Private equity group EQT has agreed to buy Baring Private Equity Asia in a deal that will add € 17.7bn to its assets under management and ramp up the Stockholm-based firm’s activities in Asia.
EQT will pay € 6.8bn for the Hong Kong-based company including € 1.5bn in cash and € 5.3bn in new EQT shares, it said on Wednesday. It will merge Baring’s operations with its own Asian business, forming a new unit that BPEA’s chief executive Jean Eric Salata will lead.
The move marks a significant increase in EQT’s Asian footprint at a time when buyout deals are hitting record highs in the region and as private equity groups target their biggest-ever Asian fundraisings.
However, unprecedented outbreaks of Covid-19 in Hong Kong and mainland China have led investors in the region to become cautious in recent weeks. Major international companies including JPMorgan and Bank of America are reshaping their Hong Kong operations, including relocating executives outside of the territory. Geopolitical tensions between China and the US have also escalated amid the Ukraine war.
“We believe Hong Kong is over time going to be a good place to continue to operate from and we have a lot of talented people there,” EQT’s chief executive Christian Sinding told the Financial Times.
He said Asia’s private equity market was growing about twice as fast as in the west.
China accounts for about 15 per cent of BPEA’s investments, he said. “A relatively small amount of capital is actually invested there. And we can now decide going forward, do we want to continue to allocate capital to China in what sectors and what themes and when? ”
EQT tended to “stay away from politically sensitive areas” and from “companies that are dependent on governments or politics”, he added. BPEA also has exposure to India, Japan, Korea, Australia and New Zealand.
The deal is the latest move by EQT, which listed in 2019, to increase its assets through acquisitions. Last year it bought Philadelphia-based real estate investor Exeter Property Group for $ 1.9bn.
The scale of assets under management is an important measure for listed buyout groups because it determines fee income. Shareholders often prize fees more highly even than carried interest, the lucrative 20 per cent profit share on successful deals, because they are steadier and more predictable.
The BPEA business is expected to generate € 350mn to € 375mn in management fees in 2022, EQT said. EQT had € 73.4bn in assets under management as of January. Its shares rose about 10 per cent after the announcement.
Salata said the deal would “create a highly differentiated and extremely competitive private markets firm in Asia and globally”.
Buyout stage investments in the Asia-Pacific region hit a record high of $ 105.6bn in 2021, a 61.2 per cent increase compared with a year ago, according to figures from Refinitiv.
Still, international tensions could complicated deals. Following an announcement by the US Securities and Exchange Commission last week, as many as 270 Chinese companies listed in New York, including Hutchmed – a biopharma group in which Baring owns a stake – face being delisted in three years unless they comply with a 2020 law that requires them to hand over detailed audit documents. Beijing has refused to grant the US access to Chinese financial audits.
The deal values BPEA at a multiple of its forecast 2023 earnings “at the lower end of the mid-teens”, Sinding said. EQT allocates all its management fee income, but just 35 per cent of its carried interest, to shareholders. The BPEA business will follow the same model, he said.
EQT expects the deal to close towards the end of this year. It is still the subject of a market abuse investigation by Swedish regulators after a controversial $ 2.7bn share sale by top executives. EQT said when the investigation was opened that it believed it had “handled the timing of announcing the insider information correctly”.