KKR to back cross border deals in Asia

KKR is on the lookout for deals in China and Japan involving overseas expansion as low growth in these markets pushes companies' need to look outward for their growth strategies.

Private equity giant KKR plans to invest in cross border M&A in China and Japan, and companies riding on the consumption theme in South-East Asia, Ming Lu, head of Asia private equity and interim head of KKR China told Private Equity International.

“In particular, we’re excited by cross-border opportunities. Panasonic Healthcare in Japan and Qingdao Haier in China are examples,” Lu said.

“In 2015, Panasonic Healthcare, a Japan-based company, completed the acquisition of the global diabetes care business of Bayer, a global healthcare company based in Germany. This year, Qingdao Haier, based in China, also completed the acquisition of General Electric’s home appliance business out of the US.”

Cash-rich Japanese corporations are increasingly looking for foreign acquisition opportunities as weak domestic growth, a shrinking population, and growing competition among local companies push them to pursue overseas growth strategies. Last year outbound dealmaking in Japan exceeded ¥10 trillion ($82 billion; €75 billion), according to Tokyo-based M&A advisory Recof.

Interest in outbound M&A did not diminish in 2016, even as the number of deals between April and July fell below last year’s level. Recof reports that the value of deals through July stands at ¥5.9 trillion, already more than the value of deals for the whole of 2014 (¥5.8 trillion).

Meanwhile in China, the volume of outbound M&A reached $135 billion in the first half of the year, surpassing last year’s full record. With the recent pressure of China’s declining currency and lower GDP growth, experts predict that Chinese companies’ overseas acquisitions will continue in the long-term.

KKR, with $131 under management as of September 2016, is currently investing its 2013-vintage $6 billion Asian Fund II, as well as its 2011-vintage $1 billion China Growth Fund. The firm is also understood to be in the process of raising up to $7 billion for its third Asia buyout fund.

Since establishing its Asia platform in 2005, the firm has completed more than 60 transactions across the region representing more than $10 billion of private equity investments.

This year the firm made investments in Indian companies Dalmia Cement and Max Financial Services, and also in Indonesia agri-feed company Japfa Comfeed and Jakarta-based start-up GO-JEK.

Lu added that the firm is also seeing opportunities in food safety and agriculture in China, along with environmental initiatives, financial services, healthcare, and midcap buyouts.

In South-East Asia, Lu identified energy and resources, structured downside-protected transactions, and attractive industries at cyclical lows.

“Our strategy for Singapore – where buyout opportunities exist and the capital markets are sophisticated – is different from our approach in Indonesia, which offers exciting opportunities related to urbanisation, a rising middle class and shifting consumption trends,” Lu pointed out.