Hong Kong’s take-private game is luring hungry bidders with deep pockets ready to snap up undervalued listed companies amid an ongoing lacklustre market. This route has emerged as a key avenue for those suitors looking to deploy idle dry powder.

The benchmark Hang Seng Index (HSI) is hovering below 20,000 points, a considerable distance from its previous peak of over 30,000 points achieved a few years back, setting the stage for major shareholders and private-equity (PE) firms to de‑list companies at discounted prices.

Even with HSI’s strong bounce back from a recent low of around 15,000 points as of January, it currently trades at an average 11x estimated price-to-earnings ratio, well below 32x for the US Nasdaq and 21x for Japan’s Nikkei 225 Index.

Disappointing valuations on the Hong Kong stock market have become a strong incentive driving shareholders to consider taking companies private.

Hong Kong’s take-private deal volume in the year-to-date (YTD; to 17 May) has soared to a four-year high of USD 3.3bn, according to Mergermarket data.

Moreover, the current deal volume for Hong Kong privatizations has already surpassed the annual figure of USD 1.1bn recorded in 2023.

Off the record: Hong Kong de-listing deals, 2024 YTD

Source: Mergermarket, data correct as at 17 May 2024

The biggest deal in 2024 YTD has been by the controlling shareholder of L’Occitane International [HKG:0973] taking the Luxembourg and Geneva-based beauty and wellbeing products maker private for a consideration of HKD 13.9bn (USD 1.8bn) based on an offer price of HKD 34 per share.

This signature deal has alone contributed more than 50% to Hong Kong privatizations’ total deal volume of USD 3.3bn in 2024 YTD, according to Mergermarket data.

Hidden gems

Hong Kong take-private activity has seen a significant focus on consumer products. Of the seven deals so far this year, two of them involve operators in the consumer products industry, per Mergermarket.

Consumer products have been undervalued relative to the broader HSI, and in the eyes of many market commentators, contributing to their attractiveness in the take-private market. A key factor has been the market’s tendency to overlook the long-term growth potential and intrinsic value of these companies. Investors focus more on immediate financial performance over the enduring demand and profitability of well-established consumer brands.

Aside from the headline-grabbing L’Occitane transaction, Hong Kong-based electrical and electronic products maker Kin Yat Holdings [HKG:0638] has been another take-private deal in the sector. Chairman and CEO Cheng Chor Kit proposed to take the listed company off the market for a consideration of HKD 112.1m (USD 14.3m) at an offer price of HKD 0.72/share.

Clash of the titans

With a resurgence of bigger deals in the market, the shopping season appears to be in full swing. Shareholders of industry giants and PE firms are eagerly eyeing the opportunity to privatize their listed flagships at markdown prices.

In mid-May, ESR Group [HKG:1821], APAC’s largest real-estate asset manager with a market capitalization of HKD 52.7bn, received a non-binding and conditional proposal from a buying consortium comprising Starwood Capital, Sixth Street Partners and SSW Partners regarding a possible privatization, with Citi acting as financial advisor, as announced.

Another iconic deal could be Langham Hospitality Investments [HKG:1270], an investment trust that owns several luxury hotels in Hong Kong. Its largest shareholder, Great Eagle Holdings [HKG:0041], a famous landlord in the city, intended to present a privatization proposal for the HKD 3bn-valued trust in April, but had not received any firm intention as of 9 May.