KKR-led group acquires Taiwan's LCY Chemical Corp for $1.5 billion

KKR & Co said it is taking over Taiwanese company LCY Chemical Corp in a deal valued at NT$47.8 billion ($1.56 billion), as the global buyout firm seeks to make additional majority stakes purchases in Greater China.

A consortium led by New York-based KKR agreed to acquire all of LCY’s shares for NT$56 each, a 17.3 per cent premium to Friday’s close, according to a press release. The transaction is expected to close in the fourth quarter, subject to regulatory approvals. LCY will be delisted after the deal, the release said.

The transaction is KKR’s second in Taiwan since it purchased $230 million of convertible bonds in Yageo in 2007. KKR’s attempt to then take over the electronic-parts maker was rejected by regulators in 2011.

“Taiwan isn’t frequently the most focused-on market for private equity, but we do see other firms assessing opportunities here,” KKR’s Greater China CEO Paul Yang said in an interview. “We may be lucky to have one of the first privatisations across the finish line, but we do expect PE activity to pick up in the next two to three years.” The LCY transaction is part of KKR’s drive to achieve a balance of control and minority deals in Greater China, Yang said. Private equity will be increasingly attracted to “hidden champion”, Taiwanese companies in lower-profile and specialised industries, such as the chemicals sector in which LCY is a leader, he said. 

 

 “This is significant for KKR because we’re returning to Taiwan,” Yang said. “China accounts for a significant portion of our Asian portfolio, but there’s greater scope to focus on Taiwanese opportunities. This transaction adds a different dimension to our Greater China portfolio.”

Yang sees opportunities to invest in mid-cap companies in Taiwan with $2 billion to $5 billion market capitalisation, citing strong cash flows, reasonable valuations, and a favourable financing environment in Taiwan.

Global investors have faced challenges disposing of their holdings in Taiwanese companies in recent years. Carlyle Group finally got approval to sell its stake in Eastern Broadcasting Co in January after previous attempts were unsuccessful, while MBK Partners faltered in attempts to offload its holding in cable television operator China Network Systems Co.

“In previous years, the PE community has been extremely focused on the process of getting exits and deals approved,” Yang said, adding that Taiwan has been overlooked because of challenges related to investing in and exiting certain regulated industries.

The KKR-led consortium, which includes LCY employees and certain LCY founding family members, plans to help the Taipei-based firm expand in international markets through mergers and acquisitions. LCY has production plants in Taiwan, mainland China and the U.S., the release said.

"Many of these companies are family-controlled and are beginning to explore opportunities to expand their geographic coverage, broaden their portfolios, and elevate their business to a higher level globally," Yang said. "A lot of these companies are cash-rich, so the need for capital is secondary. They are realizing that a global partner can help them to become more visible in their industry."

KKR is making the investment from its $9.3 billion Asia fund III. Goldman Sachs Group Inc. advised on the deal and will arrange financing for the consortium, the release said.