TPG, the US private equity firm, has agreed an unusual share-swap deal with Northstar Pacific, an Indonesian buy-out group, to improve its access to the lucrative south-east Asian market.
Under the deal, the Indonesian group will take a stake of less than 5 per cent in TPG, which will then get a 10-20 per cent interest in Northstar. The novel nature of the transaction in the private equity sector highlights the scramble for new horizons after a tumultuous few years for the industry.
In 2007, at the peak of the buy-out bubble in the US, many private equity groups paid a steep price for companies they bought, lulled into complacency because of the cheap debt they used to finance investments. Now, many of these acquisitions are struggling to repay the debt as their cash flow weakens.
TPG is in worse shape than many of its rivals because it struck some of the biggest deals during the boom times and some of the companies it owns struggle to cope with their debts.
The tie-up with Northstar will give TPG the advantage of doing deals in south-east Asia at a time when investors are extremely bullish about the region, although virtually none of its peers, other than the UK’s CVC Capital Partners, has a record there.
For its part, Northstar will gain access to TPG’s operational expertise, fundraising machine and the ability to pursue larger corporate prey.
“All firms are shifting resources from the west to the east,” David Bonderman, TPG’s co-founder, told the Financial Times. “Over the long term, because of the high growth, people figure that Asia is a better place to invest.”
Indonesia is a compelling market but one where local connections are critical, and most investors lack such ties. KKR and Blackstone have not done deals there, while Carlyle lost out on a bid to buy a stake in GarudaFood.
TPG and Northstar have had a long and lucrative history of investing together. They combined to buy a controlling stake in Indonesia’s Bank BTPN in 2008.
Patrick Walujo and Glenn Sugita, the founders of Northstar, have close ties with Tim Dattels, a senior partner of TPG, from his days at Goldman Sachs in Hong Kong in the 1990s.
Ashish Shastry, TPG’s star Singapore partner, will join Northstar and serve as a bridge to TPG. Mr Walujo and Mr Sugita will become senior advisers to TPG.
Other private equity firms have taken strategic stakes in rival financial institutions to gain access to emerging markets, as Blackstone did with Pátria in Brazil a year ago. But the cross-investment between TPG and Northstar represents a new template, showing how much leverage young financial entrepreneurs who have established their own firms now have.
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