There was an audience stampede for the exit at the recent Asia Private Equity Forum when the next topic on the schedule was “Regulations – an update on regulatory and tax changes”.
However, Brian Schwarzwalder, a partner in the private equity practice of Ropes & Gray in Hong Kong, saved the day by going off-topic and offering some delving insights into the current private equity market.
He notices that the consolidated annual growth rate of private equity deals from 2007 to 2009 in North America is 66%, in Europe 62%, and in Asia 32%. Asia loses out, then, in spite of being the perceived super-avatar of global growth, which seems rather surprising.
So what then does he think will drive Asian private equity?
“There’s a lot of dry powder to be deployed and an increasing number of Asia-focused private equity players,” he said. “We will likely see more competition from strategic investors and public markets, plus more availability of leverage. However, there needs to be flexibility with deal structuring in order to produce more competitive bids in Asia.”
He pointed out (on the basis of an equity contribution of about 30-40%) that in Australia today, banks will provide private equity financing of 4.0 to 4.5 times Ebitda, those in Japan 5 to 6.5 times Ebidta and in other regional deals in sizes of up to 7 times Ebitda.
For investees who are planning to ask their private equity financier to build them a gold-plated Jacuzzi, or for private equity financiers who want a private kick-back in return for a sanctioned investment, Schwarzwalder advises caution in all matters corrupt on the back of legislative tightening. These laws weren’t concocted by any Asian legislature, but from the holier-than-thou West.
The Foreign and Corrupt Practices Act (FCPA) Enforcement Unit took shape a year ago, he notes. “The UK’s Anti Bribery Act will become effective in April 2011, and the scope of that Act is even broader than that of the FCPA.”
With legal teeth like this, Britain is leading the way (at least on the basis of the pre-enactment spin) towards eliminating back-door impropriety and book-cooking malfeasance in Asia.
It also emerges that ‘Schwarzwalder’ actually translates as ‘Black Forest Gateau’ in English (a perennial pudding buffet favourite), though he neglected to mention this to the audience.