Asia’s now producing its own private equity champions

By Paul Mackintosh - 27/01/14

One of the more legendary Asian buyouts of recent years seems to have reached an appropriately ringing conclusion with the sale of South Korea's Oriental Brewery (OB) by KKR & Co and Affinity Equity Partners to its original vendor, Anheuser-Busch InBev, for US$5.8 billion. That kind of figure looks likely to set exit scoreboards ringing and records falling. This exit alone already has a ticket close to the entire size of KKR’s recently closed $6 billion second Asia fund.

Commentators who dismiss Asia Pacific as still a secondary market in global private equity are likely going to have to think very hard after this result. After all, it’s not often in any market that a single sale delivers a price tag close to the latest fundraising push by a global name-brand player. You couldn’t wish for a clearer and better demonstration of investing and exiting both in the same market.

The deal does have its own curiously self-reflexive aspect, though. Under the original sale arrangement in 2009, Anheuser-Busch InBev had an option to buy back the asset, for a price calculated then at around 11 times earnings before interest, taxes, depreciation, and amortization (EBITDA), according to Reuters. The fact that the sale has delivered a multiple of over three times the original $1.8 billion purchase price is partly a testament to the success of as owners KKR and Affinity, who have built OB’s business and revenues to the point where it has displaced its key rival Hite as the number one brewer in the Korean market and built a commanding lead in profitability. Even if asked to pick up such a huge tab, Anheuser-Busch InBev probably has few regrets about the quality of the asset it’s buying back.

The transaction also vindicates more than just the viability of the Asian buyout market. It demonstrates that even in Asia, private equity firms can genuinely build value and act as solid operational managers. There are few ways that KKR and Affinity could use smart financial engineering to create such value for a smart industry buyer like Anheuser-Busch InBev – and there are no signs that they did anything but build the business.

It also vindicates the standing of Affinity. Under KY Tang and with the help of a sterling Korean team, Affinity has once again demonstrated that it is among the few select Asian firms that can stand shoulder-to-shoulder with the likes of KKR. Asia not only looks to be producing its own deals and exits of the same stature as Western markets; it really does now seem to be producing its own private equity champions too.