CVC Asia Pacific has quietly closed five deals in North Asia in the last six months including two management buyouts, according to Roy Kuan, managing partner and head of Asia and Japan for CVC Asia Pacific.
Roy Kuan, CVC Asia Pacific
The centerpiece was the HK$5 billion (€515 million; $644 million) management buyout of Hong Kong Broadband Network (HKBN), the telecommunication business unit of the Hong Kong-listed City Telecom. Kuan believes it is one of the largest MBOs ever done in Hong Kong.
The deal was financed by a mixture of equity and debt. Almost 70 managers co-invested with CVC, putting in up to two year’s salary to grow the business, he said. “Normally, it’s the top five or ten managers who co-invest.”
Another notable deal was the $450 million buyout of Japan’s Technopro, an engineering staffing company. Kuan described Technopro as a classic MBO, with all management staying on board and investing with CVC.
“In Japan, some years are dry, some years have deals. And when there are deals, they’re big,” he said.
CVC has had some trouble with buyouts in Asia in the past. In Australia, for example, the firm is currently wrestling with underperformance in its portfolio. In particular, troubled Nine Entertainment carries A$2.6 billion in debt due in February 2013 that the firm has not yet been able to refinance.
But CVC, better known as a European buyout firm, has been tailoring its Asia investment strategy to include minority stakes. Kuan says his firm takes a buyout approach to minority investing.
We think there are opportunities in China because the stock market valuations have come down a lot from 2010
“Our due diligence is exactly the same as it is with a buyout. We structure a high degree of rights and we sit on the board and on committees and the company follows a business plan we had agreed upon,” he says. “That may be quite different from other expansion capital deals in the market.”
Recent minority stake deals include the $100 million investment in May in C.banner, a China-based retail footwear company that is listed in Hong Kong.
Kuan says CVC was able to structure a PIPE deal with “complete downside protection”, while buying into a business that is growing 25-30 percent per year, for 12 times price to earnings.
“We think there are opportunities in China because the stock market valuations have come down a lot from 2010, when this company could have easily been 20-25 times price to earnings.”
The two other deals are an $80 million stake in AHCI, a large retailer of pharmaceutical and health products that closed in December, and in April a $110 million investment in Venturepharma, a Chinese pharmaceutical company that focuses on anti-allergy and central nervous system pharmaceuticals.
“We didn’t invest much in China 24 months ago,” Kuan said. “We didn’t want to chase 20-30 times price-to-earnings valuations on the way down. The deals we’re doing in China now are at very sensible multiples. If we had invested there in 2010, we would now be underwater.”