Surf’s up

Exit constraints in Asia may be lifting as the region rides a wave of liquidity, finds Jenny Blinch.

A tradition of family-owned businesses and shallow capital markets in Asia have made finding compelling private equity investment opportunities relatively easy, but exit routes have been less obvious.

According to advisory firm Cambridge Associates, of 2,498 companies backed by private equity between 1987 and 2009, only 42 percent were fully realised by 30 September 2009. Though a further 12 percent had been partially realised, this still means just under half of all those investments remain un-exited.

“Exits,” one industry professional says, “are the elephant in the room in Asia.”

Since the markets revived in Asia in the second half of 2009, the exit window has opened wide. In fact, at the recent PEI Forum: Asia, held in Hong Kong in April, an audience poll saw 100 percent agreement with the statement Asia would be “surfing the wave” of a positive exit environment for the next 12 months.


TPG, in particular, is one firm that seems to have caught the wave. In October 2009, the listing of Australian department store chain Myer Group reportedly netted the firm $1.48 billion in profit (though the Australian Taxation Office is trying its best to dispute that). In March, it sold its 24 percent stake in Singapore-listed healthcare services company Parkway, reportedly earning a 3x return. And just last month, it swapped its 17 percent stake in Shenzhen Development Bank for a 4 percent stake in Ping An Insurance, which one week later it sold just over half of for a reported 16x return on the equivalent proportion of its original $150 million investment.

An Asian private equity report recently released by advisory firm SCM Strategic Capital Management found that $15 billion was returned to LPs in 2009, representing a 44 percent increase from 2008. The report did note, however, that valuations did not favour private equity sellers, and the average exit multiple dropped to 2x from 3x+ invested capital in 2008 (excluding write-offs, which would dilute both figures further).

Besides the quick recovery of Asian economies from the global financial crisis, also driving the increase in liquidity in Asia’s private equity market is the growing depth and breadth of the region’s capital markets, aided by government initiatives such as the launch of the Shenzhen-based ChiNext or “Growth Enterprise Market”.

Moves are also being taken to ease the sometimes stringent regulations imposed on investors around listings.
On the trade sale side, as the importance of Asian economies rises in the global context, both multinational and domestic corporates are increasingly eyeing (other) Asian markets as a target for expansion.

Exit opportunities look brighter in Asia than ever before, says Philip Bilden, Asia head at HarbourVest Partners, who describes himself as “more optimistic today about the structural routes to liquidity” than he has been in the past 15 years.

There is, of course, a caveat. “It doesn’t mean returns will necessarily correlate though,” adds Bilden. “However, M&A and IPO activity in Asia is a healthy lubricant to the industry’s functioning.”