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EQT’s $7.5bn acquisition of Baring Private Equity Asia began with a casual conversation about IPOs

"We're not buying the market, we're not buying the region, we're not buying an index," EQT CEO Christian Sinding told PE Hub. "We're buying a high-performing private equity firm that's been navigating this area for a long time."

EQT made a huge move this morning when the Stockholm-based private equity firm announced the acquisition of Hong Kong-based Baring Private Equity Asia for a whopping $7.5 billion. The combined Asian private capital business will be rebranded as BPEA EQT Asia and will continue to be led by BPEA CEO Jean Eric Salata.

This afternoon, I spoke with Christian Sinding, the CEO of EQT, about the deal and the opportunities and challenges for private equity throughout Asia. He shared that the deal began with friendly chats between BPEA’s Salata and Thomas von Koch, chairperson of EQT Asia, about the IPO process. Private Equity International’s Rod James joined the call with questions about the price EQT paid for BPEA. Here are excerpts from our conversation.

What are the biggest opportunities, and challenges, for private equity in Asia?

What’s fascinating about Asia as a region of the world is that it’s continuing to grow significantly faster – and will do so for the coming decades – than the rest of the world. Forty-plus percent of GDP growth will be generated in that region. The private equity market itself is growing about twice as fast as in the western world, and we believe that will continue to accelerate. And what you’ve seen, first in North America, and then in Europe, is, as private equity becomes more well known as an asset class, and as the middle class grows, as companies get larger, as managers become more professional, as the capital markets develop – all these things contribute to more private equity activity. We think it’s a really interesting space to be in to make thematic investments in certain sectors and in certain types of companies across the region – and quite an important one to be in for us as a global private equity firm but also for our clients – to have exposure to the long-term secular growth that’s happening.

Which sectors and types of investments are attractive in Asia?

Of course it’s a very large region, and BPEA is investing from India through Southeast Asia, in China, Japan, Korea and Australia and New Zealand. And EQT has also been present, but at a much smaller scale.

In general, there are four key sectors between our two firms: TMT; healthcare; services; and industrial tech. They’re particularly strong in IT services. They have a great business in India, which is one of the world’s leading IT services outsourcing and software hot spots with global customers, world-leading world-class companies.

What we see is that, in each of these areas, a lot of the sector competencies that we have in our sector teams can be really helpful for what’s happening in those sectors long-term in Asia, and of course, there are a number of trends happening in Asia – with faster digitalization, for example – that are really interesting for EQT working in the West.

What we want to do is double down across all the geographies.

Underneath the private capital umbrella, we think there’s an opportunity for all of our funds to actually have a really meaningful position in Asia. So to be an investor in growth, where BPEA is already active, we can of course scale it over time, moving into ventures and long-term private capital. On the one hand, there are the themes that you’re investing behind, and then on the other hand, there’s the maturity of companies that you can also work with, plus infrastructure.

It’s a multi-dimensional opportunity we’re really excited about. That’s of course also why BPEA and their team and Jean are excited to combine with us, because these two things coming together is just unique.

How did the two firms come together?

We chose each other. When we went public two and a half years ago, we had this growth matrix where we wanted to grow in certain sectors and asset classes and certain geographies. We wanted to fill out Europe, become much bigger in North America and really build a presence in Asia. We were planning to do Asia organically, possibly with some smaller acquisitions, but we realized that’s a very, very long road to travel, just thinking about how big the region is in terms of people, geography and differences. To replicate the experience Baring has, for example, would take a very long time. We met with different players but nothing formal.

We had many different contacts with BPEA from the past, and we had a very good impression. And we realized that they were thinking about going public, actually. The real story is that Jean, the founder of BPEA, called my buddy Thomas and he said, “Hey, what are the key learnings from your IPO? What were you guys thinking about? What were the best practices?” And that basically started the conversation: “Are you really sure you want to go public? Shouldn’t we rather create one of the leading firms in the world in what we call active-ownership strategies?”

So we got together very quickly thereafter. Jean and I have spent lots and lots of time together, and we’ve done that across teams and across sectors – from capital raising through central functions – and we realized we have an incredibly good strategic and cultural fit, in addition to the investment  side. We realized it was kind of a no-brainer. And we started those discussions in the fall.

How does Russia’s invasion of Ukraine affect investing in Asia now?

The way we think about this is very long term. Private equity is a really long-term game. Private equity is also about scale. And with scale comes the ability to invest in great sector teams.

BPEA has been investing in Asia for 25 years, and they’ve navigated the ups and downs when certain things get more complicated. Private equity is maybe 15 to 20 deals per fund across that larger region and across sectors we’re investing in. It’s really about deal selection at the end of the day.

For example, if we were to buy a life sciences tools company in China with global potential, will that sector be impacted by geopolitics? Maybe. Maybe not.

We try to find the right theme to invest behind in each sector and in each concrete opportunity, and that’s what ends up in a fund. We’re not buying the market, we’re not buying the region, we’re not buying an index. We’re buying a high-performing private equity firm that’s been navigating this area for a long time.

And by the way, neither EQT nor BPEA have much exposure at all. We have no companies in Russia or Ukraine; we have no investors from there. We have a little bit of outsourcing to Ukraine, but it’s absolutely minor. So we’re not directly impacted, although, of course, we’re all concerned.

This year alone, BPEA has distributed $2.2 billion to their clients at 2.6 times the money and more than 30 percent IRR. Even last week, the India team did a sell-down of $300 million in a public company during this crisis. Strategically, we’ve become a more diversified business with even more capability to deliver returns to our investors.

How did you arrive at the price for BPEA, which some think is high?

It’s ultimately about the earnings power and the growth of the platform. EQT is the most highly valued private equity firm in the world, and the reason for that is the same reason we’re paying a good multiple for BPEA. We are solely focused on high value-added strategies, what we call active ownership. EQT’s average management fee is 1.4 percent. BPEA is at 1.75 percent. If you were to apply that same measure to someone like Apollo, you might be at 25 basis points or something. It’s a very different business than the huge platforms that you have in the US, with a lot of secondary products and credit products, which we don’t have, which are much lower margin. We’re in a high margin business. Ultimately, it’s like valuing any other company. It’s about the earnings generating capacity of the business, and we think that’s superb.