Private-equity funds beneficial: analysts

Private-equity funds' drive to take over publicly traded firms around the globe will not shrink stock exchanges worldwide and is likely to lead to an initial public offering (IPO) global boom in the next two years, analysts said.

Takeover offers made by private equity shops could provide a premium to shareholders as high as 30 percent to 40 percent and in turn underpin stock prices, Oliver Tant, global head of private equity at KPMG UK, said in a media briefing in Taipei last week.

KPMG organized a forum on the rising power of private equity shops in Taipei last week.

Despite the fact that an increasing number of public companies are being made private after being bought out, this will not impact on stock markets, as private-equity funds seek returns by having those firms listed and disposing their shareholdings on the public market again, he said.

David Nott, KPMG Transaction Services' Asia-Pacific head, forecast the scale of IPOs around the globe over the next two years could exceed that of the past decade.

Private-equity shops raise funds on the private market from interested parties like institutional investors and pension funds. They usually buy majority holdings in companies or entire business units for restructuring.

They delist and make the targets private for restructuring for three to seven years and reap profits by selling the targets on existing capital markets, such as stock exchanges.

Private-equity funds have put themselves in the limelight following a series of aggressive acquisition deals, such as Kohlberg Kravis Roberts & Co (KKR) and Texas Pacific Group's (TPG) record US$45-billion leverage buyout of TXU Corp, and Blackstone's US$40-billion takeover of Equity Office Properties Trust.

Transactions that are brewing include KKR and billionaire Stefano Pessina's bid for Alliance Boots PLC for US$19.8 billion and TPG's offer to buy out Iberia Lineas Aereas de Espana SA for US$4.5 billion.

Vince Feng (馮文石), managing director of General Atlantic LLC, said he expects private equity firms to continue to grow and believes no company will be too big for them to take private.

Up to US$400 billion in funds were raised by the private equity industry last year and the rise of mega funds totaling as much as US$20 billion is expected in the future, KPMG said.

As Asian markets become rising investment destinations, private-equity shops are also interested in Taiwan, which has world-class manufacturing and high-technology sectors, Nott said.

Carlyle Group's takeover bid for Advanced Semiconductor Engineering Inc (日月光半導體), the world's top chip packager, for US$5.45 billion, set a record in Taiwan.

Yet the private-equity funds' interest in Taiwan's biggest sectors has raised regulator's eyebrows for fear that heavyweight companies could be delisted, weakening the local capital market and leading to an outflow of investment into China.

Financial Supervisory Commission spokesperson Susan Chang (張秀蓮) cited a report by the UK Financial Services Authority, saying that they are concerned about risks related to private-equity buyouts, including excessive leverage, market abuse and opacity, and conflicts of interests.

"Many countries have noticed the risks and are formulating regulations governing private-equity activities. Taiwan is no exception," Chang said, adding that the authority cares about the impact on shareholders' rights and interests and the overall capital market, and would demand information disclosures in regulating private firms.