How Permira bought the China arm of Unitas Capital

Asia-focused Unitas Capital has gone through a number of reincarnations since its roots as part of JPMorgan Chase’s captive buyout arm in 1999 and a spin-out to form CCMP Capital in 2005.

In 2008, CCMP’s Asian arm founded Unitas soon after holding a $1.2 billion final close on its Fund III. It fell short of the $2.5 billion target, but amid challenging fundraising conditions lined up a number of heavyweight LPs, including Goldman Sachs, Pantheon, Ontario Teachers’ Pension Plan and a number of US public pensions including the Washington State Investment Board (WSIB).

Unitas retooled a year later, closing its Japan office to focus on greater China, Korea and Australasia. By 2012, it was enjoying a string of successful exits, including the sale of its 49.3 percent stake in Auckland’s Independent Liquor to Japan’s Asahi group for $1.3 billion (having reportedly paid $900 million in 2006 to acquire the stake alongside Australia’s Pacific Equity Partners), and its sale of Beijing-based Leader & Harvest Electric Technologies, generating more than 3x on its initial $200 million investment.

Yet, Fund III has struggled; as of 30 June 2015, it was showing a 0.9x return multiple and minus 3 percent net internal rate of return, according to WSIB documents.

At least one of the firm’s Australian investments has caused problems. In 2014, Unitas and Pacific Equity Partners paid around $200 million to settle a lawsuit brought by Asahi over the Independent Liquor sale and claims of inflated earnings.

Unitas was expected to raise Fund IV around 2014-15, but is said to have reached the conclusion that there was a lack of investor appetite. That prompted the firm’s country-focused arms to reflect on their options and resulted in its Korea team spinning out in 2015.

The firm’s Shanghai-based team, led by Jim Tsao, was contemplating next steps at the same time London-headquartered buyout firm Permira was exploring how to move to the next level in Asia. It’s done four deals to date, two of which have been realised (including casino operator Galaxy Entertainment, which generated a 2.8x return).

Permira opened its first Asian office in Tokyo in 2005 and expanded into Hong Kong and Seoul. “But mainland China was the bit it had not cracked yet,” says a source familiar with the matter, noting Tsao and team were a good fit because of their buyout background.

In January this year, Permira said it would acquire Unitas’s China team in what was characterised as a ‘win-win’. “The team continues to provide active engagement and support to the Unitas portfolio; and Permira gains a proven and successful Shanghai team that has an extensive track record in making control investments in China,” John Lewis, CEO of Unitas, and Alex Emery, head of Asia for Permira, said.

Permira isn’t expected to suddenly start deploying loads of Fund V, the €5.3 billion vehicle it’s currently investing, in Asia, but may make the odd opportunistic investment in addition to using the China team to help portfolio companies expand in Asia.

Market sources agree the deal – financials for which were not disclosed – was mutually beneficial. “It makes perfect sense,” says Niklas Amundsson, a partner at placement agent Monument Group. “Acquiring Unitas’s China team means [Permira] will have a good team there. They have no issues raising capital, it’s a good fit for both sides.”

Unitas and Permira declined to comment.