Private Equity Ain't Dead Yet?

♠ Posted by Emmanuel in at 8/20/2007 10:38:00 AM
You know the spiel: With the spigot of easy money drying up, private equity is falling under hard times as the cost of borrowing heads up, up, up. Well, guess again--it seems the LBO herd is still keen on looking for deals, this time in South Korea for electronics retailer Himart. Fortunately from them, a buyout of Himart shouldn't be exceedingly costly. However, there is entrenched suspicion in Korea about the activities of these firms (good for them!) that may flare up to make a deal unlikely. This story comes care of Bloomberg:
Buyout firms including Blackstone Group LP, Carlyle Group and CCMP Capital Asia may bid for South Korea electronics retailer Himart Co., said three people with direct knowledge of their plans.

Affinity Equity Partners Ltd., Temasek Holdings Pte., Government of Singapore Investment Corp. and Himart's management hired Goldman Sachs Group Inc. to sell the retailer for at least $2 billion, said the people, who declined to be identified because the information isn't public. The Affinity-led group bought Himart for 787.8 billion won ($833 million) in April 2005, according to Affinity's Web site.

The sale may test the willingness of banks to fund buyouts as the global rout in credit markets leads to a slowdown in private-equity acquisitions. Blackstone, Carlyle and CCMP are counting on Asian banks wanting to fund the bids in local currency when international banks are cutting back on high-yield lending because of fallout from the U.S. subprime market.

``Private equity firms shouldn't have a problem raising debt for their acquisitions in the region as long as it's under $2 billion, which is around the amount the Asian banking market can handle without a problem,'' said Paul Mackintosh, Hong Kong- based managing editor of Asian Venture Capital Journal, an industry researcher. ``Asian banks are still eager to lend.''

Blackstone, Carlyle and CCMP are attracted to South Korea's growing retail market. Retail sales are forecast to expand 7 percent to $170 billion this year, according to the Korea Retailers Association, which has 22,000 members. A pickup in household spending may extend the longest economic expansion in a decade for Asia's third-largest economy.

Himart was established in December 1999. It has about 250 outlets nationwide, selling air conditioners, refrigerators, computers and other electronics products. The Seoul-based company reported net income of 87 billion won on sales of 2.15 trillion won in 2006.

The bidders may seek to borrow at least $1 billion in won to fund the acquisition, the people said. The Affinity-led group plans to send out preliminary information to interested buyers before the end of August, the people said.

Tony James, president of Blackstone, told investors Aug. 13 that private-equity transactions are ``clearly harder'' because of tougher financing. Firms have announced a record $717 billion of private-equity transactions worldwide so far this year. The number of deals dropped by a third in July, falling to $87.4 billion from $131.1 billion in June, according to data compiled by Bloomberg.

Tang Kok Yew, chairman of Affinity, declined to comment. Goldman's Hong Kong-based spokesman Edward Naylor declined to comment. Officials at Blackstone, Carlyle and CCMP were either unavailable or declined to comment.

Mergers and acquisitions involving the retail industry in Asia doubled in the first half of this year to $2.2 billion, according to PricewaterhouseCoopers LLP.

Paris-based Carrefour SA and Bentonville, Arkansas-based Wal-Mart Stores Inc. sold their Korean operations last year, after failing to win over local consumers. That leaves Tesco Plc of the U.K. as the only overseas supermarket chain in the country.

Overseas buyout funds and companies have run into difficulties in the past few years expanding or buying assets in South Korea, whose economy has been expanding for 17 consecutive quarters. Private equity and venture capital funds made $139 million of investments in South Korea in the first half of this year, down 82 percent from a year earlier, according to the Asian Venture Capital Journal.

Lone Star Funds, the U.S. buyout firm founded by John Grayken, in June raised 1.19 trillion won ($1.3 billion) selling a minority stake in Korea Exchange Bank, seven months after scrapping the sale of its controlling interest. In November, Lone Star scrapped a planned $6.8 billion sale of a controlling stake of Korea Exchange to Seoul-based Kookmin Bank amid a series of stock manipulation investigations, which Grayken said were driven by an ``anti-foreigner'' political climate.

``Overseas buyout funds haven't been able to make much inroad in the South Korean market in the past couple of years because of rising nationalism,'' Mackintosh said. ``It's in most politicians' interest to keep this up until the next election and foreign buyout funds are an easy target.''