A SLOWDOWN in dealmaking activity has left bankers in Hong Kong scrapping for business, yet one area is buzzing: buyouts of companies listed on the city’s stock exchange.

The latest high-profile case involves L’Occitane International, which is on the verge of ending its 14-year run as a Hong Kong-listed company. Bloomberg News reported this week that billionaire owner Reinold Geiger is nearing a deal to take the skincare company private with funding help from Blackstone.

Other big names include luggage-maker Samsonite International, which is keeping the possibility of a take-private deal open amid interest from the likes of Carlyle Group and KKR & Co, while also considering a dual listing in the US, according to sources familiar with the matter.

China factor

China’s economic difficulties and often strained relations with rivals such as the US are driving the trend because that tension flows directly into Hong Kong’s stock market, which is heavily weighted to the world’s second-largest economy. Many firms listed in the city are trading at a discount to Europe and the US, said Xuong Liu, a managing director at consultancy Alvarez & Marsal.

“We are poised to see a lot more take-private transactions in 2024 and beyond,” said Liu, who is also co-leader of A&M’s transaction advisory group in Asia. “This is just the beginning.”

Hong Kong’s Hang Seng Index is the world’s worst-performing major equity gauge over the past 12 months, sliding 16 per cent, while the S&P 500 has climbed 27 per cent and the FTSE 100 is up about 2 per cent. Japan’s Nikkei 225 has risen more than 40 per cent.

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Hong Kong drew in global businesses in the past because of its connections with China and its enormous potential for growth, but that is “no longer the case”, according to Liu. “They now see more value in other exchanges as they can gain exposure to other global investors.”

Better valuations

Buying out a company in Hong Kong and relisting elsewhere is a chance to fetch a higher valuation, said Richard Griffiths, head of Asia M&A at BNP Paribas.

The appetite for Hong Kong take-private deals is particularly strong when it comes to global brands, Griffiths said, noting that many companies and private equity firms are looking at possibilities.

“While there are still many challenges to overcome, financing is getting more stable and there is a clearer path on interest rates, which have peaked,” he said. “Those factors give more confidence to bidders, which is key for M&A.”

The MSCI Hong Kong gauge is trading at 11.9 times forward earnings estimates, below its five-year average of 15 and Asia-Pacific peers’ at around 14.

Local shift too

Turning to more local and regional firms, ESR Group’s top shareholders are studying options including a take private of the Asian warehouse developer following a slump in its shares, which are down 71 per cent from a 2021 peak. Owners of Hong Kong broadband provider HKBN are deliberating again, including potentially taking the company private or bringing in new investors.

Even Chinese state-owned enterprises (SOEs) listed in mainland China and Hong Kong are pondering taking private the entities listed in the city, according to Samson Lo, head of Asia-Pacific M&A at UBS Group.

“SOEs have cash, financing conditions have improved and valuations are low, so now the timing is good for them to pursue a take private deal,” he said.

For one, China National Pharmaceutical Group said it plans to take Hong Kong-listed China Traditional Chinese Medicine Holdings private.

The process of taking a company private and relisting elsewhere is challenging for Chinese firms without global operations, but it could be the best approach now, with alternative asset managers under pressure to invest, A&M’s Liu said.

“Private equity firms have found it challenging to deploy capital in sizable assets in the last couple of years,” he said. “Some of the Hong Kong-listed entities could be good potential targets.”

Bankers are hopeful they will be kept busy orchestrating such deals.

“We are getting a lot more inquiries from clients for potential Hong Kong take privates,” UBS’s Lo said. “We are likely to continue to see more such deals over the coming quarters. Eventually all the obvious ones – both the global brands and those that belong to an SOE – will get done. It is just a matter of when.” BLOOMBERG