KKR and TIGA to Acquire Flexible Office Operator The Executive Centre

The Executive Centre, a Hong Kong-based provider of upscale flexible office space, will be acquired by US buyout firm KKR and Singapore’s TIGA Investments for an undisclosed amount, realising an exit strategy that so far has eluded better-known rival WeWork.

The buyout is based on a belief in the prospects for flexible office providers, according to both KKR and Tiga.

“As we look ahead to the market’s evolving needs, flexibility will be key in companies’ future workplace strategies,” said SJ Lim, a managing director at KKR who heads the firm’s credit strategy for Southeast Asia. “We believe The Executive Centre is well placed to capture new growth opportunities and build on its longstanding leadership position in Asia’s premium workspace segment.”

The company founded by chief executive Paul Salnikow in 1994 had been shopping itself as far back as 2019, before civil unrest on its home turf and the flameout of WeWork’s IPO attempt derailed plans for a $750 million sale. No financial terms were released regarding this latest transaction.

Partners Exiting

“We are pleased to welcome KKR and TIGA Investments to The Executive Centre as our new investors,” Salnikow said. “It’s a powerful partnership, well matched to drive the continued performance and growth of TEC.”

As of September 2019, Hong Kong-based HPEF Capital Partners owned 70 percent of the shared office operator, while Luxembourg-based CVC Partners owned a further 20 percent, and the remaining 10 percent was held by Salnikow.

With premium flexible offices serving 32,000 members in Greater China, North Asia, Southeast Asia, Australia, India, Sri Lanka and the Middle East, The Executive Centre has annual turnover in excess of $237 million, the company said in a Tuesday release announcing the takeover.

As part of the transaction, HPEF and CVC will exit their investments in The Executive Centre, while members of the company’s management team will continue to own shares and maintain their leadership positions in the company.

Private equity major KKR, famed for its record-setting buyouts of large American companies, would not specify which fund it is dipping into for its stake in the Executive Centre, but it is understood that the financing came neither from its real estate strategy nor from its private equity fund.

TIGA, founded and led by G Raymond Zage III and Ashish Gupta, describes its mission as making long-term investments in differentiated businesses with strong management teams.

“As the future of work increasingly shifts towards a hybrid model, we look forward to partnering with Paul and his team and helping to elevate the company to its next phase of growth for the benefit of businesses, tenants and landlords across the region,” Zage said.

Upmarket Alternative

The Executive Centre’s fancy offerings include high-quality enterprise solutions, premium private offices, co-working and virtual spaces, and a broad range of full IT support and corporate concierge services.

The company has carved a niche for itself in the flexible office market as a luxury alternative catering to a clientele more interested in five-star amenities than exposed brick. The Executive Centre’s facilities offer tenants plush leather sofas and private suites in place of the free-flow beer, ping-pong tables and shared sofas made popular by once-highflying WeWork and its imitators.

In September 2019, just days before final bids were to be received in a proposed sale of The Executive Centre for a reported $750 million — and against the backdrop of WeWork’s much-hyped IPO imploding — the company’s shareholders and management called off the deal out of fear that the value of the business could be affected by the political turmoil engulfing Hong Kong.

The Asian financial capital is home to 10 of The Executive Centre’s 150 locations and accounted for 30 percent of the company’s earnings before interest, tax, depreciation and amortisation at the time.

The Executive Centre continued to expand throughout the COVID-19 pandemic, adding five centres in India and new locations in Hangzhou and Shanghai last year. In its financial results for the first half of 2020 released last September, the company said revenue in the period rose 5.3 percent year-on-year to $119.6 million, with revenue in India shooting up 27 percent to $20.5 million.

In a white paper detailing The Executive Centre’s philosophy, Salnikow said the company takes a demand-driven approach to expansion.

Rather than “speculating and over-expanding when the time seems right”, The Executive Centre gathers information from members, partners and market data to guide expansion at the opportune moment, the CEO said.