Stephen CuUnjieng is the Chairman of Evercore Asia. He spoke with The Prospect Group about Evercore’s growing footprint in Asia, the differences between the Asian markets and Evercore’s more traditional markets, and his macroeconomic perspective on Southeast Asia going forward.
What new initiatives are Evercore Asia involved in?
CUUNJIENG: Let’s start with Thailand. We were the advisors for CP Foods in their bid for Smithfield. A year and a half ago we were the advisors to Indorama Ventures on their successful acquisition of one of the plants of Old World Chemicals in the United States in Texas. If we go elsewhere in Hong Kong, we were advisors to Guoco, which is owned by Hong Leong Malaysia, in their successful acquisition of Rank in the UK, and subsequently we advised Rank in their successful acquisition of Gala Casinos. So that would be Hong Kong and Malaysia.
In the last 12 months, my colleagues have worked on acquisitions for YTL in Malaysia, for China Light and Power in Hong Kong, as well as for Astra in Indonesia. In Singapore, we successfully advised Tiger Airways on an acquisition they made in the Philippines. In the Philippines, in our first full year of operation we won two ‘deal of the year’ awards from Finance Asia. We won best mid-cap IPO for Asia where we advised Puregold. We also won best deal in the Philippines for a refinancing of debt for and the entry of a new strategic partner into Atlas Mining. So we do a lot of both the capital markets advisory work as well as traditional M&A and advice. We are very proud to have hired Keith Magnus to head our new Singapore office.
What would you like to achieve for Evercore in this role?
CUUNJIENG: What I would like to achieve for Evercore is for Evercore Asia to be seen in the same breath as Evercore is in the USA. In the USA, it is seen as the number 1 M&A and advisory firm. Now I have a very high target to aspire to because if you look at both the advisory and restructuring fields, we are very prominent. We were the chapter 11 advisors to General Motors, the largest chapter 11 restructuring ever. We were also restructuring advisors to AIG and CIT. In M&A, if you look at some of the recent deals, just in the last 12 months, we were advisors to Dell in their going private and previously we were advisors to Lubrizol and Burlington Northern when they were purchased by Berkshire Hathaway. So hopefully we can be seen in Asia as something approaching the eminence that my bosses and my partners have achieved in New York. This would make me a very happy person.
How is the M&A business model different in Asia as opposed to the US and Europe? What are your plans for carving out market share?
CUUNJIENG: In Asia, a lot of M&A is given to the financing houses. Now the same is true in the US and the same is true in Europe. However, in the US, where active M&A is much more established, usually they appoint joint advisors, a pure advisory house such as Evercore or one of the worthy competitors, and a financing house, usually one of the big banks, Citi, JP Morgan, Bank of America, a funding bank.
Part of it, a theory of mine rather than fact, is that very few companies have one controlling shareholder in the US, so there is a lot more care to be professional about the price and everything else to avoid shareholder law suits. In Asia, where the bulk are family companies, once the controlling shareholder says yes, it’s kind of a done deal. Fortunately, we are also a less litigious society. So often if there is one decision maker that decides this is the right price to buy or sell, then they basically indicate what they want and go with a financing house.
So what do we do to get market share? Frankly, if we are responding to a proposal, we often are not going to be that distinctive. So what we do is to come up with actionable ideas and have occasionally succeeded. There are deals that we have brought to clients and they have said that because we developed the idea and developed a thesis, we will give it to you. Other times, we are seen not just as a trusted advisor, but as a trusted and expert advisor. This is where the expertise we have globally comes into play and leads us to be mandated as we give specific solutions rather than just financial analysis and valuation. There is also a high level of senior relationships our bankers have globally. So we can also have a higher quality of decision making discussions. So people come to us because they know we can bring in a level of expertise or a level of relationship or structure that an ordinary financing bank will be unable to do. If we are just offering something similar to a financing bank, we will not be competitive. So it is because we are offering something a little more responsive or unique.
How do you see Asia’s different financial service centers evolving going forward?
CUUNJIENG: I do not think New York detracts from London, and London does not detract from New York. While sports might be zero sum, financing is not. So I think Singapore and Hong Kong will continue to prosper. There are separateness and overlap to both. One does not have to succeed at the expense of the other and there are different pockets of expertise and some overlap. They, for historic reasons, frankly because of enlightened government and rule of law, have established financial centers of excellence and they have earned and continued to deserve that status. If you look at countries that do not have that level of honest and enlightened government, you will not have that.
If you go to other centers, Frankfurt for example is very successful. It is not London or New York, but it does not have to be. In Asia, Seoul, Shanghai, Bangkok, everywhere else, their capital markets are going to be much more a function of the robustness of their domestic markets and the companies in them. As they continue to progress, their own capital markets will be more robust. I do not think we will see one detracting from the other, but if the pool available to be invested in Asia grows, it helps everyone. It will not help them equally, it will be an unequal but rising tide.
How do you envisage Evercore’s Asia expansion progressing?
CUUNJIENG: Evercore has always been a very numbers light company. We are very proud that we have our market share wherever we are with anywhere from 1/10 to 1/100 the number of employees of the people we compete against. We are 14 professionals in Hong Kong and we will be initially 4 in Singapore, so about 20 professionals for Asia after we hire a few more. I think many companies will have 5 to 10 times that just in Singapore or Hong Kong. So if you look at our 2nd quarter earnings call, which our Chairman, CEO, and CFO had, they are very proud that the Hong Kong office is at par with the United States in terms of revenue per employee. So what we are looking for is productivity per employee. We will never be as big as some of our competitors, but we want to be very successful and we want to be very productive. So far, with some luck, the Hong Kong office has managed to be at New York standards on that basis.
What do you see as the most positive economic indicators for Southeast Asia? What challenges lies ahead?
CUUNJIENG: If you ask me what the most positive macro indicator is, it is that many countries run a current account surplus. You can afford to deal with less prosperity when you have a buffer. It is when you have to have all the stars aligned one way, that you better hope the stars remain aligned. 1997, and that was my second crisis not my first, was not just a wakeup call, it was a wakeup call that will not be forgotten. So you see a lot more prudence in not mismatching funding and not mismatching currencies and making sure the debt/equity ratios are defensible. If you look at what caused a lot of the problems, it is not that the underlying companies or products were unprofitable, it is that they funded long-term projects with short term funding, took advantage of what they thought was arbitrage and interest rates by borrowing the wrong currency for projects that were not hedged. So you see a lot of companies and governments that have learned from that. This is why if you look at the 2008 crisis in the US, it was not a happy time here, but the effect was miniscule compared to the devastation seen in Europe. That is the biggest positive.
The challenge for me would be that interest rates have been so low for so long that you wonder what is going to happen to the virtuous circle once it stops being virtuous. If you have a substantial increase in long-term interest rates for a sustained basis, which will probably have to happen, because you cannot have de facto zero interest rates forever, you are going to have to change your debt assumptions, your debt assumptions will change your profit assumptions, and your profit assumptions will change your stock price. So the question is, will there be enough of a transition where people are taking advantage of this sustained low interest rate regime to enhance profitability rather than just look at it as a wonderful financing opportunity.
originally published by and copyright of The Prospect Group.
Evercore Asia Chairman Stephen CuUnjieng on M&A activity in Asia