Asian private equity (PE) investors have shown growing interest in the Europe, Middle East and Africa (EMEA) region since the global financial crisis, a new report by S&P Capital IQ reveals.
In the latest issue of its quarterly report, EMEA Private Equity Market Snapshot, S&P Capital IQ highlights that in 2013, there were 34 acquisitions of EMEA targets by Asian PE investors, totaling €8.5 billion (US$13.74 billion) in invested capital. This equates to a 10-year record high when excluding 2008 as an anomaly, according to S&P Capital IQ data.
In the first half of 2014 there have already been 23 investments from Asian PE firms into EMEA targets, totaling €4.8 billion. This is the highest level of investment in the first half of a year since the €5.4 billion invested in H1 2010, and suggests that this nascent trend could continue throughout 2014, says S&P Capital IQ.
According to industry experts S&P Capital IQ spoke to, one reason for the interest in EMEA assets is a desire to bring established Western brands and/or technology into Asian - and particularly consumer - markets. For example, in 2014, British restaurant chain Pizza Express was purchased by Chinese PE firm Hony Capital, and Baring Private Equity Asia bought a stake in British retailer Cath Kidston. Furthermore, according to S&P Capital IQ data, the lower valuations for EMEA-based companies relative to their Asian counterparts are also a factor.
Investments made by Asian players into EMEA generally involve low levels of capital deployment. Since 2006, 73% of all acquisitions have been for less than €50 million and 51% for less than €10 million. The majority of investments are for non-controlling stakes in assets, with 63% of all investments since 2006 acquiring minority interests in assets. However, there is still some activity at the other end of the spectrum, as investments and acquisitions in excess of €1 billion have accounted for 6% of the total number of deals.
One reason for these smaller deal sizes is the shortage of leverage sources of finance to Asian PE firms.
“It is important to note that the Asian PE market covers a wide range of countries and unique macroeconomic profiles, translating into a wide variety of investment strategies being adopted by local private equity players,” comments Silvina Aldeco-Martinez, managing director, product and market development, at S&P Capital IQ. “In broad terms, the spectrum of market participants is centered on two sets of actors; home-grown private equity firms and funds, including regional investment funds such as sovereign wealth funds, and local investment bank PE platforms. It is these homegrown PE actors, both private equity firms and regional investment funds that are driving the trend of investment back into Europe.”
