New Life for Private Equity

AmCham Taipei’s Private Equity Committee suspended operations in late 2017 in frustration over the difficulty PE firms were facing in Taiwan in gaining approval for investment applications. In a number of cases over the previous six years, investment plans by PE companies had been either rejected outright or stalled so long that the prospective investor withdrew.

But while the Committee took a breather, members of the PE community did not abandon their interest in the Taiwan market. Continuing to regard Taiwan as offering excellent investment opportunities, PE firms last year proceeded with two new cases to test the waters.

In the end, both projects received government approval. In the larger case, a consortium led by KKR & Co. was permitted to take a majority share in Taiwan’s LCY Chemical Co., a leading petrochemical producer, in a deal estimated to be worth US$1.56 billion. The principal original owners, the Lee family, will retain a minority stake. Although LCY will be delisted from the Taiwan Stock Exchange to facilitate the reorganization process, KKR gave the Investment Commission assurances as a condition of the approval that the chemical company would not later be listed on the Hong Kong or Chinese exchanges.

In the second case, Morgan Stanley Private Equity Asia and associated firms acquired a controlling interest in medical device manufacturer Microlife Corp. for about NT$9.3 billion (about US$302 million).

Both instances avoided certain areas of sensitivity that might have contributed to derailing proposed PE investments in the past. They did not touch on media enterprises, politically controversial businesspersons, or any hint of money from China, for example.

Even more importantly, however, the government’s basic attitude toward PE investment appears to have changed as a result of the numerous discussions between officials and the investment community, including the AmCham PE Committee, over the past several years. Previously the government appeared wary of PE involvement, viewing it as too short-term and opportunistic.

But more recent public remarks by high-ranking officials have recognized the value that PE investment can bring to the Taiwan economy, aiding in industrial upgrading, innovation, and the expansion of global markets. Given the large amount of capital available in Taiwan, the monetary investment per se is less significant than the guidance PE experts can offer in improving management efficiency and forging links for Taiwanese companies with prospective strategic partners around the world.

A particular area of opportunity lies in the many family-owned enterprises in Taiwan in which the children or grandchildren of the elderly founder have no interest in taking over the running of the company. PE firms can help install professional management, while enabling the family members to continue to profit from a stake in the company. Without such reorganization, the future of many sound enterprises in Taiwan will be at risk.

In response to the favorable new environment, the AmCham PE Committee has decided to reactivate. Its members are convinced that with the benefit of infusion of PE funds, Taiwan can once again become a prime destination for foreign direct investment in the Asia Pacific.

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