ESR taken private for $7.11bn

February 2025 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

February 2025 Issue

Real estate giant ESR Group is to be acquired and taken private in a deal which values the company at $7.11bn on an equity value basis, making it the largest privatisation from the Hong Kong Stock Exchange since 2021.

Under the terms of the deal, existing ESR shareholders will be able to choose between receiving cash to fully monetise their investment at a substantial premium, rolling their shares into EquityCo2 – an unlisted investment holding company incorporated in the Cayman Islands for the sole purpose of implementing the deal – to participate in the next phase of the company’s development alongside the consortium or a mix of these two options in a proportion of their choosing.

For those shareholders that elect to receive cash, a price of HK$13 per share provides a premium of 55.7 percent over the closing price of HK$8.35 per share on 24 April 2024, the last trading day prior to the date of submission of the non-binding offer, 54 percent and 40.8 percent over the average closing price of approximately HK$8.44 and HK$9.23 per share for the 30 and 60 trading days up to and including the pre-non-binding offer date, respectively, and 199.1 percent over the company’s unaudited consolidated net tangible asset value per share of HK$4.35 as of 30 June 2024.

ESR, which has traditionally focused on logistics and commercial real estate, has been expanding into data centres in recent years, and it is set to be acquired by a consortium with a range of data centre investments. The consortium is a group comprised of Starwood Capital Group, Sixth Street, SSW Partners, the Qatar Investment Authority, Warburg Pincus and ESR’s founders. The consortium would wholly own ESR after the closing of the deal.

The consortium, along with the founders of the company, currently collectively hold 39.9 percent of ESR’s existing shares. According to a statement announcing the deal, the consortium has also received co-investment equity commitments from “highly reputable institutional investors”, that will be investing through both Starwood Capital and Warburg Pincus-managed vehicles, including Alpha Wave Global and an Asia public pension investor.

“A strategic transformation is required to realize the company’s platform value,” the consortium said in a statement. “To effectuate this transformation, the company needs to transition to an asset-light platform, re-focus on new economy sectors, simplify its current portfolio with non-core asset divestitures, realize cost synergies, and optimize its balance sheet.

“The proposal, if successful, would transform the company’s shareholder register to include highly experienced world-class investors whose long-term capital will support the company’s strategic transformation and growth, while maintaining a prudent and effective governance structure that protects minority shareholders.”

ESR has traditionally been focused on logistics real estate and claims to be the largest logistics real estate company in the Asia-Pacific (APAC) region. The company has made several investments in the data centre space since 2021; it has 575MW of committed data centre sites in key markets across APAC, with a pipeline of more than 2GW worth of land and projects. The company was formed in 2016 following a merger between e-shang and Redwood Group. The company has data projects in development across Japan, Hong Kong, Malaysia, South Korea and Australia. Furthermore, ESR subsidiary ARA Asset Management also has a data centre footprint through its Logos Group unit, which partnered with Pure Data Centres for a 20MW facility in Indonesia.

A deal for ESR would be consistent with the investment history of a number of the firms within the consortium. Private investment firm Starwood, for example, is developing a number of data centres across the US and owns a significant stake in European developer Echelon. In 2024, it launched a dedicated data centre unit, and significant portions of its newest fund are expected to go to data centres.

Richard Summerfield