TH Lee taps H&Q for Asia

Boston-based buyout firm Thomas H. Lee Partners has taken an unusual step toward establishing itself in the Asian market by creating an alliance with private equity firm H&Q Asia Pacific. 

The partnership, created with an eye toward enhancing deal flow and investment resources, will allow Thomas H. Lee Partners to access H&Q Asia Pacific’s existing private equity infrastructure in Asia.

According to Dr. Ta-lin Hsu, chairman and founder of H&Q Asia Pacific, an introduction from a third party spurred the two firms to begin talks in January of this year to discuss the formation of an alliance. While they have not co-invested in deals in the past, Thomas H. Lee Partners and H&Q Asia Pacific based their decision to collaborate after identifying certain areas – particularly in the offshore business sourcing arena – in which an alliance would be beneficial to both parties.

Dr. Hsu further stated in an interview that considering Thomas H. Lee Partners’ already sizable portfolio, he does not expect the two firms to pursue a joint fund raising effort. Rather, the new alliance will focus on connecting H&Q Asia Pacific’s network of Asia-based business process outsourcing providers with Thomas H. Lee Partners’ existing portfolio companies in order to streamline and enhance their performance. 

At the same time, the two partners expect to capitalise on greater deal sourcing prospects and to be on the lookout for new private equity investment opportunities in which to co-invest, said Dr. Hsu.

For Thomas H. Lee Partners, which has been drawn to technology outsourcing investments in recent years, access to the H&Q Asia Pacific network will allow the US-based firm to bulk up its on-the-ground presence and relationships with up and coming outsourcers in Asia. To date, Thomas H. Lee Partners’ technology-focused private equity affiliate, TH Lee Putnam Ventures, has acquired SPI Technologies and Symphony, which have operations in India, Singapore, and the Philippines. Thomas H. Lee Partners is taking steps to build its presence across the emerging markets and clearly intends to continue strengthening its foothold in Asia in particular.

Founded in 1985, H&Q Asia Pacific now manages $2 billion in assets – of which $1.6 billion is fully invested – and focuses primarily on the technology, manufacturing, financial services, and media industries. Since 2001, the firm has operated in complete independence from former parent company Hambrecht & Quist and JP Morgan, which acquired H&Q in 2000.

In partnering with Thomas H. Lee Partners, Dr. Hsu expects H&Q Asia Pacific to gain the clout of greater investment resources and an expanded global pipeline for deals. In addition, although H&Q Asia Pacific now invests in mid-cap companies, the firm’s background leans more toward the venture capital side. According to Dr. Hsu, the new partnership with Thomas H. Lee Partners should strengthen H&Q Asia Pacific’s image as a later stage investor.

While formal cooperation between private equity firms is not unheard of, such cases are still rare. In April 2004, Ripplewood Holdings LLC and MidOcean Partners announced the creation of an agreement to co-invest and fundraise in the US and European markets. To date, the two firms have yet to finalize a collaborative effort. A more formal example of an alliance between private equity firms is the acquisition of Saunders Karp & Megrue by the US unit of global private equity firm Apax, which took place in the form of a merger in April of this year.