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EQT/BPEA: Asia deal boosts global ambitions for Swedish private equity

Do falling Asian stock and bond markets improve the region’s appeal to private investors? Swedish buyout group EQT thinks so. It is paying €6.8bn in cash and stock for Baring Private Equity Asia. BPEA has nearly €18bn of mostly buyout-related assets. That will expand EQT’s position in a region whose widening opportunities are luring foreign alternative asset managers.

Asia’s corporate landscape is similar to Europe’s a few decades ago. Undervalued public companies are plentiful due to an abundance of family ownership and outdated crossholdings that keep public market investors away. Private equity buyouts in Asia hit a record high last year, $106bn. This deal for BPEA shows that EQT aspires to catch up with US rivals like KKR and Blackstone.

BPEA puts it in the top league in Asia. BPEA is still raising funds for its eighth flagship fund. It has reportedly raised $8.5bn already and is likely to surpass the $10bn mark, which is sizeable for Asia. Compare that with KKR having raised $15bn for its Asian Fund IV and local rival Hillhouse Capital with $11bn.

EQT will fund the purchase with €5.3bn of stock and €1.5bn of cash. Existing shareholders will be diluted by 16 per cent but the deal adds to earnings immediately. An eight per cent rise in EQT shares after the deal’s announcement reflects the market’s optimism.

The deal looks pricey at first glance on 32 times 2021 ebitda, well above the 23 times EQT paid for real estate manager Exeter early last year. But that should fall to between 10 and 15 times combined ebitda, based on BPEA’s 2023 earnings, on completion. That growth is in line with the 25 per cent average annual increase in assets under management over the past two years.

Valuations for listed buyout groups have fallen sharply this year. The prospect of US rate rises points to a slowdown in investment activity. In Asia, record amounts of dry powder and plentiful opportunities in Asia mean the secular trend may override the cyclical one.

The Lex team is interested in hearing more from readers. Please tell us your take on this deal in the comments section below. Is this good business for EQT?

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