KKR & Co said it is taking over Taiwanese company LCY Chemical Corp (李長榮化工) in a deal valued at NT$47.8 billion (US$1.56 billion), as the global buyout firm seeks to make additional majority stakes purchases in Greater China.
A consortium led by New York-based KKR agreed to acquire all of LCY’s shares for NT$56 each, a 17.3 percent premium compared with Friday’s closing price, a press release said.
The transaction is expected to be completed in the fourth quarter of the year, subject to regulatory approvals. LCY would be delisted after the deal, it said.
The transaction is KKR’s second in Taiwan since it purchased US$230 million of convertible bonds in Yageo Corp (國巨) in 2007. KKR’s attempt to then take over the electronic-parts maker was rejected by regulators in 2011.
“Taiwan isn’t frequently the most focused-on market for private equity [PE], but we do see other firms assessing opportunities here,” KKR’s Greater China chief executive officer Paul Yang (楊文鈞) said in an interview. “We may be lucky to have one of the first privatizations across the finish line, but we do expect PE activity to pick up in the next two to three years.”
The LCY transaction is part of KKR’s drive to achieve a balance of control and minority deals in Greater China, Yang said.
Private equity would be increasingly attracted to “hidden champion” Taiwanese companies in lower-profile and specialized industries, such as the chemicals sector in which LCY is a leader, he said.
“This is significant for KKR because we’re returning to Taiwan,” Yang said. “China accounts for a significant portion of our Asian portfolio, but there’s greater scope to focus on Taiwanese opportunities. This transaction adds a different dimension to our Greater China portfolio.”
Yang sees opportunities to invest in mid-cap companies in Taiwan with US$2 billion to US$5 billion market capitalization, citing strong cash flows, reasonable valuations and a favorable financing environment in Taiwan.
Global investors have faced challenges disposing of their holdings in Taiwanese companies in the past few years. Carlyle Group finally got approval to sell its stake in Eastern Broadcasting Co (東森電視) in January after previous attempts were unsuccessful, while MBK Partners Ltd faltered in attempts to offload its holding in cable television operator China Network Systems Co (中嘉網路).
“In previous years, the PE community has been extremely focused on the process of getting exits and deals approved,” Yang said, adding that Taiwan has been overlooked because of challenges related to investing in and exiting certain regulated industries.
The KKR-led consortium, which includes LCY employees and LCY founding family members, plans to help the Taipei-based firm expand in international markets through mergers and acquisitions. LCY has production plants in Taiwan, China and the US, the release said.
“Many of these companies are family-controlled and are beginning to explore opportunities to expand their geographic coverage, broaden their portfolios and elevate their business to a higher level globally,” Yang said. “A lot of these companies are cash-rich, so the need for capital is secondary. They are realizing that a global partner can help them to become more visible in their industry.”
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