Permira has made its first bet in mainland China by investing HK$6.5bn (£420m) to take a minority stake in Galaxy Entertainment, a casino developer run by the property billionaire Lui Che Woo that is building the world's second-largest casino in Macau.
The deal, one of the largest equity investments made by the London buyout firm, will net it a 20 per cent stake and two seats on the board of the family-controlled group. With the investment, Permira, the owner of Hugo Boss and the AA, has wagered that more and more Chinese punters will choose the new Sin City of the East. More than 100 million potential gamblers live within three hours' drive of the former Portuguese colony, the only place in China where gambling is legal.
The firm's willingness to take a minority position in the group's publicly traded shares, rather than the usual approach of buying the business outright, reflects the typical approach in China rather than desperation to get into an exploding market, according to Permira's Martin Clarke. "This is a negotiated deal with the controlling family shareholders that has many of the features we normally look for in a conventional [buyout] structure."
Under the traditional buyout model, firms raise large amounts of debt so that they have to use as little of their own money as possible to take companies over. The Galaxy investment is all equity, meaning that one of the firm's biggest bets is on a company that it will not control.
Mr Clarke would not comment on whether this was the first step toward a full takeover of the group. "All I will say is that we are happy with the deal we negotiated and we feel it has equipped the company to grow in the medium term. Private equity can't be constrained to be doing [leveraged buyouts] for the rest of its life," he said.
Galaxy will use the cash to reduce debt and to push ahead with its plan to open the Cotai Mega Resort, a 2,500-room hotel and casino, next year. Large Las Vegas and Chinese gaming groups are pouring billions into the enclave.
Next door to Galaxy's Mega Resort is the Venetian, a $2.4bn (£1.2bn) super-casino that opened in August. MGM Grand plans to open a casino later this year, and 27 million tourists are expected to visit the enclave this year, up from 10 million five years ago.
Galaxy is seen as the underdog in the scrum of larger groups with more history and expertise in the gaming industry. Yet since 2004 the company has built and opened five casinos, garnering it about a fifth of the gambling market in Macao.Reuse content