Hong Kong: US buyout giant Carlyle sees more deal opportunities in Southeast Asia than in India and is ready to make more investments in the next 20 months as the regional economy recovers fast, a senior executive said.
X. D. Yang, a managing director for Carlyle’s buyout fund in Asia, said on Thursday that the so-called Greater China area, including Hong Kong, mainland China and Taiwan, remained a regional deal focus for Carlyle, although he acknowledged difficulties in doing controlling deals in China.
Buyout opportunities for private equity firms among Indian companies are limited because Indian firms find it easy to list on the domestic stock market and many family businesses are not up for sale, Yang told Reuters on the sidelines of the SuperReturn Asia Conference.
“It seems easier for Indian companies to do IPOs in the local market, so private equity investment to them is like an option and many Indian entrepreneurs are unwilling to sell their business ownerships,” said Yang.
“You need to hire the people, put them in the company, change the (company) culture so you can have better information flow,” said Yang, referring to key factors to make a buyout deal successful.
Carlyle’s most recent Asia buyout fund launched in July 2006 raised $1.8 billion, which has been invested in various projects across Asia.
Yang made his reputation in the global private equity industry for making Carlyle’s landmark deal with China Pacific Insurance (Group) Co, China’s No.3 life insurer, which is seeking a listing in Hong Kong.
Washington DC-based Carlyle has been actively making deals in the Greater China region in recent months. Yang said this reflected that valuation levels have became attractive again after sharp declines in equity prices worldwide late last year.
Not buy-out but buy-in
Carlyle has announced two deals in the past 10 days.
On Sunday, Carlyle said it had bought a minority stake in Yashili, a leading Chinese infant formula maker.
Last Wednesday, Carlyle and Taiwan Mobile struck a $1 billion deal, with Carlyle taking a big chunk of the island’s leading telecom group.
The leveraged-buyout deal model in Asia may not be as popular as in the West due to the different business culture and the lack of access to leveraged financing in some Asian nations, Yang said.
In some countries such as China, where many foreign investors have complained that rules for leveraged buyouts remain unclear, Yang said a 50% stake purchase in a Chinese company would be a good buyout-like deal.
“I think the (deal) market in China is not buy-out but buy-in,” said Yang, referring to buying a non-controlling stake in a Chinese company.
“It’s not a timing or size issue. The problem is whether we can work together and anticipate some problems,” he said.
Yang noted that Carlyle has helped its portfolio companies in Asia hire more than 40 industry experts to join these firms to improve their businesses in the past five years.
“You have to have people to spend time with them (entrepreneurs) or have your team there. At least, you should get somebody there,” said Yang.
Despite difficulties in making controlling deals in Asia, Yang noted that private equity firms should try to maintain some influence over portfolio companies’ management and business operations.
Yang also expected valuation levels to rise in the next 20 months, and thereby competition for private equity firms to secure good deals in Asia would become fiercer.