By Denny Thomas
HONG KONG (Reuters) - Global private equity firms learnt the hard way this week that local know-how is worth more than deep pockets or international clout to clinch Asian M&A deals when they lost out to regional rival MBK Partners in a $6.1 billion(3.96 billion pounds)takeover.
British retailer Tesco plc (L:TSCO) said on Monday it is selling its South Korean arm Homeplus to a group led by Seoul-based MBK.
U.S. private equity titans KKR & Co (N:KKR) and Carlyle Group (O:CG) had also vied in a four-month auction for what is Asia-Pacific's largest private equity deal ever, sources had told Reuters.
"What's unique here is MBK has been able to step up to something of a scale that was unprecedented for an Asia fund," said Oliver Stratton at consultancy firm Alvarez & Marsal.
"This clearly puts them on the map."
MBK, which manages $8.2 billion, was founded by 52-year-old Korean-American Michael Kim nearly a decade ago. Kim grabbed the spotlight in 2013 with the purchase of ING's (AS:ING) South Korean business for $1.5 billion, an auction that drew interest from Metlife Inc (N:MET) and AIA Group (HK:1299), among others.
Kim did not respond to Reuters' requests for comment.
Other Asian buyout firms, including Affinity Equity Partners, Hony Capital, CITIC Capital and Pacific Equity Partners, too have been active in recent years, largely in smaller deals.
What helped MBK clinch the Tesco deal was its deep understanding of the South Korean regulatory landscape and strong connections with domestic institutions that enabled it to put forward a better bid, people familiar with the Tesco sale process said.
Early on in the process, MBK sought the financial backing of South Korea's national pension fund for its bid. That and MBK's homegrown status helped quell concerns of trade unions and politicians about the deal, in a country where anti-foreigner sentiment has doomed some private equity exits, the people told Reuters.
On its website, MBK advertises itself as "owned and operated by Asians".
The loss to MBK comes at an uncomfortable time for global private equity firms, some of whom have recently raised Asia dedicated funds, underscoring the region's importance to them. Overall, private equity firms in Asia have an estimated $113 billion warchest, data provider Preqin says.
With deals as large as the Tesco one hard to come by in Asia, the pressure on global firms to profitably deploy their cash pile is bound to increase. They may also have to bid aggressively for deals and invest more to build their capabilities in Asia, which will weigh on their returns, some bankers say.
(Additioanl reporting by Joyce Lee in SEOUL; Reporting by Denny Thomas; Editing by Muralikumar Anantharaman)