Permira explains why it bought Hong Kong’s Tricor

The private equity firm is looking to grow this cash-generative business via acquisitions, justifying the steep valuation it paid to fend off Vistra and Link.

Permira is looking to take its recent acquisition, Hong Kong-based Tricor, and bolt on more purchases in the highly-fragmented business services industry in the region, executives at the private equity firm told FinanceAsia.

“It is still a very fragmented market both in Asia and beyond, and we think there is an opportunity to build the business through M&A,” said Robin Bell-Jones, a partner at Permira in Hong Kong during an interview.

This would not be alien to Tricor’s corporate culture as the firm was created through a series of spinouts from the Big Four accounting firms.

Permira bid for TMF Group which was founded in the Netherlands in 1988 earlier this year but the business services firm is now targeting an IPO when it did not get the price it wanted.   

Permira said on Wedneday it was buying all of Hong Kong-based Tricor Holdings for HK$6.47 billion ($835 million). The acquisition includes at least HK$400 million (about $50 million) in cash at the firm.

This equates to a steep valuation of about 15 times Tricor’s Ebitda of $55 million in 2015, which saw off rival bidders Vistra, owned by Baring Private Equity Asia, and Link - even though they were factoring in synergies, according to people familiar with the auction.

“It clearly was a highly competitive process but at the end of the day that speaks to the quality of the business,” said Bell-Jones.


The private equity firm is also using leverage provided by banks to finance the deal.

“It is a highly cashflow-generative business with high recurring revenues so we think it can support a strong debt package,” said Bell-Jones, who moved to the Hong Kong office to lead the technology team in Asia in 2012.

Permira can also count on the provider of corporate and investor services in Asia Pacific building outwards organically, as the region is the fastest growing market globally for corporate services.

“Asia has very strong foreign direct investment which drives corporate formations,” said Bell-Jones.

The majority of Tricor’s customers are in the big financial hubs of Hong Kong and Singapore, where typically overseas companies will land as a first port of call in Asia.

“Their growing clients in Asia are looking for increased services … as you increase your headcount in Asian firms the demand for increased payroll services grows,” said Bell-Jones.

Founded in 2000, Tricor has a presence across 20 markets globally and 13 markets in the Asia Pacific region. It typically serves companies with a headcount of a handful of people to 1,000 employees in terms of individual offices.

“It is highly diversified with about 30,000 customers and that points to a very high degree of recurring revenue,” said Bell-Jones.

It offers a range of services across accounting and payroll for SMEs, corporate governance and secretarial services for both listed and unlisted companies, and investor and share registry services.The business has also built a position in the investor services and share registry market in Hong Kong, which is one of the biggest markets globally in terms of new listings.

Robin Bell-Jones sees growth at Tricor

For the financial year ended December, 2015, Tricor reported net asset value of HK$1.992 billion, profit before tax of HK$353.1 million and net profit after tax of HK$292.8 million.

To be sure some multinational companies are scaling back in China as the world’s second-largest economy slows. “If companies are looking to be more asset-light then it exactly plays to the trends in this market, because they won’t look at hiring people internally,” said Bell-Jones.  At the moment China only represents about 10% of Tricor's sales.

Tricor expects continued growth from an increase in demand for its services in Asia, as more businesses outsource services due to a continual increase in reporting complexity and regulation.

“Across the globe, one of the real drivers of this market is ever increasing demand by customers to outsource corporate services due to increasing complexity and regulation and that is starting to accelerate in Asia,” said Bell-Jones.

Picky Permira

This is only Permira’s sixth deal in Asia, but it tops up their equity investment in the region to over $3 billion. The European private equity firm's lastest investments in China are Galaxy Entertainment Group, a casino operator in Macau, which it cashed out of in 2012 and fixed satellite services operator ABS which it still owns. 

Permira has invested in other financial and professional services businesses around the world including the US’s LegalZoom as well as in Europe, wealth manager Tilney BestInvest and receivables manager GFKL Lowell. Last month Permira said it was buying German payrolls firm P&I.

The private equity firm is buying Tricor from Bank of East Asia and port operator NWS Holdings, the sellers said in a statement on Wednesday. BEA and NWS Holdings hold 75.61% and 24.39% respectively.

“With the completion of this disposal, the bank will be even more focused to build on the long-term value of the bank’s unique and differentiated franchise,” said David Li, BEA’s chairman and CEO, in a statement.

Hong Kong’s largest independent local bank, BEA, is expected to book a profit of approximately HK$3.1 billion on the back of the disposal.

Permira was advised by HSBC and Freshfields Bruckhaus Deringer. Goldman advised BEA.

Linklaters' team including Hong Kong partner and head of corporate Robert Cleaver, managing associate Johanna Leung, and associates Ginny Ng and David Liu, provided BEA with legal advice.

This article was updated to add TMF plans an IPO

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