Deals – March 2007

Carlyle invests in Indian outsourcing company * SIDBI, Clearstone finance Indian start-up * Merrill Lynch, PEP approach Australian credit company * Catalyst buys stake in catalogue firm * Bain Capital enters China real estate * Orchid Asia lists portfolio company * Private equity circles JVC * Vogo advances toward third deal * PMP ends talks with private equity * PEP's $1.3bn take-private grounded * Coles up for grabs

Carlyle invests in Indian outsourcing company
Washington DC-based Carlyle Group has acquired a 27.65 percent stake in India-listed business process outsourcing company Allsec Technologies. The firm first invested in Allsec in August last year when it bought 3 million shares – representing a stake of about 20 percent – in a transaction worth $17 million. Carlyle then followed up by offering to buy more shares in the open market. Daniel D’Aniello, co-founder of the private equity group, and Shankar Narayan, managing director and head of Carlyle’s growth capital India team, have joined Allsec’s board of directors. “This is the first time that any of the three founders of the Carlyle Group has joined the board of an Asian company,” said Jagadish Ramamoorthi, founder and chief executive officer of Allsec. Allsec will use the investment for acquisitions in the nonvoice, business process outsourcing space in the US, UK,Australia and India.

SIDBI, Clearstone finance Indian start-up
SIDBI Venture Capital, an India-focused venture fund manager, and Clearstone Ventures, an early-stage venture capital firm, invested $1.5 million and $5 million, respectively, in DGB Microsystems, an Indian mobile device designing and manufacturing start-up, in late January. DGB’s founder and associates have also invested $2 million, bringing the total funding to $8.5 million. This investment is SIDBI’s second round of financing in the Chennaibased company, Ajay Kapur, chief executive officer of SIDBI Venture, told sister publication PrivateEquityOnline. The firm invested $3 million nine months ago as sole investor.

Merrill Lynch, PEP approach Australian credit company
Merrill Lynch Global Private Equity and Sydney-based Pacific Equity Partners approached Australia-listed credit checking company Veda Advantage with a take-private proposal to buy the company at A$3.51 ($2.79; €2.15) per share in late January. The offer, which values the firm at about A$823 million – represents a 32 percent premium to Veda Advantage’s threemonth volume weighted average price up to the close of trading on January 29, one day before the consortium informed the exchange of the buyout proposal. Veda Advantage said there was currently no proposal the board could consider recommending to its shareholders (see p. 18).

Catalyst buys stake in catalogue firm
Sydney-based mid-market private equity firm Catalyst Investment Managers invested A$50 million of equity in apparel and home décor catalogue company EziBuy in February. Catalyst bought the 43.5 percent stake from New Zealand-based private equity firm Direct Capital. Direct Capital invested in the company in September 1999. Catalyst also acquired shares from Australian direct retail and marketing company Direct Group, as well as from a few individual investors. Peter and Gerard Gillespie, Ezibuy’s founders, will continue to be majority shareholders in the company and will remain on the board of directors. The Gillespie brothers founded the business in New Zealand in 1978 and expanded it to Australia in 1992.

Bain Capital enters China real estate
Bain Capital has invested $60 million for a minority stake in the Jinsheng Group, a Chinese mall operator and real estate developer based in Nanjing. CBL & Associates, a US mall developer, joined Bain in the deal. Jinsheng Group owns and operates two home décor shopping malls and two shopping centers in Nanjing, as well as two home décor shopping malls in Shanghai.

Orchid Asia lists portfolio company
China-focused private equity firm Orchid Asia listed portfolio company Wuyi International Pharmaceutical Company on the Hong Kong Exchange and has seen its investment triple, Gabriel Li, managing director of Orchid, told PrivateEquityOnline in February. The firm will not be able to realise its investment until early August at the earliest, Li said. Orchid Asia invested $18 million for a 9.5 percent stake in Wuyi, a manufacturer and seller of branded prescription and over-the-counter western pharmaceuticals and modern Chinese medicine products. The investment came from Orchid Asia III, a $181 million fund that closed in 2005.

Private equity circles JVC
Permira, Texas Pacific Group and CCMP Capital Asia are thought to be considering the purchase of JVC from Japan’s Matsushita Electric Industrial, which also owns rival electronic brand Panasonic.

“One of them has actually submitted a bid while the other two are very interested,” Reuters quoted unnamed sources as saying.

JVC’s management has also been exploring a buyout with US private equity firm Cerberus, according to a Reuters report in December.

Matsushita, which owns 52.4 percent of JVC, is considering trimming its $640 million stake in the loss maker famed for pioneering VHS-format videocassette recorders.

On 28 February, a spokeswoman from JVC indicated that nothing has been decided.

Japan’s Asahi newspaper said Matsushita may select a preferred bidder soon.

Vogo advances toward third deal
South Korean buyout firm Vogo is advancing toward finalising a $65 million investment in Reigncom, a manufacturer of digital devices sold under the IRiver brand.

Jason Shin, a co-founder in Vogo, told PEI Asia the firm reached an agreement in January to acquire a controlling stake of 37 percent in Reigncom.

Under the transaction, Vogo will inject fresh capital into the company, whose founder will retain a 12 percent stake.

Shin said: “We started looking at the company since May of last year, and we wanted to see if the management was capable of restructuring the company, as well as diversifying its product range beyond production of MP3 players.”

In 2006, one-third of Reigncom’s revenue came from sales of electronic dictionaries. Previously a market dominated by Japanese manufacturers Sharp and Casio, Reigncom achieved a 25 percent market share in its first year of sales, Shin said. Two-thirds of the company’s revenue resulted from the sale of MP4 players.

In December,Vogo acquired a one-third stake in Novita, a manufacturer of household appliances such as bidets, telephones and humidifiers, for KRW33 billion.

PMP ends talks with private equity
PMP, a listed Australian printing company, has ended talks with a private equity firm about a potential change in the company’s ownership, the firm said in a filing with the Australian Stock Exchange, nearly a year after it was first approached by a financial sponsor.

“PMP has over the past period facilitated legitimate private equity approaches in the interests of shareholders, including providing access to detailed financial and business information for due diligence purposes,” said the filing.

PMP’s board, after consultation with external advisers, have decided that it would not back a proposed indicative offer of A$1.95 to A$2.15 a share in a transaction that valued the company at up to A$642.2 million.

The price range, according to Graham Reaney, PMP chairman, “did not represent an appropriate value for the company”.

PMP has not identified the private equity firm it held discussions with, but Pacific Equity Partners and CHAMP Private Equity have been named as possible suitors by various media reports.

PEP‘s $1.3bn take-private grounded
Pacific Equity Partners was blocked in a A$1.62 billion ($1.28 billion) attempt to privatise Flight Centre by Lazard Asset Management, a major institutional shareholder of the listed Australian travel agent.

This came after an independent expert report in January recommended the company accept the take-private proposal from PEP.

The proposed take-private needed 75 percent of eligible shareholders’ vote of approval. Lazard Asset Management, which declined to back the offer, controls more than 25 percent of the shares.

“Only one investor has caused the issue and that’s Lazard, which has a blocking stake,” Flight Centre chief executive Graham Turner told Bloomberg in an interview. “The rationale, at least officially, is that the offer wasn’t high enough.”

PEP expressed disappointment at the anticipated outcome a day prior to the minority shareholders’ vote on 28 February.

Coles up for grabs
Australian retail giant Coles appears to be up for grabs again after lowering its future earnings forecast ten percent from the level announced in September last year.

In October, Coles rejected a revised A$18.2 billion ($13.8 billion) takeover offer proposed by a private equity consortium comprising Kohlberg Kravis Roberts, The Carlyle Group, CVC, Texas Pacific Group and The Blackstone Group.

In its latest stock exchange filing, the company said it would “commence a process to review ownership options for the company and its businesses.” The company now expects sales and earnings in supermarkets and KMart for the financial year 2008 to be approximately 10 percent lower than the A$1.066 billion net profit estimate given in previous guidance.

Rick Allert, Coles’ chairman, said the decision to start reviewing ownership options was prompted by “a number of informal approaches to its advisers in recent weeks”. The Coles board is advised by Carnegie Wylie & Company and Deutsche Bank, which have valued the retailer “substantially above A$15.25 per share” – which was the price offered by the consortium in its latest bid.