Global asset manager Blackstone Group has just reached a deal to acquire China-based cosmetics packaging firm Shya Hsin Packaging on November 10th, 2017. The deal is reportedly worth around $800 to $900 million, although Blackstone is still lining up loan financing of up to $600 million to fund the transaction.
Shya Hsin Packaging is a Taiwanese-owned company founded in 1970 that is based in Kunshan City in southeast China’s Jiangsu province. It specializes in the production of cosmetics packaging containers, such as mascara wands, nail polish bottles, pumps, cream pots, compacts, and pen applicators, among others. The company has clients in China, South Korea, Japan, and Europe, including global brands such as Lancôme, Christian Dior, Clarins, Maybelline, and Avon.
The deal represents Blackstone’s first private equity investment in China since 2014, when it acquired medical devices maker Suzhou Xinrong Best Medical Instrument Co. Ltd.. Currently, the private equity firm is looking to raise up to $3 billion for its first pan-Asia buyout fund, mainly through investments in China, India, Korea, and Japan. The first tranche of investment is likely to be locked in by the end of the year. The fund would be the second largest Asia-focused buyout vehicle of the year, behind KKR’s Asian Fund III, which closed at $9.3 billion in October. The fund will focus on the healthcare, high-end manufacturing, and consumer upgrade sectors, the latter of which refers to goods and services geared to consumers who want to upgrade their lifestyle. As a packaging and manufacturing firm, Shya Hsin fits neatly into this fund.
Blackstone’s previous investments in Asia have been from its global buyout funds, with its most recent being a $17 billion fund in 2015. Although the private equity firm has not invested in China since 2014, it has had experience in the region and throughout Asia. For example, in 2014 it acquired Pactera Technology, an information technology outsourcing and consulting service provider in China. Blackstone sold the company last year to a unit of Chinese conglomerate HNA Group for approximately $675 million in cash, representing a return of more than 1.5X its initial investment. Blackstone’s private equity funds have also invested more than $1.5 billion in India since 2015; for example, it bought a majority stake in Indian IT outsourcing services provider Mphasis Ltd. last year from Hewlett Packard Enterprise Co. in a reportedly $1.1 billion deal.
Blackstone’s deal with Shya Hsin and its debut of its pan-Asian fund follows a recent trend of Asia-focused private equity funds; for example, TPG Capital Management announced it is seeking to raise $4 billion for an Asia-focused fund and the Carlylye Group is raising a $5 billion Asia buyout fund. Eighty-three such funds have closed new fundraising so far this year, combining for a total $32.5 billion. More private equity firms are allocating capital to Asia, as economic momentum builds in countries such as China and India. After a gap in Chinese investments, this new deal may represent Blackstone’s renewed eagerness to follow its competitors and invest in the region.
However, despite the wave of recent investments in Asia, Asia-focused funds have struggled in the past few years. Funds that started investing in 2014 have had an 8.1% median net IRR, well below the 20%+ returns expected from private equity investments. Different firms have had varying levels of success in the region; for example, the Carlylye Group has seen returns as low as 6% and as high as 18% from its Asia funds, with most of its investments in consumer and technology firms in China. Despite these recently low returns, Blackstone is seemingly optimistic about investment opportunities in China and other regions of Asia, as it follows firms like KKR, Carlylye, and TPG.