The Return of Private Equity

Indications from a recent conference are that the welcome mat is back out.

Private-equity financing in Taiwan appears poised to make a comeback. For a time more than a decade ago, leading global PE firms played an active role in the Taiwan market, investing in major deals in such industries as cable television and financial services. Then came a series of high-profile cases in which the investment applications either were rejected outright or dragged on for so long that the PE investor withdrew in frustration, complaining that Taiwan’s investment-approval process lacked transparency. The lingering perception that the Taiwan authorities remained opposed to PE participation in the market led AmCham Taipei’s Private Equity Committee to suspend operations.

Today the outlook looks quite different. Several cases involving substantial PE investment are currently going forward, and many others are said to be in the feasibility-study, due-diligence, or negotiation stage. In the biggest case, a consortium led by KKR & Co. has entered into an agreement to acquire Taiwan’s LCY Chemical Co., a leading petrochemical producer, in a deal estimated to be worth US$1.56 billion. For KKR, it is the first foray into the Taiwan market in more than a decade. In another case currently in the approval process, Morgan Stanley Private Equity Asia and associated firms are seeking to acquire a controlling interest in medical device manufacturer Microlife Corp. for about NT$9.3 billion (US$318.6 million).

Industry observers are optimistic that these investment applications will not encounter serious obstacles. The cases appear non-controversial, free of the various issues that complicated previous applications, including involvement in politically sensitive industries such as the media and the financial sector. Moreover, the government has recently made an effort to encourage more private equity interest in this market as a means of boosting the low level of foreign direct investment entering Taiwan in recent years.

An example of that welcoming attitude was the forum held on September 14, organized jointly by the Ministry of Economic Affairs (MOEA) and the American Institute in Taiwan (AIT), with support from AmCham Taipei and the U.S.-Taiwan Business Council. The title of the event – “Private Equity in Taiwan: A Pathway to Growth” – was itself indicative of the new positive view of PE. And the government speakers – MOEA Deputy Minister Kung Ming-hsin, National Development Council Deputy Minister Cheng Cheng-Mount, and Financial Supervisory Commission Vice Chairperson Huang Tien-mu – all stressed the value that PE investment could bring to the Taiwan economy, aiding in industrial upgrading, innovation, and expansion of global markets.

At the forum, AIT Director Brent Christensen poses with Deputy Economic Affairs Minister Kung Ming-hsin.

In the main presentation at the forum, Andrew Hawkyard, chief operating officer for Morgan Stanley Private Equity Asia, noted that in recent years Taiwan has been losing out on the huge investment opportunities offered by PE. Some US$225 billion in investment funds are based in Asia, not to mention the global funds that can also be invested in this region. Yet Taiwan has been near the bottom of countries in Asia ranked by the amount of PE investment.

Hawkyard stressed that unlike the situation of decades ago when PE firms often had the reputation of being corporate raiders, nowadays PE investment is all about growth. The goal is to improve the management of the company being invested in, enhancing its value in order to make a profit when exiting.

The forum brought together U.S. and Taiwanese officials, and local and international specialists in investment affairs.

The conference also included two panel discussions – one of them moderated by Leo Seewald, chairman of BlackRock Taiwan and vice chairman of AmCham Taipei – with panelists from among local industry leaders. Some of the key points raised by the panelists included:

  • With their global reach, PE investors are well-positioned help Taiwanese companies devise new strategies, develop foreign markets, engage in international M&A activity, absorb new technology, and adopt the latest management tools and techniques.
  • Many successful family-run companies in Taiwan face an urgent succession problem. The founding patriarch is now advanced in years and ready to give up the reins, but the younger generations in the family may have no interest in taking over the business. Reorganization in cooperation with PE firms can be the most effective way to ensure a viable future for the company. Family members can benefit from a continued equity stake without having to take responsibility for the management.
  • Attracting more foreign investment through PE channels will help Taiwan cement its international ties so as to better withstand external pressures.

In concluding remarks, AIT economic officer Ryan Engen cited PE’s ability to unlock innovation while protecting investors, in the process facilitating Taiwanese companies’ transition to greater competitiveness.

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