US$2.9b deals done in H1, up five-fold from whole of 2006


By CHOW PENN NEE


(SINGAPORE) With the surge in private equity deals around the world, it was not long before they found a home in Singapore. A surfeit of private equity money has wound up here, snapping up electronic and retail companies, propelling deal volume upwards.


US$2.9 billion worth of private equity deals were conducted in the first half of this year alone - a five-fold increase from US$577 million in the whole of last year, latest figures from investment banking research group Dealogic show.

Private equity refers to funds which have been raised on the private markets.

Well-known names like US-based Blackstone, Kohlberg Kravis Roberts & Co (KKR) and Carlyle group invest in companies typically listed on public exchanges and take them private.

Private equity funds usually take over management of the companies, turn them around, and then sell these companies for a profit.

Besides the hefty increase in private equity funds flowing here, the data also showed that Singapore was the second most targeted country in Asia by private equity firms - after Australia, which registered a total deal volume of US$16.8 billion. China was third on the list with deals of nearly US$2.3 billion.

The attractiveness of Singapore companies stems from the republic's liberal economy, transparency and openness to buyouts, industry insiders said.

'Singapore has an open environment, and private equity firms don't have to deal with politicians and backlash when taking over a company,' explained Citigroup economist Chua Hak Bin.

This is different from other Asian countries where private equity firms might face difficulties in buying companies. 'In Japan or Korea, it's hard to buy a company there as management can be resistant,' noted HSBC equity strategist Garry Evans.

Singapore companies also prove appealing in terms of their size and transparency, said some deal makers. 'Singapore companies are the right size, where their market capitalisation is not that large compared to companies in countries like Hong Kong,' said Yap Wai Ming, director of Stamford Law Corporation, which has been involved in some private equity deals here.

Good corporate governance standards which Singapore companies adhere to is also one reason why private equity firms want to acquire companies here, said Mahesh Rupawalla, managing director and head of mergers and acquisitions advisory at DBS Bank, which has helped some private equity firms buy local companies.

For now, the technology sector here is a hot favourite of private equity firms, with some US$2.4 billion worth of deals conducted in that industry alone, Dealogic data showed.

Three of the six deals this year involved technology-related companies. The biggest - at US$1.7 billion - is the planned buyout of microchip tester United Test and Assembly Center (UTAC) by private equity firm Texas Pacific Group and Affinity Equity Partners.

Analysts agreed that the undervalued tech sector in Asia has also been one area that private equity money firms want to capitalise on because of its potential for turnaround. 'Technology stocks have underperformed in Asia and private equity firms believe it offers value,' said Citigroup's Dr Chua.

Mr Rupawalla said private equity companies are looking for restructuring opportunities in these sectors. 'They want to reconsolidate the companies in electronics and precision engineering, and then sell them,' he said.

Analysts said funds from private equity are likely to continue flowing into the region unabated, searching for value.

'Private equity is a huge growing asset class and it's looking to Asia,' said HSBC's Mr Evans.

The firms are also helped by low interest rates that make borrowing money to buy companies easier, added Dr Chua. 'Yields are cheap. It's easier to borrow debt to finance deals.'

Bankers say private equity interest in Singapore is on the rise. 'We definitely see interest in investing in Singapore. There is high liquidity - shareholders of companies are also looking to cash out in this market,' said Mr Rupawalla.

Worldwide, private equity buyouts reached a new record high of US$630 billion in the first half of this year.