BY ALEC MACFARLANE

It is shaping up to be a big year for buyouts in Asia. There’s over $250 billion of capital committed to private equity in the region, according to research outfit Preqin. KKR plans to raise a fund that would be bigger than its flagship U.S. one. Cheap debt is also available from Japan to Australia, making a mega-deal all the more likely.

Jumbo Asian LBOs are rare. Bain led the biggest one a couple of years ago, an $18 billion acquisition of Toshiba’s memory-chip business. The region’s only other 11-digit buyout, according to Dealogic data, was Singapore’s Global Logistics Properties. With so many companies controlled by tycoons, governments or entrenched boards, it has been a tougher part of the world for private equity to crack.

Overall conditions are improving for buyout barons, however. Interest rates keep falling. Banks are generally willing to lend more. Debt markets in Europe and the United States, often offering looser covenants, are opening to Asian deals. Ageing owners without clear succession plans are warming to private equity. And conglomerates such as Panasonic have been increasingly willing to sell off big businesses.

There are also plenty of listed companies with solid cash flows and modest borrowing which fit the buyout profile. A rough-and-ready screen for ones with a market capitalisation of over $10 billion, at least $1 billion in EBITDA and net debt equal to no more than that measure of earnings churned out some tantalising theoretical prospects. Among them are Japanese chocolatier Meiji and advertising giant Dentsu. Chinese appliance maker Haier’s publicly listed units could also be a target if a mooted take-private of the parent company fails.

At the decidedly larger end of the spectrum, there is Woolworths and 7-Eleven operator Seven & I. The Australian supermarket chain would cost upwards of $40 billion, including a takeover premium.

Using $20 billion of debt, or a robust 6.5 times the EBITDA forecast by analysts for its next financial year, would mean scrounging up another $20 billion. That would take at least four buyout shops and additional co-investors, such as sovereign wealth funds, to write the full equity cheque. It’d be a stretch, for sure, but given the amount of money sloshing around Asia Pacific, even that kind of deal has entered the realm of the possible.

First published Dec. 23, 2019

IMAGE: REUTERS/Aly Song