By Marvin Stenersen (Stockholm School of Economics)
Photo: Tim Trad (Unsplash)
With deal volume growing in Asia, EQT has decided to expand its operations in the region by acquiring HK-based Baring Private Equity Asia. This will add close to €18 billion in AUM to the Swedish PE firm and significantly expand its presence in the region. The deal is valued at €6.8 billion and consists of 2 million new ordinary EQT shares, and €1.5 billion in cash. The deal closed on the 18th of October 2022.
Overview of EQT
EQT is a leading PE investor based out of Sweden, founded in 1994. They are a purpose-driven global investment organization with close to three decades of consistent investment performance across multiple geographies, sectors and strategies. They aim to generate attractive returns and future-proof companies.
They have a thematic and sector-based approach. They follow select themes such as Health & Wellbeing and seek investments in those. Furthermore, they have a focus on select key sectors in Private Capital and Real Assets. They have a total of €73.4 billion AUM pre-transaction, and post-transaction this will amount to over €90 billion.
They have a “locals-with-locals” approach where they focus on building long-term relationships between EQT, private owners and companies. According to EQT, their geographical presence in Europe, the Americas and APAC thus allows the investment organization to combine extensive local knowledge and cultural understanding with deep global sector expertise.
Overview of Baring Private Equity Asia
BPEA was founded in 1997 and has been focused on investing in the Asia region. They add value by working “hand-in-hand” with their portfolio companies, “providing capital for expansion, recapitalization, or acquisitions, in order to grow their business for the long-term.”
BPEA have significantly outperformed public markets in Asia by an average of 15% compounded annually. They have around €18 billion in AUM, and will add management fees to EQT of around €350-375 million for 2022 according to Cision.
According to Cision, the combination with BPEA provides a chance for EQT to grow its presence in Asia and ideally positions them to execute on the structural growth opportunity in the Asian private market. The deal is expected to be accretive to EQT’s EPS immediately and a strong strategic combination that leads to broader client access for the EQT platform.
BPEA have had success in the region with an AUM growth of 25% since 2019, and an outstanding 2.6x realized gross MOIC since their inception. According to EQT management, the culture of BPEA is aligned with EQT’s core values, ensuring a smooth integration going forward. Furthermore, it will significantly boost EQT’s real estate portfolio in the sector.
EQT’s digitalization, sustainability and thematic investing “toolboxes” will accelerate BPEAs' value creation ability in the Asia region, in addition to improving the ability to identify value creation opportunities by leveraging both firms' strong brands.
The combined EQT footprint in Asia will consist of more than 300 FTE+ across 9 regional offices, creating a large-scale Pan-Asian platform. EQT will have more than €20bn of invested AUM in Asia across Private Capital and Real Assets.
Risks and Uncertainties
Short term: there are uncertainties in the region, in particular as COVID-19 cases grow in Hong Kong and China, however long-term the prospects are promising. In the short-term, the integration may take some time for the duration China’s zero-COVID policy lasts, but EQTs’ increasing digital utilization and BPEAs experience with it will significantly lessen the impact.
Real estate, a small proportion of BPEA’s assets, have performed well historically in Asia, yet with the current real estate situation in China, it is a risk. However, the diversification of BPEA’s assets will lessen any potential impact as China comprises only ~20% of their total investments.
In summary, the deal is set to position EQT well to capture continued growth in the APAC market. While there are uncertainties in the region currently, EQT is committed to it for the long-term potential.
EQT Transaction Overview: EQT AB acquires Barings Private Equity Asia (BPEA)