Asia overview

(i) Overview of Asian buyouts (1998 – 2003/June) Asia (including Japan)

Fund Pool

• As at the end of June, the Asian private equity industry was home to no less than US$11.3 billion of capital designated for buyout transactions.
• During the technology bubble period at the end of the last decade, buyout funds were overshadowed by others, but since 2002, they have begun to dominate the Asian private equity fund pool.
• In the first half of 2003, buyout funds accounted for more than 53% of fresh funds to come in, further evidencing fund investors' growing interest in this investment discipline.
• Japan has firmly established itself as the centre for buyouts in Asia, with the country claiming 43.1% or US$5 billion of the total buyout fund pool.
• The buyout fund pool in Japan has grown exponentially in the eighteen months ending June 2003. The period accounted for the accumulation of over 50% of the US$5 billion in Japan.
• In the same time period, outside of Japan, buyout funds have lost momentum as no meaningful amount has been raised.
• Japan's ability to bring in a handsome pool of capital underscores the crucial role of domestic institutions in propelling buyout activities in Asia's largest economy.

Investments

• At the end of June 2003, 222 buyout transactions were known to have taken place in Asian private equity, commanding an awesome transaction total of US$15.1 billion.
• In the overall buyout investment landscape, close to 80% of the buyout transactions took place in the relatively mature economies of Asia, indicating privatisation movements by some Asian governments have failed to draw buyout investors' interests.
• Japan and South Korea accounted for approximately 58% of the investment total, affirming Northeast Asia as the hotbed of buyout transactions. The former took up 31%, or US$4.5 billion of the overall transaction total, followed closely by the latter which claimed US$4 billion, or 27%.
• Both Australia and Hong Kong have firmly established themselves as the second most-favoured group of markets, attracting US$1.9 billion and US$1.5 billion respectively from private equity investors.
• Six years since the Asian 1997-98 Financial Crisis, buyout activities in Thailand have virtually dried up, despite the fact that the country was the epicentre of the crisis and home to early buyout transactions.

Industry preferences

• Overall, Asian buyout investors' portfolio is a picture of even distribution among favoured industries.
• The banking and finance sector led in taking up 20% or US$2.9 billion of the investment total, with consumer goods and the TMT sectors each taking up equal portions, at 17% or US$2.5 billion and US$2.6 billion respectively, closely followed by industrial manufacturing goods which raised US$2.3 billion.

(ii) Overview of Asian buyouts (July 2002 – June 2003) Asia (including Japan)

Fund Pool

• In the twelve months ending June 2003, an additional US$2.1 billion came in for buyout transactions.
• Buyout funds took up the lion's share of the overall fund pool. The US$2.1 billion recorded represented approximately 50% of the US$4.2 billion recorded in the twelve months ending June 2003.
• Japanese institutions accounted for over 90% of the fund sources, with those from Europe, Middle East and USA being the other fund source origins.
• Japan maintained its lead in accounting for 99.7% of the US$2.1 billion.
• Countries/economies outside of Japan reported a paltry US$56 million.

Investments

• A total of US$4.1 billion was recorded through 53 buyout transactions in the period under survey. The amount accounted for 26.4% of the transaction aggregate on record, indicating vibrant buyout activities in the 12 months ending June 2003.
• Japan maintained its leading position as the most active buyout transaction centre. One in every three deals was completed in Asia's largest economy.
• Singapore took the title as the second most-favoured investment destination, accounting for US$609 million, or 15% of the transaction total, followed by Hong Kong, which took 14% or US$570 million.
• The TMT sector attracted the largest pool of capital from investors, with more than 24%, or US$1 billion of the invested amount, allocated to this sector through 11 deals.
• An additional 33%, or US$1.4 billion, of the invested capital was quite evenly divided between companies in the services and consumer goods sectors.
• Banking and finance fell to become the sector that attracted the least amount of capital, illustrating the complexities in consummating deals in this group of companies.
• The average deal size has increased to US$77 million, 13% higher than the average of US$68 million recorded between 1998 and June 2002, indicating investors' growing confidence to deploy larger sums into buyout situations.

Divestments

• 16 divestments were recorded in the twelve months ending June 2003, of which twelve were completed through trade sales and three via write-offs, while the remaining one was a merger.
• Trade sale divestment performance is encouraging. With the exception of one, all remaining twelve trade sales recorded positive internal rate of returns, ranging from 2% to 79%.

(iii) Overview of Asian buyouts (July 2002 – June 2003) Japan

Investments

• Twenty transactions, commanding a total of US$1.47 billion, were recorded in the twelve months ending June 2003.
• Average buyout deal size stood at US$73.5 million, 11% higher than the US$66 million average for the period between 1998 and June 2003, indicating investors' readiness to deploy larger sum to buyouts.
• Overall, buyout investors have been cautious not to bet on one particular industry. Unlike in the past when consumer goods and banking and finance sectors attracted the bulk of capital, in the 12 months ending June 2003, four principal industrial sectors, services, industrial manufacturing goods, consumer goods as well as the food and beverage sector received fairly even sums from buyout investors. These four groups of companies took up 89% or US$1.3 billion, of the total transactions recorded.
• Unlike buyout transactions in other economies outside of Japan, where the TMT sector dominated, in Asia's largest economy, the services sector led in taking up US$423 million or 29% of the investment total. This was followed by both the industrial manufacturing and consumer goods sectors, each of which raised US$317 million and US$311 million respectively. TMT trailed behind as the fifth most-favoured investment sector, receiving US$164 million.
• Buyout transactions remain very much a "domestic affair". Unlike firms based in Hong Kong, which have a pan-Asia investment focus, buyout capital in Japan was directed solely at local companies. This trend, coupled with the increasing number of transactions taking place in the country, evidence a deep and maturing buyout market in Asia's largest economy.

Ranking of buyout houses

• Domestic institutions led in participating in the largest transaction total, indicating the growing prominence of local establishments in Japan's buyout landscape.
• The twelve months ending June 2003 ushered in a new group of buyout investors that were ready to participate in large transactions.
• For the first time, the government's Development Bank of Japan was known to have participated in a buyout transaction, further suggesting policy makers in Asia's largest economy are taking an active role in Japan's overall economic restructuring strategy.
• During the period under survey, pioneer investors have demonstrated discretion in the deployment of capital. Advantage Partners,MKS Partners and Ripplewood Holdings have all chosen to engage in modest sized deals.
• CVC Asia Pacific secured a foothold in Japan when it participated in one transaction that amounted to US$131 million.
• The number of buyout players in Japan has increased in parallel with growing activities in the country.

(iv) Overview of Asian Buyouts (July 2002 – June 2003) Asia (ex-Japan)

Investments

• A total of US$2.62 billion was deployed into 33 transactions during the period under survey.
• The twelve months ending June 2003 saw vibrant investment activities with the investment total accounting for 25% of all buyout transactions recorded between 1998 and June 2003.
• Outside of Japan, the average transaction size was US$79 million. This is in fact slightly higher than the US$73.5 million recorded for Japan over the same period. It is also 16% higher than the average, which is US$68 million, on the aggregate investment total for the period of 1998 to June 2003. The trend further underscores investors' increasingly positive assessment of prospects in Asian buyouts.
• Singapore scored top marks when its buyout transaction total accounted for 23%, or US$609 million, of the total buyout investment amount during the period under survey.
• Hong Kong trailed Singapore in taking up the second position in the list of "most-favoured buyout investment destinations." Three companies based in the territory raised US$570 million from buyout investors.
• Australia came in third, accounting for US$471 million, or 18% of the investment total. However, buyout transaction sizes in Australia were modest as the investment aggregate recorded was distributed among 18 companies, representing an average US$26 million for each transaction.
• South Korea, once Asian buyout investors' most-favoured destination, slipped to fourth place with two deals amounting to US$367 million.
• In sharp contrast to the investment profile in Japan, buyout investors outside of this country, favoured the TMT sector, with nine companies raising a total of US$839 million, accounting for 32% of the transaction total, followed by both the energy/natural resources and infrastructure sectors, which took up US$438 million and US$437 million respectively.

Ranking of buyout houses

• CVC Asia Pacific led, having committed the largest transaction total.
• Similar to the trend in Japan, during the period under survey, a new list of investors were known to have participated in buyout transactions.
• Pioneer buyout investors, such as Newbridge Capital, The Carlyle Group as well as JP Morgan Partners Asia exercised caution as each recorded one transaction.
• PPM Ventures, one of the earliest and most active players in Asian buyouts, has taken a low profile, with no transactions known to have been completed by the house during the period under survey.