The Asian PE market presents significant opportunities through minority investments, with nearly 60% of all disclosed PE investments tracked by Preqin since 2000 structured as minority deals. PE deals in Asia range from substantial minority growth investments in collaboration with founders, to small minority investments in technology and e-commerce giants. High profile examples of the latter category include Ant Financial in China, and Jio Platforms in India, which received significant PE investment in recent years. Partial exits by controlling PE investors who bring in new PE or other financial investors as minority shareholders, whether in single assets or in sector-focused platform assets, also form a key part of this ecosystem, demonstrating the wide range of minority deal opportunities available.
A number of factors set the Asian market apart from Europe and the US, notably the higher percentage of family-owned and controlled businesses. Heavy reliance on the personal networks established by founders makes shareholders less likely to fully relinquish control. In addition, certain jurisdictions restrict foreign ownership, preventing the outright sale of businesses to overseas investors. Sponsors are viewed more as strategic partners to improve corporate governance, unlock access to international markets, and provide expertise on M&A strategies and exit opportunities.
For Asian transactions involving a partial stake sale, navigation of future liquidity rights for both the seller and incoming investor is critical. A seller must be willing to strike a balance between its desire to control its ultimate exit and the incoming investor’s exit return expectations, given its higher acquisition cost. As seen on recent deals, such balance could result in return hurdles for a seller-driven exit and/or the seller’s ability to sell its balancing stake to third-party investors without an exit by the incoming investor. In the latter case, the parties will need to consider the extent of any restrictions on the identity of such third parties and the rights which third parties will acquire through their investment as compared to the exiting seller.
Also relevant is how partial-stake sales can impact management incentives — Should the partial exit trigger any payouts? Should existing award terms be amended? And/or should additional incentives be granted, with updated KPIs or payout hurdles to reflect the incoming investor’s entry price?
We expect minority deals and partial exits to remain prevalent in Asia. Creatively accommodating different interests within liquidity and exit rights will continue to be a key early component of successful deals.
The authors would like to thank Jacqueline Girvan for her contribution to this article.