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Investments by private equities get off to a steady 2011 Asia start
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Private equity deals in Asia got off to a steady start in 2011, as buyout funds provided capital to companies in rapidly growing China and India, and some analysts say competition is pushing up valuation in some Asian countries.
Asia has traditionally been a growth market for PE funds, but increasingly, buyout funds are settling for minority stakes in listed and unlisted companies in an effort to deploy an estimated $73bn of untapped funds in Asia, according to Thomson Reuters estimates.
Private equity investments in Asia totalled $2.6bn in the first quarter of 2011, with China accounting for 34%, followed India with 26%, according to Thomson Reuters data.
“India is one area where deals are very fully priced these days,” said Bruno Roy, managing partner at McKinsey & Co in Beijing. “China to some degree as well. So you’ve got to find transactions and companies that have a bit of hair on them - things that you need to fix.”
Global buyout funds dominated the high profile deals. Bain Capital and Singapore’s GIC paid around $800mn for a 26% stake in India’s Hero Honda Motors, while Carlyle Group agreed to buy Japan’s Tsubaki Nakashima in Japan for around $800mn.
But the competition for deals in China and India is driving up valuations and pushing global private equity firms deeper into frontier markets such as Indonesia, Malaysia and now Vietnam.
CVC Capital has followed up on its $770mn 2010 acquisition of Matahari Department Stores in Indonesia, paying $269mn for a minority stake in First Media.
In Malaysia, Affinity Equity Partners and Carlyle are bidding for YTY, a rubber glove maker that could fetch about $300mn, sources told Reuters earlier this month.
In Vietnam, Mount Kellett Capital injected $100mn into local conglomerate Masan Group’s mine operations, the country’s largest-ever private equity investment, according to Thomson Reuters data.
However, as markets develop, local funds and local managers are increasingly getting competitive on deals, forcing global buyout funds to localise their operations and strategy, analysts say.
A third of the $100bn buyout funds predominantly raised for Asia last year was targetted at China or Greater China, according to data compiler Preqin. That is up from 15.2% in 2009, underscoring the growing appetite for China-related investments.
And as competition for deals in the region’s top market intensifies, the rising power of China’s emerging general partners and limited partners is becoming clearer.
“Local players’ share of deal volume has increased, but that’s also true by deal value,” McKinsey’s Roy said. “Local players are becoming much more active. This is a trend that will keep reinforcing going forward.”
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