CVC seals $1.3bn Matahari sell down(2)

In a landmark deal for Indonesia’s private equity industry, CVC Asia Pacific has sold a 40 percent holding in the department store chain.

In a long-awaited partial exit, the Asian arm of European buyout firm CVC Capital Partners has sold 40 percent of Indonesia-based Matahari Department Stores in a deal worth $1.3 billion, having priced the 1.17 billion shares divested at Indonesian Rp 10,850 (€0.86; $1.12) per share, a source close to the matter confirmed to Private Equity International.

After the sale, CVC will continue to hold 58.15 percent of Matahari prior to the exercise of any over-allotment option. 

The share price translated into 27x its 2013 price-to-earnings ratio, towards the high-end of its narrowed range of between Rp 10,650 to Rp 10,950, however slightly below that of competing department store retailers such as Alfamart, Ace and Robinsons. The firm chose to price the offering at a discount to its competitors, which are all trading at above a 30x P/E ratio, to incentivise investors, the source said. 

The deal attracted 15 cornerstone investors, including BlackRock Asset Management, which invested from its North Asia fund, the Government of Singapore Investment Corporation and Schroders Investment Management, according to the source. These investments represented about 32 percent of the offering. 

CVC can expect to gain an approximate 7x-8x return on its total investment once exited, industry sources said. CVC would not comment on the exit multiple.

The firm bought 98 percent of Matahari for $892 million in 2010 in Indonesia’s first LBO. Over three years, the business expanded the number of stores and cities, capitalising on Indonesia’s high-growth consumer market. 

“[CVC] came in at what people at the time said was a high valuation and they proved everybody wrong,” Joel Hogarth, Indonesia-based partner at O’Melveny & Myers told PEI. “It is a great result for Indonesian private equity because people will see this as someone coming in, doing a deal having factored in growth and really coming out with a terrific result.”

Hogarth continued that most private equity deals in Indonesia identify IPO as their preferred exit route. “Indonesia has been a relatively hot IPO market and it is becoming reasonably common to do big IPOs that include an international offering.” 

However, deals of such scale will remain few and far between, according to Brahmal Vasudevan, founder and chief executive of Creador. “Exits of this magnitude are really quite rare and one shouldn’t expect there will be many of these on an annual basis. The size of companies in Indonesia remain quite small.”

He added that the Matahari exit “reflects is a scarcity of large, liquid consumer [sector] assets in the market”. He believes many of the buyers of the stock were short-term momentum investors as opposed to investors holding the asset longterm.