U.S. buyout firms with well-established operations in Asia remain active, and are gratefully taking advantage of the economic idiosyncrasies unique to the various countries that make up the continent. In the Asia-Pacific region in particular (not including Australia, New Zealand and India) firms remain bullish on the two mainstay countries of China and Japan.
Though infinite differences lay between the nascent, booming economy of China and the mature, struggling economy of Japan, those two countries hosted 82 percent of all U.S. sponsor-backed acquisitions in the region over the past ten years, according to Thomson Reuters, publisher of Buyouts. The following are brief snapshots of recent U.S. sponsor activity in China and Japan, including observations and opinions from industry participants in those countries.
Around the world buyout shops stymied by shuttered capital markets have been chasing growth-capital deals that require little leverage. And that’s led many of them to one of the fastest-growing countries in the world: China.
Majority-stake deals are possible in China, with the exception of heavily-controlled industries like financial services and media. However, the country has proven much more fertile ground for growth capital deals, which typically involve equity investments in exchange for minority ownership. Even reserved forecasts for China’s economic expansion in 2009 call for GDP growth of 6 percent to 7 percent at minimum. Meanwhile, approximately 40 million people are expected to enter China’s middle-class every year for the next 10 years, creating a mass of consumers that will fuel domestic consumption in that country, according to Paul Edgerley, a managing director att
Many mid-market firms, too, have entered China. In August 2007,
On May 28, Boston-based Bain Capital was reported to be the frontrunner in an ongoing bidding battle with fellow mega-firms
The slow pace of deals in economically-battered Japan has prompted many firms to seek greener pastures. But some observers believe the country could see a meaningful pick-up in M&A in the next 12 to 24 months.
At present, however, many retirement-aged business owners remain reluctant to sell their companies at today’s depressed valuations. The same goes for big conglomerates that have non-strategic assets to unload. The macro-environment in the country is an obstacle. GDP in Japan contracted at an annualized rate of 15.2 percent in the period ended March 31, 2009, thanks in part to an export-driven economy that depends on the buying power of countries like the United States.
For some U.S. buyout shops this year, maintaining offices in the deal-stifled nation became too big a resource drain to continue. Turnaround firm
But the retreat of some firms could benefit others. With fewer buyout firms in Japan looking for deals, competition will be thinner when deal flow does return to the island nation. And plenty of elderly owners of privately-owned companies are looking not just to cash out, but also to partner with someone who will both buy their interests and continue to build on their legacy, said
The Riverside Company, which manages more than $2.7 billion in assets and has Asia offices in Tokyo and Seoul, is working on one Japan-based acquisition it hopes to close sometime next month. The Cleveland-based small deal specialist plans to acquire a Japanese software company from its elderly founder by the end of July, according to Stuart Baxter, a managing partner at the firm. The deal agreement stipulates that the founder keep a seat on the company’s board to help steer it through the transition phase.
Baxter, who also serves as the fund manager for the
Meanwhile, a deal struck on May 26 by
Correction: Buyouts has removed a reference to Thayer Hidden Creek, a Washington, D.C.-based firm, from this story because of incorrect information. The shop owns PCT Inc., an Amsterdam, N.Y.-based maker of composite components for electrical generators, not PCT China Inc., as was stated in the prior version of this article.
The second sentence of the sixth paragraph of this story originally read as follows: Earlier that same year, Washington D.C.’s