CVC Plans Asian Buyout Fund

CVC Capital Partners is likely to launch a private equity fund for Asia in the second quarter of the year. The firm has not yet set a definite target for the vehicle, but chairman Michael Smith said “if the fund goes ahead, it will be in the $750 million (euro 670 million) range, or possibly more”. CVC envisages basing the fund in Hong Kong and will eventually establish local bases in key markets throughout its target region, which would also include Australia: such an investment of resources would not be justified by a smaller fund.

CVC can justly lay claim to the title of “Europe’s leading buyout house”. With offices in Amsterdam, Brussels, Copenhagen, Frankfurt, Jersey, London, Madrid, Milan, Paris and Stockholm, the firm has an unparalleled European network and manages Europe’s largest buyout fund, which closed last summer on $3.1 billion and is already nearly 30% invested.

CVC’s entry into Asia would be in line with the increasing drive for globalisation among major private equity groups, a trend whose most conspicuous manifestation to date has been the influx of leading US players into the European private equity market.

The group has already completed a handful of deals with an Asian element, including Sylvania, Amatek/Formica Corporation and, most recently, the GBP93 million acquisition in January of Inchcape’s Asian marketing operations as part of a consortium including Advent International and AEA Investors.

Michael Smith said the CVC Asia fund would target “control-type investments in existing businesses”. In the past, buyouts in Asia have been few and far between, with the bulk of private equity investment in the region taking the form of development capital. However, CVC believes that recent economic turbulence in the region has opened a window of opportunity for the acquisition of majority interests as industry restructures and vendors’ price expectations become more realistic.

“Things in Asia have changed enormously following the financial crisis”, Michael Smith said. “Previously, it was much more challenging to do our sorts of deals, but recently there has been a general sea change leading to widespread restructuring”.

Furthermore, despite its current financial woes, the region undoubtedly offers amazing growth potential; Michael Smith pointed to a “well-educated and diligent workforce” as one of the Far East’s major strengths.

Clearly, vast differences exist between individual national markets in Asia – Taiwan, for example, has been virtually unaffected by the financial upheavals, whereas Indonesia has been the victim of disastrous political and economic instability – and CVC will undoubtedly adopt a highly selective approach.

Michael Smith spoke of the potential deal opportunities that could be thrown up by the reduction of cross-shareholdings in the Japanese market, but conceded that Japan has so far been a notoriously difficult market to penetrate. “There’s no doubt that the Japanese [buyout] market should have the largest potential in the region, but there is still true economic and cultural resistance to be overcome”