...so says CFO Asia. A nice follow-up to my previous post on VC trends in Asia. This one is about how private equity investors in Asia are increasingly turning into buyers of non-core assets from Asian companies. Excerpts:
For CFOs holding on to a cash-generating asset that isn't core to the business, 2005 might just be the year to end the wait for that elusive right opportunity to sell. [2004] was a landmark year for an alternative source of funds that had been lurking on the sidelines. Private-equity firms figured prominently in some of the biggest mergers and acquisitions in the region.
"Last year demonstrated that there are successful entrepreneurs with the ability and passion to grow very successful companies," says [Jamie] Paton [of 3i]. Until [some recent] IPOs of Chinese companies, "what was lacking in Asia was the role model" of PE-investment success.
Two sectors are obvious favorites. "Private-equity investors have been recently focused on industrial/manufacturing, and consumer/retail opportunities," says Hanning [of Morgan Stanley]. And they're looking for these assets in three markets. China's measures to cool its economy added new difficulties to private enterprises seeking to borrow money or sell equity at home, which means their CFOs are looking for other sources of capital. Likewise, the implosion of South Korea's credit-card industry - uncontrolled growth resulted in massive bad debts - has made consumers wary of spending, which then takes pricing power out of CFOs seeking to sell assets. The same is true of Taiwan, where global opinion on the technology sector this year leans on the bearish side.
Interesting. So not only are there opportunities because of the well-recognised growth of Asian markets, there are also some distress stories.
Paton: "What a private-equity buyer brings firstly is straight cash, not a mixture of cash and shares." Apart from the cash component, he says a PE investor also "allows the vendor to sell an asset to a group with no conflict of interest." And a PE company has a network of acquired assets that it can use to nurture newly bought assets, thus making sure the seller's former stakeholders are not left in the lurch. Says Paton: "We can build up not just the company but also its sales channel, among others."
How true is this, I wonder. If the PE investor truly has a network of companies in synergistic areas, then isn't that automatically a conflict of interest? It'd be like competing with a conglomerate.
Link: The Answer Is Private
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