Deals

Nisha Gopalan is a Bloomberg Gadfly columnist covering deals and banking. She previously worked for the Wall Street Journal and Dow Jones as an editor and a reporter.

Let's face it, some of Asia’s most hotly contested asset auctions in recent times have been for pretty boring businesses. The latest is Wharf T&T, a company that provides the internet plumbing for many of Hong Kong's offices.

Private equity firms MBK and TPG clinched a HK$9.5 billion ($1.2 billion) agreement to acquire the company, seller Wharf Holdings, one of the city's oldest conglomerates, said Tuesday. They fended off rivals including KKR and even corporate bidders that tend to pay more than private equity firms focused on returns. The buyers are paying 12 times Wharf T&T's 2015 Ebitda of HK$770 million.

At a time of low interest rates and yields, utility-like businesses with steady returns have never been more popular, especially with private equity firms sitting on record amounts of dry powder in Asia. Private equity investments in the region hit record levels last year, but with so much capital still to be deployed, spending is likely to be even higher in 2016. 

Under the Gun
Private equity firms are under pressure to invest more in Asia even after deals reached a record last year
Source: Bloomberg

The attraction of Wharf T&T, which has more than 50,000 enterprise clients, is its focus on businesses rather than homes. The company may not be Hong Kong's biggest broadband provider to companies -- PCCW's HKT unit has more than half the market -- but the business is sticky. Firms don't tend to change internet providers or servers in the same way that households do. Wharf T&T's free cash flow surged 18 percent last year to a record HK$450 million and its Ebitda margin was 39 percent. Little wonder the auction was so keenly fought.

It's not the only Hong Kong asset attracting heated interest. Bank of East Asia, a target of activist hedge fund Elliott, is selling its corporate registry business Tricor. British private equity firms Permira and CVC, Barings Private Equity Asia (which owns Tricor competitor Vistra), and even Chinese insurer Ping An are said to be among the bidders. 

Corporate registry is hardly a term to set the pulse racing, but anyone curious to see how these types of businesses are doing need look no further than Amsterdam-based Intertrust. Shares of the Dutch professional services company, owned by Blackstone, trade at 180 times reported earnings and have jumped 39 percent in the past 12 months. 

While Wharf T&T doesn't have publicly traded competitors that are directly comparable, bidders may have been looking at the example of HKBN, a more residential-focused internet provider. CVC took HKBN public last year in a HK$750 million initial public offering that valued the business at an 80 percent premium to what it paid. HKBN is trading at 86 times earnings (though is little changed since its March 2015 debut).

Hot Competition
Average multiples of private-equity-backed deals in Asia-Pacific surged 18 percent to 17.8 times enterprise value/Ebitda last year
Source: Bain's Asia-Pacific Private Equity Report 2016

With the region's growth slowing, private equity firms are desperate for targets that can reap instant returns. That means cash-flow-generating companies have become all the more alluring, regardless of the sector. Bain concluded in a study this year that Asian firms are indeed attracting higher multiples.

Boring has never looked so hot.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Nisha Gopalan in Hong Kong at ngopalan3@bloomberg.net

To contact the editor responsible for this story:
Matthew Brooker at mbrooker1@bloomberg.net