Buyouts

Permira buys Hong Kong’s Topcast amid Chinese tourist boom

The private equity investor sees value in the China-focused aircraft parts distributor as the Middle Kingdom increasingly becomes the engine of growth for the industry. The US-China trade war has not as yet dented sales, helped by gradually maturing fleets.

Private equity firm Permira is to acquire the Hong Kong-headquartered aircraft parts distributor Topcast Aviation Supplies, setting its sights squarely on the Greater China aviation market, the fastest-growing in the world.

Permira is acquiring Topcast for an enterprise value of about $300 million from the company’s two founding families, a person familiar with the matter told FinanceAsia after the announcement on Wednesday.

Chinese tourist numbers continue to swell even if their favourite overseas destinations often vary according to the prevailing fashion and are likely to be moulded by the US-China trade war going forward, a study by broker CLSA shows.

And as these Chinese expand their horizons, so demand for after-market aircraft parts and services looks will expand at a compound annual growth rate of more than 10% across the Asia-Pacific region over the next 10 years. That's according to research by aircraft maker Boeing and Permira’s own due diligence.

“Are Chinese airlines going to continue to buy more and more aircraft? Are the Chinese going to want to travel more? … We’re pretty convinced that that trend is here to stay,” Alex Emery, head of Asia at Permira told FinanceAsia.

Privately owned Topcast doesn't publish its financial results but Permira said its sales have not suffered over the past six months due to the US-China trade war or a recent fall in tourist numbers to Hong Kong due to the territory’s political strife.

“The everyday business of supplying parts to mostly Boeing and Airbus aircraft flying around Asia continues day in, day out,” Emery said.

A case in point is Cathay Pacific Airways, which has drawn increased scrutiny from Beijing due to the participation of its staff in Hong Kong’s anti-government protests. On Wednesday, its chairman John Slosar resigned, less than a month after its chief executive stepped down. 

When asked, Emery said Cathay Pacific was not among Topcast's largest customers.

Asia’s aircraft fleets are younger than fleets in the US but will gradually mature over the next decade, requiring greater maintenance and leading to more business for Topcast, Permira said.  

FAMILY BUSINESS

The European private equity firm is buying shares of the Li and Hung families, who have built Topcast over the past 28 years. Managing Director Thomas Hung and Director of Marketing & Sales Calvin Li will remain with the firm to help manage the transition.

In a similar style deal, Permira bought fish food company Grobest Holdings from two Taiwanese families last year.

Permira is acquiring about 90% of Topcast’s shares, with the rest staying with the Hung and Li families, the person familiar with the matter said.

Topcast connects component suppliers with customers across the aviation industry from airlines and maintenance, repair and overhaul service providers to original equipment manufacturers. Its competitors include Availl, which is owned by Boeing, and Satair, which is controlled by Airbus.

Topcast’s management sees its independence as a key selling point – helping a myriad of component suppliers to place their parts with both Boeing and Airbus.

And one of Permira’s attractions for the sellers was that Topcast would not be subsumed within a larger strategic buyer, with synergies stripped out from the company they founded in 1991, the person said.

Permira also won the auction due to its knowledge of the aviation and value-added distributors businesses. It invested in Swiss aircraft maintenance firm Jet Aviation in 2005. It also invested in US distributer heating systems firm DiversiTech in 2017, as well as in French cybersecurity firm Exclusive Group last year.

HSBC advised Permira and is providing leverage finance while RBC Capital Markets advised Topcast.

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