With an upcoming listing on the GEM market in Hong Kong, many people may be hearing of LP Lammas for the first time. From the name, you may suspect it is a record company from Lamma Island in Hong Kong. However, it describes itself as an M&A boutique and its name derives from the Lamma Festival which was an 18th century English institution to celebrate a good harvest.
And, LP Lammas is no ordinary boutique. In this era of mega-mergers, it says that the big banks like Goldman Sachs have no interest in doing the smaller deals. That is where it is seeking to specialize.
LP Lammas was founded in 1993 by Louis Pong, who recently hired in Phillip Kan, a longtime banker who he met when he was working at HSBC.
"Louis started with one desk," says Kan, "and now we have over 100 clients, most of them Hong Kong blue chips and NASDAQ listed companies." He says that M&A has been growing rapidly – at a compound growth rate since 1999 of 171%. But only 6.6% of global M&A is in Asia and this is set to change.
"If you take the China-play and WTO factor into account, you will see a very high growth in the M&A potential in this part of the world. FDI from Europe and the US into China will grow rapidly." LP Lammas says it is well placed to grab the numerous smaller deals. Kan draws a triangle and shades the top one-third. "They're the big deals. The bulk of deals are at the base of the triangle and there are no investment banks going for these." He says LP Lammas focuses on deals with a value between HK$30 million ($3.85 million) and HK$500 million. In an era when investment banks won't "get out of bed" for less than a billion dollars, this is clearly an unplugged niche.
"M&A is not the privilege of big firms," says Kan. "There is a lot of activity in situations where a father gets to 55, his son is no good at business, and he wants to sell. That's where we come in." Obviously that is a Hong Kong-style business model. But the firm has also been doing work in SOE-dominated China. It has close to 30 people working in both its offices in Beijing and Hong Kong, and on the morning we meet Pong is about to fly to Shanghai with sale documentation. He had been working on the final details of the particular contract till 3.30am the previous night.
He describes a typical deal they have done in China. It was the $3 million sale of a curtain-wall company in Shanghai to an international market leader in this field. "The Chinese company were keen to do the deal to get the technology transfer," says Pong. A special prefabrication technology was brought to China by the foreign acquirer. "Until this deal, no one in China had this know how." The deal had a 3% fee and took three to four months of work for the two corporate financiers involved.
"I anticipate Mainland Chinese deals will make up most of our revenues next year." In its March year end, LP Lammas reported profit of HK$5 million on turnover of HK$8 million.
These aren't the sort of numbers that are going to have Morgan Stanley or CSFB salivating, but what is interesting is how LP Lammas filters deals. It is creating a web-based automated process with Bonvision that uses artificial intelligence to match buyer and seller interest. Normally the buyer will be non-Asian and the seller will be Asian. "It is part of our clicks and mortar business model," says Kan.
While the profits are small – barely enough to buy a 900 square foot apartment in Happy Valley – they are better than those found in your standard internet GEM listing.
