Buyout firm Permira's response to the credit crunch has taken it to China – and also back to the distant past. Having been involved in many of Europe's more notable leveraged buyouts of recent years – including the AA and Seat Pagine Gialle – Permira last month agreed to provide £420 million (€603 million; $857 million) of growth capital for a minority stake in Chinese casino developer Galaxy Entertainment. In a telling indication of how priorities have changed in the wake of the liquidity drought, part of the purchase price will be used to de-leverage Galaxy's balance sheet.
Permira partner Martin Clarke told sister website PrivateEquityOnline.com that the deal revives the typical private equity model of 15 years ago, when Permira predecessor Schroder Ventures was pursuing growth opportunities in Europe's mid-market (albeit investing much smaller amounts than in the case of Galaxy). Until now, it was a model that seemed to have been consigned to the past: Permira closed its previous minority, growth deal back in 2004, when acquiring a 25 percent stake in Marrazzi, an Italian tile maker.
The investment in Galaxy, which is building the world's second-largest casino in Macau, is not without risks. While more than 100 million potential gamblers live within three hours' drive of Macau – the only place in China where gambling is legal – the actions of Chinese regulators are unpredictable. For example, visa restrictions were recently introduced in the neighbouring province of Guangdong.
However, Permira has written as much security as possible into the terms of the deal, including two board seats, dilution protection, veto rights and certain unspecified undertakings from the controlling family.
With or without these protections, there's no guarantee of success for Permira. Indeed, the track record of Western investment groups making minority investments in Asia is generally poor. Despite this, more deals like Galaxy can be expected. The credit crunch may have put a halt on large debt financings – but the vast mountain of equity capital raised by Permira and its LBO peers has to find a home somewhere.
JOHN PARTS COMPANY WITH CDC
Veronica “Ronny” John has left CDC, a UK-based, government-owned investment group specialising in making investments in private equity funds in poor countries. John had joined CDC and moved to London earlier this year from the Asian Development Bank, where she had spent several years investing in emerging market private equity funds. At CDC, John was one of a number of Asia-focused investment professionals, alongside Brian Lim, Innes Meek and Anubha Shrivastava, who joined the firm in July of this year. Richard Laing, who runs CDC from its London headquarters, said: “Ronny John has left CDC to pursue her career in investing in emerging markets”. He also said the firm was planning to augment its investment team and was currently in hiring mode. Speaking to sister website PrivateEquityOnline.com on the fringes of an industry conference in Hong Kong, John expressed an interest in launching a fund of funds business focusing on Asia and CIS. John speaks Russian and has spent a portion of her career working in Kazakhstan.
morgan Stanley raises $1.5bn For asia
Morgan Stanley Private Equity Asia, which is part of Morgan Stanley's merchant banking division, has raised $1.5 billion (€1 billion) for an Asiadedicated fund, almost triple the amount raised for its 2005 vintage offering, which closed on $515 million. In addition to the bank's sponsorship, Morgan Stanley Private Equity Asia III attracted commitments from global institutions and high net worth individuals and the bank's employees. The fund is Morgan Stanley's second purely Asiafocused private equity fund although in 1993 the bank had an emerging markets fund that was invested primarily in the region.
TEMASEK LOSES CHINA DEALMAKER
Temasek, the Singapore sovereign fund, has lost three senior executives including two China investment specialists based in Hong Kong. Local sources suggest the duo of Frank Tang, senior managing director of China investments and former Goldman Sachs banker, and Terry Hu, a managing director, are teaming up with two other former Temasek executives to raise a fund. “I have decided to narrow my focus and concentrate on backing emerging champions in China, by setting up a China dedicated private equity fund. I look forward to opportunities to work with my colleagues at Temasek in the future,” Tang said. Along with these resignations, Temasek is also losing Jimmy Phoon, who was promoted to chief investment officer last year. Phoon will be succeeded by Tow Heng Tan, his co-chief investment officer. Phoon, who joined Temasek in 1999, will be leaving to take an “advisory position with a local investment firm” after a break.
QUARTET DEPART SINGAPORE FUND OF FUNDS
TIF Ventures, a private equity and venture capital fund of funds investment subsidiary of Singapore's Economic Development Board (EDB), has lost all four members of its senior management team including chief executive officer Jimmy Hsu. The other three resignations are Tan Kit Jong, chief operating officer and head of Asia Pacific and Europe; Lee Lay Hong, a senior vice president who is also head of portfolio monitoring and venture services; and David Lim, who oversees TIF fund investments on the US west coast and direct investments. Their resignations took effect on 1 October. Hsu, Tan and Lee are part of a six-member team at newly-launched, Asia-focused private equity firm Eagle Capital Partners in Singapore. Lim will be leading a handful of his former colleagues to set up a separate fund of funds. The departures at TIF means the Singapore government fund of funds management will be subsumed into EDB Investments, which has a vested interest to invest in businesses that will help grow Singapore's economy.
EMERGING MARKETS PRIVATE EQUITY FUNDRAISING TOTALS BY REGION, 2003-1H2007
|Funds focused on emerging Asia (not including Japan, Australia and New Zealand) are set to break last year's fundraising record. By the halfway point of this year, $11.6 billion had been raised versus $19.4 billion in the whole of 2006. According to the Emerging Markets Private Equity Association (EMPEA), there are at least 21 $1 billion-plus Asian funds currently in the market – including three funds each raising over $3 billion that are expected to close by the end of this year.|
|Emerging||CEE||LatAm &||Saharan||&||Africa &||emerging|
PEP ACQUIRES CINEMA OPERATOR
Pacific Equity Partners (PEP), an Australian buyout manager raising A$4 billion for investments in Australia and New Zealand, has agreed to acquire Hoyts Group, a cinema operator with 55 cinemas across both countries. The transaction values the business, which includes advertising and film distribution, at A$440 million ($382 million; €271 million). The deal follows the buyout firm's failure to complete the acquisition of a 30 percent stake in travel agent Flight Centre in a transaction worth A$1.6 billion. PEP has entered into an agreement with Australia's Publishing and Broadcasting Limited and West Australian Newspapers to acquire their shares in Hoyts in a deal that is expected to return each seller approximately A$150 million.
NEA INVESTS IN INDIAN IT FIRM
US venture firm New Enterprise Associates has made an investment in Novatium Solutions, an IT systems company based in India that is developing a thin network computing device designed to be affordable and accessible. NEA did not disclose the size of the investment, which was made out of its $2.5 billion (€1.8 billion) NEA Partners XII. Novatium sets up service sites with hub computers that run Windows or Linux operating systems. It provides users with small network computers that can be plugged into a monitor and keyboard, and connects users to a broadband provider. System maintenance takes place at the service site, allowing users to avoid set-up and maintenance of their PCs.
DIC IN FIRST DIRECT MENA DEAL
Dubai International Capital (DIC) has completed its first direct private equity investment in the MENA region through the acquisition of luxury company Rivoli Group for an undisclosed sum. Rivoli operates more than 215 retail outlets across the Middle East and North Africa region, which sell luxury goods including high-end watches, pens and menswear. The group will use the capital to expand across the region, the buyout firm said in a statement. The luxury goods market in the MENA region has strong growth prospects on the back of the region's consumer boom in the last few years.
KALRA SWITCHES FROM HSBC TO AIF
AIF Capital, an Asia-focused private equity firm based in Hong Kong, has appointed Rajeev Kalra as an executive director in New Delhi to work with Ajay Lal, AIF's only India-based investment professional. Kalra joins AIF Capital from HSBC Private Equity where he has been the latter's chief representative for India since 2002. Kalra has been with HSBC Private Equity since 1996, and worked on a number of transactions across sectors spanning financial services, outsourced services, IT products, telecom infrastructure and medical equipment manufacturing. Before HSBC, he worked for SBI Capital Markets, a subsidiary of the State Bank of India.