Study: Trade sales to increase in Asia

Private equity firms in Asia are increasingly exiting investments through trade sales to corporate buyers as IPO markets continue to disappoint across the region.

Trade sales are likely to be the most common exit route for private equity in Asia Pacific, as sales to corporates have been trending upward in recent years, according to a recent report by Ernst & Young. 

The report, which surveyed 100 Asia-Pacific GPs, LPs and investment bankers, showed that during 2012, 63 percent of private equity exits were to corporate buyers, compared to 57 percent and 45 percent in 2011 and 2010 respectively. 

By comparison, the volume of exits made via IPO was 15 percent during 2012, compared to 28 percent and 43 percent during 2011 and 2010 respectively. 

An industry source told Private Equity International that firms must adjust their attitude toward exiting because the preferred IPO route is not available. He explained that many private equity professionals in Asia come from an investment banking background and they tend to believe listing businesses will always gain the best returns. However, with IPO markets firmly shut across the region, this is often not the case anymore. 

Ernst & Young head of private equity in Greater China, Robert Partridge, said in the report, “I think the general consensus is that markets aren’t recovering very quickly, and no one really thinks the public markets are going to open up in the first quarter of 2013. By the second quarter of 2013, it may start to open up but we’re most likely to see an acceleration of IPO and M&A in the second half of the year.”

Respondents also believe that over the next 12 months there will be fewer exits than management buyouts, although there was a general consensus that secondary buyouts across the region would increase during 2013. 

In an earlier interview with PEI, Meng Ann Lim, head of China and Southeast Asia at Actis, said his firm wants to focus on control buyouts “because I think increasingly trade sales to strategics and financial buyers (including secondary sales to private equity firms) are what we need to do to exit”.