Spotlight Q&A: MoFo's New Global PE Partners - Corporate and Company Law

Since the start of the year, MoFo has welcomed five new PE partners positioned across the globe. They each have their own area of expertise including technology-focused deals, PE finance, PE real estate, cross-border PE and M&A, and extensive experience in the United States and Asia.

We are pleased to introduce you to them through this Spotlight PE Q&A covering current private equity trends. Please feel free to reach out to them with any questions that you may have.

James W. Beach, Private Equity Partner, San Francisco

James's practice focuses on representing private equity funds and their portfolio companies in complex U.S. and cross-border transactions, including leveraged buyouts of private and public targets, divestitures, and growth equity investments. He also advises private equity-owned and public companies in all stages of their lifecycle. He has extensive experience in the tech sector.

Q: What opportunities does generative AI present to PE funds?

A: Generative AI and the opportunities it presents have long been on PE's radar despite generative AI only recently coming into the public spotlight. PE funds are looking to leverage generative AI both in their portfolio companies and for their internal operations. For portfolio companies, we will see sponsors, particularly in the software space, develop proprietary generative AI models to deploy across their portfolio, and an increasing use of third-party proprietary models at portfolio companies to improve operations and product offerings. For internal operations, generative AI will continue to change the way sponsors screen investments, manage their portfolio, market new funds, and seek new limited partners.

Eric H. Min, Private Equity & Finance Partner, San Francisco

Eric advises PE sponsors and their portfolio companies and Fintech companies in a variety of complex U.S. and cross-border financing transactions, including leveraged acquisitions, syndicated lending, investment-grade lending, asset-based lending, and warehouse facilities. He works with clients in numerous industries, including technology, Fintech, consumer and retail, and professional services.

Q: What trends have you observed in the debt markets in light of the current economic climate?

A: The recent challenges of an inflationary environment along with rising interest rates have undoubtedly had an impact on general PE deal activity (along with activity in the broader M&A market). One significant factor that has dampened deal volumes in 2022 and early 2023 has been the difficulty faced by PE funds in securing the low-cost financing for leveraged acquisitions that has fueled the industry for the past decade. In turn, fund managers are responding to the impact of rising rates on deal financing structures by accessing alternative sources of liquidity to bank-arranged syndicated loans and bonds. In addition to their own dry powder, sponsors have increasingly turned to financing from direct lending sources.

After experiencing rapid growth over the last decade, direct lending (i.e., non-bank loans made to middle-market companies without the involvement of an intermediary (such as an investment bank)) proved to be a viable source of capital throughout the pandemic and has filled a significant portion of the market that was previously occupied by syndicated financings. In fact, we are seeing increased direct lending activity in the context of larger deals (> $1 billion) that were previously the exclusive purview of the syndicated market. Direct lending continues to be an attractive option for many borrowers, providing higher leverage solutions for the right credit, along with fixed terms and lower deal execution risk. In light of ongoing political and market uncertainty, we see no signs of this trend slowing down in the near future.

Tabitha Saw, Private Equity Real Estate (PERE) Partner, Singapore

Tabitha represents investment managers, institutional investors, and owner operators in complex, high-value PE real estate and data center transactions. She has advised on the establishment of multiple capital raising platforms across Asia-Pacific and has significant experience in hyperscale leasing and co-location arrangements, greenfield and brownfield acquisitions, and operational arrangements.

Q: What are some recent trends for investment into data centers in Asia?

A: The volume of investment in data centers continues to increase rapidly to meet capacity demands across Asia. There has been an influx of institutional money being deployed across development projects, value add projects, and the acquisition of stabilized assets in this space. Investors are partnering with in-country operating and development teams, as well as establishing their own operating platforms when able to source the necessary talent. As a result, there is greater competition among operators and customers for well-located sites with sufficient power, particularly where ground works have already commenced or can commence immediately to meet tight completion deadlines. At the same time, lenders are more conservative in the quantum and terms for financing such projects, which provides opportunity for alternative financing structures.

Steven Tran, Private Equity Partner, Singapore

Steve advises global and Asia-based PE funds and their portfolio companies, as well as multinational corporations operating in the Asia-Pacific region, on their complex cross-border PE and M&A transactions, with a particular focus on Southeast Asia. He counsels clients across a wide range of sectors, including consumer, technology, real estate, professional services, and manufacturing.

Q: What are the opportunities for PE exits in Asia this year?

A: With the IPO markets still sluggish at present, the opportunities this year for PE exits will be found in sponsor-to-sponsor deals and sales to strategic buyers. Lenders are limiting financing to PE buyers for large transactions and sponsors are passing on assets from exiting PE funds with high asking prices. As a result, the most viable way to get a deal done at the present time is to sell to a strategic buyer that can often fund the purchase with a lower cost of capital, either with cash on hand or by drawing on credit facilities issued before the recent interest rate hikes. While trade sales and GP-led secondaries will continue to be the dominant exit paths for sponsors this year, continuation funds will also be an important avenue for PE funds to find liquidity when they need it.

Rongjing Zhao, Private Equity Partner, Beijing | Shanghai

Rongjing has extensive experience advising PE firms, institutional investors, and major corporations on complex cross-border transactions, including control deals and leveraged buyouts, M&A, growth capital investments, spin-offs, and distressed M&A transactions. While focused on representing private equity funds on investments and acquisitions in China and the rest of Asia, she also advises clients on take-privates of U.S.-listed companies and other U.S. public and private company M&A transactions.

Q: What industry is thriving in Asia despite the macroeconomic factors?

A: Despite the challenges posed by global economic factors, the technology industry continues to thrive, driven by innovation, digital transformation, and the increasing integration of technology in our daily lives. This industry has proven its ability to adapt quickly and has become an essential component of various sectors, including finance, healthcare, and consumer. Advancements in artificial intelligence, machine learning, and cloud computing have created new opportunities and disrupted traditional business models. Companies that embrace these technological advancements gain a competitive edge, leading to increased investor interest and sustained growth. That said, PE investors remain focused on identifying companies with solid fundamentals, sustainable revenue streams, and a clear path to profitability, and they can do that by combining a deep understanding of the technology landscape with a disciplined investment approach.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.