conference in Tokyo.

Ripplewood has invested upwards of $1.6bn in Japan since 2000. Its acquisitions include the Phoenix Seagaia golf resort and Shinsei Bank Ltd, Japan's first foreignowned lender.

Temasek, Standard Chartered launch India fund
Temasek Holdings and Standard Chartered Private Equity, the private equity arm of Standard Chartered Bank, have established the Merlion India Fund, a $100m private equity fund targeting investments in India.

The Merlion India Fund will provide growth capital for Indian companies that aim to expand their business within India and beyond. The fund is also planning to invest in regional companies seeking to participate in opportunities in India to build out their operations. The fund will focus on mid- to late-stage companies in most growth sectors with the exception of infrastructure, real estate and trading.

The Merlion India Fund will be managed from Singapore. The directors of the fund are S Iswaran, a managing director at Temasek Holdings, and Karam Butalia, global head of SCPE.

“Temasek is optimistic about the long term growth prospects for Asia,” said Iswaran. “We are pleased to work with Standard Chartered Bank to invest in opportunities in India, one of the largest and fastest growing economies within Asia.”

Pacific Equity buys Cordiant unit
Pacific Equity Partners (PEP), the Australian co-investment partner of Bain Capital, has acquired the principal Australasian assets of Cordiant Communications Group in a transaction valued at A$70m (€42m).

The Cordiant businesses, known collectively as The Communications Group, are a group of full-service advertising, media buying and marketing services businesses in Australia and New Zealand with annual sales of around A$118m.

“The deal dynamics around our purchase of TCG were particularly attractive,” Rickard Gardell, a principal at Pacific Equity Partners, said in a statement. “The principals of PEP have relationships spanning a number of years with the key local managers of TCG.”

The TCG acquisition is the sixth investment from Pacific Equity Partners' 1998 vintage fund, of which the firm has exited two investments. Previously, the firm has made investments in beverages, outsourced manufacturing, packaging, financial services and consumer research companies.

PPM Ventures bids for SPI
PPM Ventures, the London-based private equity arm of insurance company Prudential, has reached an agreement to acquire publicly-traded Filipino data conversion services company SPI Technologies in a deal that values the company at $84m.

“SPI and shareholders of SPI representing more than 66.7 per cent of the fully diluted share capital of SPI have signed a non-binding and conditional Letter of Intent with PPM Ventures Ltd to sell their shares in the event that a tender offer is launched,” according to an SPI spokesperson.

A tender offer to acquire all of the issued and to be issued share capital of SPI will be made through a newly incorporated company to be established in the Philippines on behalf of client funds managed by PPM Ventures. PPM Ventures is seeking to acquire a minimum of 78.1 per cent in SPI before they launch a tender offer for the remaining SPI shares.

GS, Quadrant exit Fletcher Building
GS Private Equity and Quadrant Capital have exited Tasman Building Products, the business the two acquired for NZ$172m ($99m) in 1998.

New Zealand-based Fletcher Building has agreed to pay NZ$260m ($153m) for the business, which has significant building products operations in Australia and New Zealand and a small operation in the USA.

GS Private Equity and Quadrant Capital between them held an 85 per cent stake in the business, with management holding the remainder. The business was acquired from Carter Holt Harvey Ltd. For the 12 months ended 30 June 2003, revenue for Tasman was A$243m and EBITDA was A$40m. The Tasman business units will form part of Fletcher Building's Building Products division. Fletcher Building's distribution division is already a major distributor of Tasman products in New Zealand.

3i leads CSMC $67m first round
UK-based private equity firm 3i has led a $67m first investment round for CSMC Technologies Corporation, a provider of integrated circuit foundry services based in China. Crown Crystal Investments also backed the round. Headquartered in Wuxi, a major electronics hub near Shanghai, CSMC was China's first semiconductor foundry, opened in 1997.

The company, which employs over 700 staff, reached break-even in May 1999 after only 15 months of operation.

PNB to launch Indian fund
India's Punjab National Bank (PNB), has announced an alliance with Infrastructure Leasing and Financial Services Limited (IL&FS) that will see the two groups launch the Leverage India Fund, a private equity fund to invest in domestic companies. The fund, the intended size of which has yet to be disclosed, will invest in a range of sectors including telecom, oil and gas, ports, water supply and surface transport.

The fund will invest in 15 to 20 companies and will have a commitment period of five to ten years.

The Leverage India Fund will be jointly managed by the two groups and is planning to offer different instruments to different investors depending on their respective appetite for risk. Investors will be able to invest in the fund through the purchase of equity or mezzanine units.

SARS impacts Chinese venture market
Chinese venture capital investment fell sharply in the second quarter, the result of a negative impact of the SARS virus.

Data published by Chinese research group Zero2IPO, reveals that in the three months to June 30, venture capital investment totaled $93m, down 61 per cent on the first quarter of the year, when more than $140m was invested in early-stage Chinese businesses.

Beijing was among the worst hit areas, with only four fundraising campaigns successfully closed during the quarter. The fall in investment particularly affected confidence among overseas investors.

Domestic investors committed $43m to VC opportunities in the second quarter, compared with $14m in the previous three months. Investment from international firms shrunk from $133m to $90m.

Raffia makes offer for Japan's Shinwa
Japanese private equity firm Raffia Capital has confirmed that it has launched a Y1,380 per share offer for a 66.7 per cent stake in Shinwa, a manufacturer of car audio components listed on the Jasdaq stock market. The offer values the business at more than $75m.

The offer is being made at a significant premium to the Shinwa share price, which closed at Y1,230 per share on August 26. The tender offer will run from August 20 to September 17, and it is offering 1,380 yen per share.

According to Asia Pulse magazine, if the takeover bid is successful, Shinwa will be delisted as early as November. Current Shinwa president Yoshifumi Naito is expected to stay on as president, and he will acquire a 55 per cent stake in the newly-formed holding company.

Bayard closes first deal
Bayard Capital, the Australian private equity fund launched earlier this year by Cameron O'Reilly, son of Independent News & Media founder Tony O'Reilly, has completed its first acquisition.

The fund has agreed to pay A$54m (€32m) to acquire Email Metering, a company that designs and produces systems that measure, monitor and regulate electricity usage, from Smorgon Steel and One Steel.

Email Metering generates revenue of A$150m a year, half of that in the UK where the company is the leading electricity meter supplier, and most of the rest in Australia, where it leads in both electricity and gas meters.

Bayard Capital, which earlier this year attracted initial funding of A$100m, is backed by a number of media entrepreneurs in Australia, including Kerry Stokes, John B. Fairfax and Doug Myers, the former head of Lion Nathan. Other backers include Tamasek, the investment arm of the Singapore government.

Earlier this year, O'Reilly announced that he planned to list Bayard Capital, which is planning to make investments across New Zealand and Australia.

Lone Star completes largest Korean deal
Lone Star Funds, the Texas-based investment firm, has agreed a deal with shareholders of Korea Exchange Bank which will see the US private equity real estate specialist take a 51 per cent stake for around $1.2bn.

KEB is partially controlled by the government, which owns 43.2 per cent. State-controlled Export-Import Bank holds 32.5 per cent stake, as does Germany's Commerzbank.

The Bank of Korea owns just under eleven per cent. Once the transaction is completed, both Commerzbank and Export-Import Bank will each reduce their stake in the bank to 15 per cent.

Lone Star will pay 1.07 trillion won ($910m) to purchase an undisclosed number of shares newly issued by Korea Exchange Bank. Lone Star also will pay $256m to acquire the 33 per cent of stock held by the selling existing holders.

The deal, the largest foreign investment in South Korea's banking sector, follows in the footsteps of Newbridge Capital, which acquired a majority stake in Korea First Bank in 1999. Last year, Lone Star failed in an attempt to acquire a majority stake in Seoulbank.