Kohlberg Kravis Roberts and the chairman of Taiwan’s Yageo Corporation have launched a bid to take the electronic components manufacturer private.
The deal, which values Yageo at $1.6bn, comes at a time when technology groups are re-examining supply chains and seeking alternative suppliers after the Japan earthquake.
It is the biggest private equity buy-out in Asia so far this year, according to Thomson Reuters.
It eclipses last month’s $700m purchase of Singapore-based Capital Square by Alpha Investment Partners and NTUC Income.
Yageo, the biggest producer of chip resistors – which control the voltage passing through a chip – by capacity, has Japanese competitors and suppliers, though it said there had been no big shift in orders away from Japan, nor had its business been disrupted by supply chain problems.
“As an alternative to Japanese suppliers we may benefit in the short term but in 3 or 4 months we may have an issue if some of our customers can’t get supplies from the Japanese,” says one person familiar with the matter.
Yageo has been a big beneficiary of outsourcing both from the US and from Japan. Today about 70 to 80 per cent of its products are made in China, while research and development is still largely carried out in Taiwan.
KKR, acting alongside Pierre Chen, who founded Yageo in 1977, have offered to acquire all of Yageo’s Taiwan-listed shares for T$16.10 each, a 14 per cent premium to Yageo’s last closing share price.
Mr Chen and KKR collectively control 34.3 per cent of Yageo’s shares.
After the deal, Mr Chen will hold a 55 per cent stake while KKR will take the remainder.
KKR first invested in Yageo in 2007 with a $228m convertible bond purchase that gave it an effective 15 per cent stake.
Taking the group private will give KKR and Mr Chen flexibility to raise funds and increase research and development investment.
Yageo is a large supplier to manufacturers in Taiwan and mainland China, which account for two-thirds of its sales.
“From a long-term perspective, the new shareholding structure will enable investments in accelerated high-end product development and deeper penetration into western markets,” Mr Chen said.
The company plans to use part of its new capital to expand research in an effort to close the gap with higher-end Japanese makers.
While little known beyond specialised tech circles, Yageo’s products, which belong to a broad category called “passive components”, feature in nearly every type of electronic device from smartphones and laptops to industrial machines.
Yageo dominates the market for chip resistors, where most of its competitors are other Taiwanese companies, with a 25-30 per cent market share. It is also a big player in the so-called multi-layer ceramic capacitors market, where it is third after Japan’s Murata and Semco, a subsidiary of South Korea’s Samsung Group.
MLCC production at Murata and TDK, another Japanese company, suffered no earthquake impact but the companies’ output of some high-end products has been disrupted by planned power outages, said Morgan Stanley in a report.
The passive components market has grown strongly in recent years because of the increasing complexity of digital products. While a regular mobile phone may contain 300-400 passive components, a smartphone has 600-800 such parts.
KKR’s $4bn Asian fund is about 70 per cent invested and was up about 45 per cent last year, making it one of the top performing funds in the region.
UBS advised KKR and Mr Chen on the deal.