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Asia’s Private Equity News Source avcj.com October 06 2015 Volume 28 Number 37
FOCUS DEAL OF THE WEEK
Going the distanceInvesting in the Philippines means taking time to build relationships Page 7
Deals in screen timeMedia-for-equity makes its mark in Asia Page 9
Meatless stake salePhilippines’ Monde Nissin buys up Quorn Page 12
INDUSTRY Q&A
DEAL OF THE WEEK
Daniel Kwan of OCBC’s mezzanine capital unit
Page 15
H&Q Asia Pacific eyes US tech hub breakthrough
Page 12
Vertex gets $600m for China, Israel, US funds
Page 13
Voting for the 2015 AVCJ Awards opens October 7
Page 3
ADB, Apollo, CDIB, Creation, Everstone, Goldman Sachs, MBK, PEP, Qualcomm, RRJ, SAIF, Sequoia, SoftBank, Spice PE, Tiantu
Page 4
EDITOR’S VIEWPOINT
NEWS
FUNDS
GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY
Taiwan台灣 2015 Private Equity & Venture Forum
avcjtaiwan.com
2 December, Shangri-La’s Far Eastern Plaza Hotel, Taipei
Investing in the New Taiwan
5 reasons to attend: Gain insights from the world’s leading private equity firms and local market leaders
Network and collaborate with like-minded industry professionals
Understand latest policy developments and the impact on your business
Explore the hot sectors with senior industry practitioners
Examine the implications of the latest and future industry trends
Registration enquiries: Pauline Chen T: +852 3411 4936 E: [email protected] enquiries: Darryl Mag T: +852 3411 4919 E: [email protected] enquiries: Jessie Chan T: +852 3411 4866 E: [email protected]
Enquiry
avcjtaiwan.comSimultaneous translation is available活動全程提供中英文同傳。 Join your peers #avcjtaiwan
Asia Series Sponsor 亞洲系列贊助商 Co-Sponsors 聯合贊助單位
Breakdown of 2014 forum:
Hong Kong10%
China5%
Taiwan83%
Japan, Singapore & USA,
2%
BY
CO
UN
TRY
Over 250 participants from6 countries and 135 companies
LPs GPs
General Partners, 19%
Limited Partners,
21%Attended by 52 limited
partners within the region BY
TYP
E O
F C
OM
PAN
Y
Chairman / CEO / Managing Director
Principal / VP /Associate
Managing Director / Partner / CIO / CFO
Director / GM / Chief Rep.
28%
44%
19%
9% BY
TITL
E
SIGN UP BY 16 OCT AND SAVE
US$200
Number 37 | Volume 28 | October 06 2015 | avcj.com 3
EDITOR’S [email protected]
Managing Editor Tim Burroughs (852) 3411 4909
Associate Editor Winnie Liu (852) 3411 4907
Staff Writer Holden Mann (852) 3411 4964
Creative Director Dicky Tang Designers
Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow
Senior Research Manager Helen Lee
Research Associates Herbert Yum, Jason Chong,
Kaho Mak
Senior Marketing Manager Sally Yip
Circulation Administrator Prudence Lau
Subscription Sales Executive Jade Chan
Manager, Delegate Sales Pauline Chen
Director, Business Development Darryl Mag
Manager, Business Development Anil Nathani, Samuel Lau
Sales Coordinator Debbie Koo
Conference Managers Jonathon Cohen, Sarah Doyle,
Conference Administrator Amelie Poon
Conference Coordinator Fiona Keung, Jovial Chung
Publishing Director Allen Lee
The Publisher reserves all rights herein. Reproduction in whole or in part is permitted only with the written consent of
AVCJ Group Limited. ISSN 1817-1648 Copyright © 2015
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GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY
Taiwan台灣 2015 Private Equity & Venture Forum
avcjtaiwan.com
2 December, Shangri-La’s Far Eastern Plaza Hotel, Taipei
Investing in the New Taiwan
5 reasons to attend: Gain insights from the world’s leading private equity firms and local market leaders
Network and collaborate with like-minded industry professionals
Understand latest policy developments and the impact on your business
Explore the hot sectors with senior industry practitioners
Examine the implications of the latest and future industry trends
Registration enquiries: Pauline Chen T: +852 3411 4936 E: [email protected] enquiries: Darryl Mag T: +852 3411 4919 E: [email protected] enquiries: Jessie Chan T: +852 3411 4866 E: [email protected]
Enquiry
avcjtaiwan.comSimultaneous translation is available活動全程提供中英文同傳。 Join your peers #avcjtaiwan
Asia Series Sponsor 亞洲系列贊助商 Co-Sponsors 聯合贊助單位
Breakdown of 2014 forum:
Hong Kong10%
China5%
Taiwan83%
Japan, Singapore & USA,
2%
BY
CO
UN
TRY
Over 250 participants from6 countries and 135 companies
LPs GPs
General Partners, 19%
Limited Partners,
21%Attended by 52 limited
partners within the region BY
TYP
E O
F C
OM
PAN
Y
Chairman / CEO / Managing Director
Principal / VP /Associate
Managing Director / Partner / CIO / CFO
Director / GM / Chief Rep.
28%
44%
19%
9% BY
TITL
E
SIGN UP BY 16 OCT AND SAVE
US$200
VOTING FOR THE 2015 AVCJ PRIVATE Equity & Venture Capital Awards runs from October 7-22. Votes are cast via the AVCJ Awards website (www.avcjforum.com/awards/static/home), which also includes full details of the process. The public has a 50% say in the final outcome, with a judging panel of industry experts and the AVCJ Editorial Board each accounting for 25%.
Relying in part on industry recommendations, the AVCJ Editorial Board drew up nominee shortlists in consultation with the judging panel.
The nominees in each category are as follows:
FUNDRAISING OF THE YEAR – VENTURE CAPITALBanyan Partners Fund II Kalaari Capital Partners IIINexus India Capital IVShunwei China Internet Fund IIISource Code Fund II
FUNDRAISING OF THE YEAR – MID CAP(Fund size – below $1 billion)ADV Opportunities Fund IAnchor Equity Partners IIAscendent Capital Partners IICrescent Capital Partners VIndium V
FUNDRAISING OF THE YEAR – LARGE CAP(Fund size – above $1 billion)Baring Asia Private Equity Fund VI CPE China Fund IIEquis Asia Fund IIHahn & Co IIPacific Equity Partners Fund V
DEAL OF THE YEAR – LATE STAGE TECHNOLOGY(Enterprise valuation - above $500 million)Ant Financial ServicesCoupangDianpingDidi KuaidiFlipkart
DEAL OF THE YEAR – MID CAP(Investment size – below $100 million)Apex InternationalHealthscope - Australian Pathology AssetsInfogain CorporationNihon Hoken ServiceSBI Life Living Corp
DEAL OF THE YEAR – LARGE CAP(Investment size – above $100 million)GE Capital - Australia & New Zealand Consumer Lending BusinessHalle Visteon Climate Control CorpHomeplusPinnacleLumileds
EXIT OF THE YEAR – IPO3SBioAPN OutdoorCowell E HoldingHong Kong BroadbandSkylark
EXIT OF THE YEAR – MID CAP(Investment size on entry – below $100 million)Bushu PharmaceuticalsClassic Fine FoodsECO Industrial Environmental EngineeringIntas PharmaceuticalsSpinifex Pharmaceuticals
EXIT OF THE YEAR – LARGE CAP (Investment size on entry – above $100 million)7 Days InnChina Network SystemsPrimo SmallgoodsShriram City Union FinanceSpotless Group
VC PROFESSIONAL OF THE YEARXiang Gao (Banyan Capital)Jenny Lee (GGV Capital)Neil Shen (Sequoia Capital)Lei Jun & Tuck Lye Koh (Shunwei Capital Partners)Ravi Andusumalli (SAIF Partners India)
PE PROFESSIONAL OF THE YEARLiang Meng & Kevin Zhang (Ascendent Capital Partners)David Gross-Loh (Bain Capital)Jean Eric Salata (Baring Private Equity Asia)Scott Hahn (Hahn & Co)Vishal Nevatia (India Value Fund Advisors)
FIRM OF THE YEARBain CapitalBaring Private Equity AsiaHahn & CoPacific Equity PartnersIndia Value Fund Advisors
Cast your vote
avcj.com | October 06 2015 | Volume 28 | Number 374
ASIA PACIFIC
ADB will double annual climate financing to $6bThe Asian Development Bank (ADB) will double its investment in countering climate change in developing countries to $6 billion by 2020, up from the current $3 billion. Two thirds of the total will go towards mitigation through support for renewable energy, energy efficiency, sustainable transport, and smart cities. The remaining third will be used for adaptation, developing resilient infrastructure, climate-smart agriculture, and better preparation for climate-related disasters.
AUSTRALASIA
PEP-owned Link Group targets $665m IPOPacific Equity Partners (PEP) portfolio company Link Group wants to raise up to A$946.5 million ($665 million) in an IPO on the Australian bourse. Link Group will sell up to 162.5 million shares at A$5.41-6.37 apiece. PEP will sell 38 million shares, reducing its stake from 52.9% to 30.3%, while Intermediate Capital Group and Macquarie will offload 18.7 million shares and 9.1 million shares, respectively.
GREATER CHINA
PE-backed IMAX China raises $248m in HK IPOPrivate equity-backed movie theater operator IMAX China has raised HK$1.92 billion ($248 million) in its Hong Kong IPO after pricing shares towards the bottom end of the indicative range. The company sold 62 million shares at HK$31.00 per share. FountainVest Partners and CMC Capital Partners each exited 11 million shares – realizing HK$341 million – and will hold stakes of 6.4% apiece once IMAX China goes public.
ChinaEquity Group to list on New Third BoardBeijing-based private equity firm ChinaEquity Group has won regulatory approval to list its renminbi investment branch on China’s National Equities Exchange and Quotations (NEEQ), also known as the New Third Board. ChinaEquity manages about RMB5.4 billion ($850 million) in renminbi assets, including four PE funds and three VC funds.
Tsinghua to invest $3.8b in Western Digital
State-backed Tsinghua Holdings has agreed to pay $3.78 billion for a 15% stake in Western Digital, a US-based disk drive manufacturer. Unisplendour Corporations, a publicly-traded subsidiary of Tsinghua Holdings, will buy newly-issued Western Digital shares at $92.50 apiece. The purchase follows the acquisition of a majority stake in Hewlett-Packard’s China-based data-networking business for about $2.3 billion earlier this year.
Tiantu leads Series B for home renovation platformConsumer-focused GP Tiantu Capital has led a Series B round of funding for Mei Jia Bang, a Chinese start-up that provides online interior design solutions. The company’s mobile app Mjbang.cn – which launched in September last year – connects construction services providers and consumers. The company has also hired an in-house design team and established partnerships with 10 construction material brands to provide interior design solutions.
CDIB appoints Steven Wu as managing directorCDIB Capital, the PE arm of Taiwan’s China Development Financial (CDF), has appointed Steven Wu as managing director. Based in Taipei, Wu focuses on the sourcing, underwriting and management of investments in the China-Taiwan vertical. He previously served as senior vice president at China Venture Management, an investing affiliate of CDF.
NORTH ASIA
SoftBank leads $1b round for US online lenderJapanese technology giant SoftBank Group has led a $1 billion Series E round for Social Finance (SoFi), a Silicon Valley online lending marketplace also backed by China social network Renren. Existing investors taking part included Third Point Ventures, Wellington Management Company, Institutional Venture Partners, Renren, Baseline Ventures, and DCM Ventures.
H&Q to take full ownership of JobKorea H&Q Korea plans to acquire the 50.1% of JobKorea – the South Korean operation of Monster Worldwide – that it doesn’t already own for approximately $85 million. The private equity firm bought a 49.99% stake for $90 million in December 2013, and since then Monster and H&Q have managed the business in partnership.
Japan virtual currency player gets $2.3mOrb, a Japanese start-up making authentication technology for virtual currencies, has raised JPY274 million ($2.28 million) from a group of investors. SBI Investment, an investment firm called United, online marketing company Ceres
RRJ Capital closes Fund III at $4.5bRRJ Capital has closed its third fund – which invests globally, with an emphasis on China and Southeast Asia – at $4.5 billion after about nine months in the market. The vehicle was substantially oversubscribed, with excess demand of around $1 billion, and a claw-back was needed to accommodate all the investors. The total includes at least $150 million from Richard and Charles Ong, co-CEOs of RRJ.
RRJ Capital Master Fund III launched in
February and had a target in the region of $4 billion. It is the biggest vehicle ever raised by a GP headquartered in Asia, surpassing the $3.98 billion Baring Private Equity Asia accumulated for its sixth fund, which closed earlier this year.
The Teachers’ Retirement System of the State of Illinois, Texas County & District Retirement System, New Jersey Division of Investment, Oregon Public Employees Retirement Fund, the Public Employees Retirement Association of New Mexico, and Pennsylvania State Employees’ Retirement System are among LPs in the fund.
RRJ was set up by Richard Ong, formerly of Goldman Sachs and Hopu Investment Management, in 2011. His brother Charles, previously of Temasek Holdings, joined the following year. The firm closed its debut fund at $2.3 billion in 2011 and followed up with a second vehicle worth $3.6 billion in 2013.
NEWS
Number 37 | Volume 28 | October 06 2015 | avcj.com 5
and advertising company Adways contributed capital, with Monex Ventures underwriting.
SOUTH ASIA
China’s Didi Kuaidi invests in Indian peer OlaChina-based ride-hailing app maker Didi Kuaidi has invested an undisclosed sum in Indian counterpart Ola, as part of an expected $500 million round of funding. The two companies compete against Uber, which launched in India less than two years ago and currently operates in 18 cities with a base of more than 150,000 drivers and a market share of over 35%. Ola operates in over 100 cities with a network of 200,000 drivers.
Apollo completes exit from Dish TVApollo Global Management has fully exited Indian direct-to-home TV service provider Dish TV, selling its remaining 3.58% stake on the open market for INR3.99 billion ($61.1 million). The GP previously made partial exits in April and June, and the final transaction takes its total proceeds to about INR11.4 billion. Apollo invested INR4.7 billion in Dish TV in 2009.
Alibaba re-ups in India’s PaytmChina e-commerce giant Alibaba Group and its online finance branch Ant Financial Services have made a further investment in Paytm, India’s largest mobile payment and commerce platform. Alibaba reportedly paid $680 million for a 20% interest in Paytm, lowering Ant Financial’s 25% stake to 20%. Ant Financial acquired a 20% share from Paytm’s parent One97 Communications in February, in a deal said to be worth $550 million.
Spice PE invests in Clearwater’s NBFCSwitzerland-based alternative investment firm Spice Private Equity has committed $10 million to Indian non-banking finance company (NBFC) Altico Capital India. The GP invested alongside Altico’s PE backer Clearwater Capital Partners, US-based alternative investment firm Värde Partners and the Abu Dhabi Investment Council.
Qualcomm launches $150m venture fundQualcomm Ventures, the VC arm of US semiconductor producer Qualcomm, has formed
a $150 million fund to invest in Indian mobile and internet start-ups. In addition to providing financial investment, it plans to assist portfolio companies through its expertise in mobile technologies and its industry relationships. Qualcomm Ventures made its first India investment in 2007 and now has more than 20 domestic companies in its portfolio.
Infogain to buy Blue Star IT operationsInfogain, a US-based IT consulting firm backed by ChrysCapital, has agreed to acquire the IT
operations of India’s Blue Star Infotech for INR181 million ($27 million). The deal enables Infogain to expand its offerings in the cloud, mobility and analytics sectors, and to improve its position in the product engineering and test automation fields. ChrysCapital bought a majority stake in Infogain in August for $63 million.
Quick Heal, Parag Milk Foods file for IPOsIndian security software developer Quick Heal Technologies and dairy firm Parag Milk Foods have filed for IPOs, seeking INR2.5 billion ($38 million) and INR3.25 billion, respectively. Parag has also raised an additional INR600 million from existing backer IDFC Alternatives. Sequoia Capital is Quick Heal’s VC backer, while Parag’s investors include Motilal Oswal Private Equity and IDFC.
Sequoia, SAIF in $36m Series B for PepperTapPepperTap, an India-based hyperlocal online grocery delivery start-up, has raised a $36 million Series B round led by online marketplace Snapdeal, with participation from existing investors Sequoia Capital and SAIF Partners. New investors Ru-Net, the Russian technology investor, and Japanese firms BeeNext and Jafco also participated.
Creation, Everstone lead $15m round for SLCMEverstone Capital and Creation Investments Capital Management have led a INR1 billion ($15 million) round for Indian agricultural logistics firm Sohan Lal Commodity Management (SLCM). This is the first investment by Creation in SLCM and the second by Everstone. The company manages a network of 760 warehouses across India and also provides financial services through a non-banking financial company.
SOUTHEAST ASIA
Philippines’ PLDT launches VC unitPhilippine Long Distance Telephone (PLDT) has created an investment arm that will back start-ups in Silicon Valley and around the world. PLDT Capital is expected to invest up to $50 million in 2015 to help PLDT business units – such as Smart, ePLDT, Digital5 and Voyager – expand their portfolio of digital services in the Philippines, the rest of Southeast Asia, and other developing economies globally.
Comcast to buy control of PE-owned USJComcast Corp. has agreed to pay JPY183 billion ($1.5 billion) for a 51% stake in Universal Studios Japan (USJ), a theme park operator controlled by MBK Partners, Goldman Sachs, PAG, and US hedge fund Owl Creek Asset Management. The US-based cable operator described the investment – which values the business at JPY750 billion, including debt – as a recapitalization transaction, with the current owners staying on as minority shareholders.
USJ was established in 1994 as a joint venture between the government of Osaka and several private investors. The park opened in 2001 and
is one of four movie-themed Universal Studio parks globally. Goldman invested $180 million in USJ in 2005 and it went public two years later. In 2009, with visitor numbers falling, a Goldman-led consortium – including MBK, Owl Creek and Glenn Gumpel, USJ’s CEO – delisted the business. PAG invested $250 million in December 2013.
The park features classic Universal attractions as well as attractions and shows specifically designed for the Japanese market. USJ’s sales reached JPY138.5 billion for the 12 months ended March 2015, up 44% year-on-year, while operating profit rose 61% to JPY39 billion. Visitor numbers for the year came to a record 12.7 million, up from 10.5 million in 2014.
NEWS
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The Future of Venture 6 Nov 2015
Dr. Jeffrey ChiChairman
Singapore Venture Capital &Private Equity Association
Dr. Jeffrey ChiChairman
Singapore Venture Capital &Private Equity Association
Yoav Z. CheloucheManaging Partner
Aviv VentureCapital
Jeremy CollerExecutive Chairman & CIO
Coller Capital
Sagi KarniConsul General of Israel in Hong Kong andMacau
Mounir GuenCEO
MVision
Volker HeistermanManaging Director
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Key Topics:
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Unique Venture ModelsPolicy Perspectives
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Raz HeifermanGovernment ICT Authority
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Amir Gal-OrFounder and Managing Partner
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Amir Gal-OrFounder and Managing Partner
Infinity Group
Prof. Kalok ChanDean
The Chinese University ofHong Kong Business School
Michael BruckHong Kong Leader
Stanford Research Institute (SRI)
Ir Allen YeungGovernment Chief Information Officer
Office of the GovernmentChief Information OfficerGovernment of the Hong Kong SAR
Prof. Manhong Mannie LiuChairman of National VentureCapital Research Committee
The Chinese Societyfor Management Modernization
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Government PensionInvestment Fund, Japan
Nicholas YangAdvisor to the Chief Executiveon Innovation and Technology
Government of the Hong Kong SAR
Prof. Yesha SivanExecutive Director
Coller Institute of Venture
Dr. Robyn Klingler VidraLecturer
King’s College London
Prof. Eli TalmorProfessor
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Prof. Eli TalmorProfessor
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Herman LamCEO
Hong Kong Cyberport Management Company Ltd
James MawsonFounder
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Number 37 | Volume 28 | October 06 2015 | avcj.com 7
COVER [email protected]
“WHEN I TALK TO MY CLIENTS ABOUT why they are not interested in having further discussions with one of you they say, ‘They are too short term, they only think of being here for 5-7 years.’ This is an idea of how Filipinos think in terms of relationships – 5-7 years is the blink of an eye. You can think about more creative ways of extending that or join a company like GIC that doesn’t advertise exits.”
So said Dennis Montecillo, executive vice president and group head of the corporate client segment at Bank of the Philippine Islands (BPI), in a remark to GP delegates at the AVCJ Philippines Forum in September.
GIC Private is indeed a good example. The Singapore sovereign wealth fund deployed more than $550 million across three direct deals in the Philippines in 2014, helping take private equity investment in the country to $869 million, more than the previous three years combined.
With minority stakes in liquor producer Emperador, canned foods distributor Century Canning Corporation, and the hospital business of Metro Pacific Investments Corp, GIC has exposure to companies that cater to domestic and export demand. In each case, the ultimate owner is a family patriarch with sufficient wealth to warrant a place in Forbes’ Philippines rich list.
Family-owned businesses – small and large – lie at the heart of the Philippines PE opportunity, but cultivating the relationships required to secure such deals takes considerable time and effort. It is one of the reasons why the country has failed to live up to the investment promise conveyed in its economic growth prospects.
“[Private equity] is today less than one half of one percent of GDP, which is very low even in the Asian context,” Todd Freedland, director general in the private sector operations department at the Asian Development Bank (ADB), told the forum. “There are all these really attractive market fundamentals yet the volume of private equity investment remains stubbornly low.”
Economic appealThese attractive fundamentals are rooted in steady economic expansion, fiscal responsibility and a youthful and increasingly consumption-oriented population. Fueled by inbound remittances from expatriate workers and a
modernizing export sector characterized by a robust business process outsourcing industry, the Philippines has achieved average annual GDP growth of 5.5% in 2004-2008 and 6.3% in 2010-2014.
To this can be added a resilience underpinned by high foreign currency reserves, a current account surplus, and a debt-to-GDP ratio that is among the lowest in the region. “We really don’t think the Philippines is going to be that affected by the global financial situation tilting because it is fundamentally very strong; we think it would be one of the least affected countries in the region,” said Shanaka J. Peiris, the IMF’s resident representative to the Philippines.
The Philippines’ ability to buck global economic trends was one of the factors that brought CVC Capital Partners to the country in 2011. Having seen control investments in more developed Asian markets struggle during the global financial crisis due to their reliance on US and European economies, the private equity firm
wanted to vary its geographic exposure.Indonesia was the first market to catch
its attention, for much the same reasons that the Philippines appeals now: favorable demographics, rising household incomes and consumer demand, and a modernizing economy, which overcome concerns about corruption and infrastructure. The firm invested in a department store chain and in a cable TV provider.
CVC’s two Philippines deals – Rizal Commercial Banking Corporation (RCBC) and BPO player SPi Global – follow the same economically resilient and consumer-oriented theme. “When we look at the Philippines in the context of our regional investment strategy we have to thank the global financial crisis for helping us get here,” said Brian Hong, a partner at CVC.
While CVC was an early mover in the Philippines, it is estimated that in the last three years every global and regional private
equity firm with a presence in Asia has made exploratory visits to the country. However, this has resulted in relatively little concrete action.
Subtract the cumulative value of CVC’s investment in SPi and GIC’s three deals from the annual totals for 2013 and 2014 of $580 million and $868 million, respectively, and the surge no longer seems as profound. For 2015 to date, AVCJ Research has records of a handful of transactions worth about $55 million between them.
Other investments are almost certainly happening beneath the radar, but as BPI’s Montecillo noted: “The ratio of deals completed to trips made to the Philippines is quite low.”
The image these data cast of the country’s private equity market is that of a barbell: a cluster of large deals at one end, a host of smaller investments at the other, and very little in between. While there are also broader economic factors at work, industry participants routinely cite a lack of transactional mentality on the part of business owners for the relative scarcity of deal
flow. Any decision to sell equity to a third-party investor is largely emotional and driven by the founding family’s long-term objectives.
It is very difficult for PE firms to achieve a breakthrough with these founders if they don’t have a presence on the ground and – as Montecillo indicated – a willingness to develop relationships over a sustained period of time. If they are not, particularly at the top end of the market, plenty of domestic conglomerates with a low cost of capital and a long-term investment horizon are looking to do deals.
When Navegar was set up two-and-a-half years ago, the idea was to go where other PE firms were not and target investments in the $10-20 million space. The firm, which operates as a joint venture between Swedish alternative asset manager Brummer & Partners and a local management team, remains one of few local GPs to get traction with institutional investors, raising
Please be patientInvestors are flocking to the Philippines, but PE firms should invest time in building relationships with family-owned businesses and the government must deliver reforms if the country is to fulfill its potential
“here are all these really attractive market fundamentals yet the volume of private equity investment remains stubbornly low” – Todd Freedland
avcj.com | October 06 2015 | Volume 28 | Number 378
PHP5 billion ($120 million) for its debut fund.There has been no shortage of deals to look
at. Since its inception, Navegar has considered 186 potential investments, signing 12 letters and completing three transactions. While noting that competition is less intense for smaller ticket deals, Honorio Poblador IV, a partner at Navegar, stressed that the market can still be difficult to navigate. IPOs are increasingly an option for capital-hungry companies but an equally pertinent threat comes from other quarters.
“Even in our space we are finding some of the
larger conglomerates have dipped their feet into select opportunities. If they are not doing it then it is the junior conglomerates – businesses that have grown over the last 20 years and collected enough cash to deploy to other non-core businesses,” said Poblador.
The value-add gambitThis tendency to move towards the smaller end of the market in search of deal flow is not limited to domestic conglomerates. Mikko Perez, founder and CEO of mobile payments start-up Ayannah, claims that hedge funds are also looking at earlier-stage opportunities.
“PE investors have to come in with smaller bite sizes and identify entrepreneurs that are earlier in the stage of their lifecycles,” he said. “These entrepreneurs now have more choice as to where to raise capital from so it is important that the private equity investors provide more than just cash if they are to compete with strategics that can offer a lot of synergies.”
Foreign GPs in particular can play a role here, providing strategic advice and using their global networks to connect companies with potential suppliers, customers or partners. They can also exploit the fact that the high concentration of corporate ownership in the Philippines is not good for everyone: mid-tier players may fear aligning themselves with domestic giants
because they could end up overwhelmed and ultimately absorbed. Private equity does not pose this kind of threat to management.
In this sense, the key to success in the Philippines is finding a way to work within the existing corporate dynamic rather than trying to displace it. The ABD’s Freedland noted that, even among private equity firms that have been active in Asia for decades, he has seen “a bias towards control and towards a certain style of deal-making” that is effective in the West but doesn’t necessarily work in the Philippines.
“It is not the mindset, it is not the approach, it is not the culture,” Freedland said. “You have this large concentration of family ownership and you have to figure out a way to be compatible with and value-added to families that may have slightly different objectives to the traditional buy-and-flip-type investor.”
For CVC, which typically looks to write equity checks of $100-200 million, it is difficult to avoid the largest and oldest family-owned businesses. These companies are multi-generational and usually financially stable, so in the absence of a succession planning or turnaround investment thesis, the emphasis is placed on partnerships.
The private equity firm entered RCBC as a minority investor but was comfortable with the family stakeholder and management team and what they wanted to do with the business. In the case of SPi, while CVC did obtain control, the previous owner – Philippines Long Distance Telephone (PLDT) – stayed on as a partner and minority shareholder.
“In six weeks we are never going to understand a business the way a founder who has been running it for 30 years understands it. We may look at it differently, but he is going to know his employees, his customers, the market, and his competitors in a way we do not,” CVC’s Hong said. “We channel that, we respect that. He respects what we can bring and we outline what
that would be in the beginning, and we agree to work together.”
Reform agendaThe ideal scenario for private equity is a halo effect: if more of these partnerships prove to be mutually beneficial, understanding of the asset class will spread throughout the business community. This may result in increased deal flow. However, investors stress that the industry selling its story is only part of the solution; the government must also take action – or continue to take action – in a variety of areas.
Stability from a policy perspective and continued deregulation are essential to making foreign investors comfortable with the commercial environment and able to deploy capital easily. There is also a need to remove systemic inefficiencies in two areas, financial services and infrastructure, which have implications stretching far beyond those sectors.
On a macro level, the financial system is dominated by banks lending to large corporations. Deeper capital markets that offer a wider variety of capital-raising options to these corporates would spread the risk and encourage banks to focus more on consumers. Limited access to financial services, particularly among individuals looking to borrow less than PHP1 million who don’t have bank accounts, is a key contributor to social inequality.
Meanwhile, the country’s infrastructure stock as a percentage of GDP exceeds Indonesia but trails Singapore, Malaysia, Thailand and Vietnam. As for the quality of infrastructure, the Philippines is ahead of only Vietnam, according to the IMF. Peiris noted that productivity and investment, though improving, remain low by regional standards. “To continue to improve this level of activity and to continue to benefit from investments from abroad we need to have a better infrastructure capital stock,” he said.
The barbell effect that characterizes the Philippines’ PE market reflects the broader economic dynamic. In the absence of structural changes that encourage smaller companies to scale up and dilute the concentration of activity in the top tier, it will be difficult to generate enough deal flow to sustain a middle market.
“Until you see more trickle down and some of the MSMEs [micro small and medium-sized enterprises] becoming SMEs that are beyond the venture capital stage, generating cash flow and attractive to private equity, I think it will be a little bit of a chop,” said the ADB’s Freedland.
Though bullish on the Philippines, he and others warn that the country will not realize its potential overnight. “You’ve got to patient,” Freedland added. “This isn’t a 3-5 year window; this is a 10-25 year window.”
COVER [email protected]
Private equity investment in the Philippines
Source: AVCJ Research
1,000
800
600
400
200
0
25
20
15
10
5
US$
mill
ion
Dea
ls
No. of deals2009 20112010 2012 2013 2014 2015YTD
Start-up/early-stagePIPEBuyout Growth/pre-IPO
Number 37 | Volume 28 | October 06 2015 | avcj.com 9
FOR SINGAPORE-BASED GP HERA CAPITAL, French cosmetics firm Crème Simon was a great prospect. Though neglected by its previous owner, the company, founded in 1860 and known for its all-natural products, was a venerable brand and ripe for expansion. But a re-launch in Southeast Asia would require heavy investment in advertising, and Hera was eager for a way to cut costs and streamline this process.
MediaCorp, a Singapore-based media conglomerate that recently expanded its venture capital operations, offered a novel solution. It had learned of the media-for-equity model, an increasingly popular option in Europe whereby a company trades equity directly for advertising. MediaCorp was looking for a partner to introduce the model into Asia.
“We were looking at start-ups who had needs in mass media, and who could be interested, but at the same time didn’t have the cash to invest in media entry,” says Guillaume Sachet, head of media planning at MediaCorp. “We had the mandate to push this model into the market, so my goal was to find suitable companies.”
Crème Simon took MediaCorp up on its offer and agreed to part with a stake of undisclosed size. With the French newcomer on board, MediaCorp hopes to see more interest in media-for-equity. However, the model’s specialized nature means it will be hard to attract attention. Industry professionals say it will take careful calibration for such ventures to find a niche.
European originsThe media-for-equity model originated in Europe in the late 1990s, among media companies that were looking for new customers. Smaller companies that were short on funds could barter shares for badly-needed media exposure.
It did not take long for media companies in Asia to take note. These include India’s Brand Capital, a branch of the Times of India Group that started providing media-for-equity services in 2005. The firm saw an opportunity in the expected wave of entrepreneurs who would need advertising but not have funds to pay for it.
“The beauty of the Indian environment was that a lot of unorganized players were getting into the organized space,” says Brand Capital CEO Sivakumar Sundaram. “People were demanding more and more value-added
products and services. At this point in time, the communication, branding and marketing of the value-added model was a huge challenge for the new generation of entrepreneurs.”
Media companies continue to be a significant provider of media-for-equity services in Europe, but the model’s head start in the region has allowed some developments that have not yet appeared in Asia. One of these is the media-for-equity fund approach, typified by German Media Pool Venture Capital (GMPVC).
Founded in 2011, this firm characterizes its approach as similar to a venture capital fund. However, GMPVC’s LPs are media companies,
who commit advertising services rather than capital. This allows smaller media providers access to a market they could not otherwise tap.
“They’re not really big enough to set up an overall program themselves,” says Aljoscha Kaplan, managing director at GMPVC. “They wouldn’t have the resources, the knowhow, the access to the start-up and VC scene, and that’s where an external provider like us comes in.”
The specialized services offered by media-for-equity providers mean that the model will not fit every company. Professionals identify two main groups that can benefit from this type of transaction. The first and most common is a fresh start-up without enough funds to buy media for itself. 9flats, a German apartment-sharing start-up backed by GMP, represents this group.
The other, perhaps less intuitive option, is a large company starting a new venture or operating overseas. Though the parent companies might have the resources to purchase advertising themselves, management may feel that an ownership stake gives the media provider more interest in the venture’s success. Crème Simon’s new Asia venture fits in this category.
Though the media-for-equity approach has yet to achieve widespread success in Asia, proponents feel it is not difficult for clients to grasp. “Conceptually it’s a very straightforward
model,” says MediaCorp’s Sachet. “We are running a media campaign for you. This campaign has a certain value. Once we agree on the value, we convert this into equity in the company.”
Momentum killer?However, while the model might be easy to explain, there are a number of factors that could limit its effectiveness in the region. First is the specialist nature of the services on offer – only a media company, or a firm set up for the purpose, can trade media for equity directly. The closest a traditional GP can come is to set up media services through its portfolio network.
Media providers also have to guard against the perception of conflict of interest. Investors tend to downplay this risk, since in many ways it is not new; media companies traditionally limit the effect of advertisers on their news coverage. In addition, GMPVC’s experience in Europe seems to indicate that audiences do not factor a media company’s investments into its trustworthiness.
Another challenge is the difficulty of follow-on investments. Whereas traditional VC investors can easily commit more cash in follow-on rounds to maintain their stake, investees may not welcome additional media investments.
“They may not want the same type of media, they may not need any type of media anymore,” says GMPVC’s Kaplan. “They may be interested in simply acquiring cash, because they’re now at a stage where they’ve exited the funding gap.”
Nevertheless, proponents of media-for-equity say it may be better viewed as an enticement to potential advertisers, rather than an investment. If a media provider can bring customers success, they will be more willing to return in the future.
“Once we have shown that the efficacy is strong and the client has seen success, there comes the inflection point that the equity becomes more precious than the cash in hand,” says Brand Capital’s Sundaram. “When that point comes, then he’ll become a cash customer.”
Outside the boxMedia-for-equity investing has become a well-established niche market in Europe. To take hold in Asia, the model requires the right investors and the right customers
“We are running a media campaign for you. This campaign has a certain value. Once we agree on the value, we convert this into equity” – Guillaume Sachet
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3-5 November 2015Four Seasons HotelHong Kong
28TH ANNUAL
USA9%
UK3%
India2%
Singapore9%
Malaysia2%
Australia4%
Japan5%
Other 9%
China11%
Hong Kong44%
South Korea2%
TOP 10 ATTENDING COUNTRIES
For the full speaker line-up and programme details, visit avcjforum.com
REGISTERNOW!
4 WEEKS TO GO
Global Influencers to speak at the Forum include:
John Zhao Founder & CEOHONY CAPITAL
Joseph Y. Bae Member and
Managing PartnerKKR ASIA LIMITED
Kok Yew Tang Chairman and Managing Partner
AFFINITY EQUITY PARTNERS
Josh Stern Director, Private InvestmentsROBERT WOOD JOHNSON
FOUNDATION
Allan Zeman ChairmanLAN KWAI FONG GROUP
Ravi Thakran Group President, LVMH SOUTH & SOUTHEAST ASIA AND MIDDLE EAST; Managing Partner, L CAPITAL ASIA
Steve Byrom Head of Private EquityFUTURE FUND
Andy Hayes Private Equity Investment OfficersOREGON STATE TREASURY
With over 170+ speakers and 310+ Limited Partners expected, make sure you register for the 28th Annual AVCJ Private Equity & Venture Forum for 3 days of unrivalled networking opportunities.
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3-5 November 2015Four Seasons HotelHong Kong
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3-5 November 2015Four Seasons HotelHong Kong
28TH ANNUAL
USA9%
UK3%
India2%
Singapore9%
Malaysia2%
Australia4%
Japan5%
Other 9%
China11%
Hong Kong44%
South Korea2%
TOP 10 ATTENDING COUNTRIES
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Global Influencers to speak at the Forum include:
John Zhao Founder & CEOHONY CAPITAL
Joseph Y. Bae Member and
Managing PartnerKKR ASIA LIMITED
Kok Yew Tang Chairman and Managing Partner
AFFINITY EQUITY PARTNERS
Josh Stern Director, Private InvestmentsROBERT WOOD JOHNSON
FOUNDATION
Allan Zeman ChairmanLAN KWAI FONG GROUP
Ravi Thakran Group President, LVMH SOUTH & SOUTHEAST ASIA AND MIDDLE EAST; Managing Partner, L CAPITAL ASIA
Steve Byrom Head of Private EquityFUTURE FUND
Andy Hayes Private Equity Investment OfficersOREGON STATE TREASURY
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avcj.com | October 06 2015 | Volume 28 | Number 3712
WHEN UK-BASED EXPONENT PRIVATE Equity bought Quorn Foods from Premier Foods in 2011, it was a small business – an unloved subsidiary generating EBITDA of GBP18 million ($27 million) per year and with flat growth..
Quorn. a meat substitute derived from a fungus, is sold in the form of burgers or chicken fillets and as a range of own-brand ready-to-cook meals. Exponent concluded that the company had a strong market position with potential to grow globally and it acquired the business for GBP205 million. Intermediate Capital Group (ICG) provided GBP80 million in junior debt and equity.
Exponent set up a 10-strong team to boost sales volume and committed capital to supply chain improvements, product development and advertising and marketing. During the five-year ownership period, Ouorn Foods built up a retail presence in 15 countries. Sales reached GBP150.3 million in 2014, while EBITA came to GBP38 million. The PE firm then looked for a buyer to grow the business further.
“We set up an auction process to sell the business and there was a lot of interest from
private equity firms and trade buyers. The auction had just started when we were approached by Monde Nissin,” says Chris Graham, co-founder of Exponent. “They have heard about the business and they were keen to help develop its international products.”
Philippines-based food conglomerate Monde Nissin is aggressively looking to build global and diversified consumer businesses, making three acquisitions in Australia in the last seven months alone. After few meetings with Exponent, the company agreed to buy Quorn Foods at an enterprise valuation of GBP550 million.
“Some other Asian trade buyers were interested in Quorn Foods and saw it as an attractive opportunity, but none of them moved as quickly as Monde Nissin,” says Graham.
Monde Nissin, which produces instant noodles, baked goods, biscuits and snacks under a range of brands, is expected to support the expansion of Quorn Foods in Asia by leveraging
its own distribution networks. This is the first portfolio company that
Exponent exited to an Asian buyer but the GP sees increasing evidence of investors from the region looking for assets in the UK. Bright Food’s acquisition of breakfast cereal brand Weetabix and Hony Capital’s purchase of PizzaExpress
are prominent examples of this interest turning into action.
Philippines-based conglomerates are also becoming more acquisitive in overseas markets. The $2.2 billion transacted across 20 outbound M&A deals in 2014 was the most in four years, according to Thomson Reuters. Already this
year, 25 deals have been announced worth a cumulative $1 billion.
Neither is Monde Nissin the Philippines food player to buy a business private equity. Last year, Universal Robina acquired New Zealand-based snacks maker Griffin’s Foods from Pacific Equity Partners for $608 million.
THIS YEAR SHANGHAI AND SHENZHEN became the first Chinese cities to increase their monthly minimum wages above the RMB2,000 ($315) threshold. While notable, these hikes are by no means exceptional.
Over the past decade, minimum wages nationwide have risen by an average of 13% every year. China became the world’s factory by virtue of its scale, ability to get goods to port, and low-cost labor. The government wants to climb the manufacturing value chain so shoe factories relocating to cheaper Vietnam is no great loss, but companies at every level must adjust.
“Up until 3-4 years ago an Asian company could survive in sub-contract manufacturing mode, but things have changed,” says Ta-Lin Hsu, founder and chairman of H&A Asia Pacific. “Furthermore, the old method of transferring technology from the West to Asia is changing due to the globalized world. Competition is based on innovation and this is where we saw that Asian companies usually fare more poorly compared to some of these very successful companies in Silicon Valley, for example.”
H&Q’s solution is a technology hub with a difference. Rather than focus on start-ups, it supports established companies looking for ways to survive in an increasingly competitive environment. And instead of taking talent and technology from the US to China, H&Q brings the companies to the US.
To this end, the PE firm has launched the Global Innovation Center (GIC) initiative, which is housed in two commercial properties in Burlingame, about a 10-minute drive from San Francisco International Airport. The overall space is 260,000 square feet and the private equity firm paid $90 million for it. Another $10 million will go towards developing and operating the GIC concept – networking, programming, technology transfer, and marketing to prospective tenants.
H&Q has 6-7 funds, including its flagship offshore fund, which closed at $550 million a few years ago and is about 50%-invested. GIC is a real estate project and it doesn’t sit within the
investment criteria of any of these vehicles, so the private equity firm raised a special project fund,
comprising $50 million in equity and $50 million in debt.
In certain cases, H&Q will also back its tenant companies financially. “Rather than waiting in our office for the deal to hit us, then doing due diligence and making an evaluation, we will help companies to innovate and come up with new ideas, devices,
software and technology,” Hsu says. “If they are receptive to this concept of
getting access to what Silicon Valley has to offer and making changes, we have first right of refusal to invest.”
The facilities are already 85% occupied and there is space to add another 200,000 square feet to the campus if necessary. But as old tenants move away they will be replaced in the cluster by others in H&Q handful of target sectors: medical instruments, batteries, automotive, the internet, software, and wearable devices.
DEAL OF THE [email protected] / [email protected]
Monde Nissin develops a taste for Quorn
H&Q’s reinvigoration factor
Ta-Lin Hsu: H&Q AP’s founder
Quorn: Meat alternative
WHEN ISRAEL OPENED UP ITS TECH sector to global private capital two decades ago – known as the Yozma program – Singapore’s Vertex Ventures Holdings (VVH) was among the first Asian arrivals. A local firm, Vertex Venture Israel, was set up and went on to raised country-dedicated funds to support Israeli start-ups, receiving commitments not only from Vertex Ventures Holdings but also third-party investors.
After 18 years of operation, the Israeli firm’s total assets have grown to approximately $650 million and its LP base includes groups from Asia, Europe and the North America.
VVH, a wholly-owned VC arm of Temasek Holdings, is now extending its global networks through a similar structure to the one that has worked in Israel. The holding company receives capital from its sole investor Temasek and in turn invests in funds raised by Vertex’s family funds across South Asia, China, Israel and the US, alongside external LPs.
VVH’s last two funds – each of which amounted to $250 million – largely focused on Asia. The latest $600 million vehicle, comprising
a single contribution from the parent, has been earmarked for start-ups operating in the US and Israel, while doubling down on China.
“In the past, we focused on Asia, but now we’re expanding to Israel, the US and a few other markets,” says Kee Lock Chua, group president and CEO of VVH. “We don’t consider ourselves as a fund-of-funds or a pure direct investment arm. We don’t commit capital to managers outside of the group. While direct investment means that we make investments by ourselves in different countries and raise more money externally, we are only investing in funds from our balance sheet.”
Vertex family funds raise about $120-200 million each. VVH makes LP contributions of $60-100 million. The funds focus on Series A and B rounds; each start-up receives about $2 million.
Vertex was an early investor in Singapore luxury e-commerce portal Reebonz and mobile taxi-booking GrabTaxi. Over the past two years,
it has made several exits including mobile game developer IGG, which listed in Hong Kong in 2013, and Chinese app store 91 Wireless, which was sold to search engine Baidu.
While IT is the primary target sector for each fund, healthcare has been identified as a growth area. In addition to backing funds within the
network, VVH has launched a sector-focused vehicle to invest in healthcare companies globally. It is part of the firm’s captive funds strategy, is fully-funded by the holding company, and is managed by teams in Singapore and the US.
Chua adds that part of the $600 million will be reserved
for co-investments alongside funds, although it’s not a top priority. “Our strength is to help the portfolio companies expand cross-border,” he says. “So even though each Vertex fund focuses on its respective market, we are able to help them expand globally because we have a presences in many locations.”
DEAL OF THE [email protected]
Vertex strengthens its global foothold
Vertex: More money overseas
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Deal Report
NASDAQ listed Focus Media has received a non-binding tender offer of $5.4 per share, or $27 per ADS, of its entire outstanding
common shares from a consortium of investors, including company chairman Nan-chun Jiang, CDH Investments, China Everbright
Limited, CITIC Capital Partners, FountainVest Partners and The Carlyle Group. The consideration would be approximately $2.88
billion based on the 532.95 million common shares outstanding and not held by the chairman.
Announced Date:
Announced (US$mln): Previous Stake:
Deal Stake:
Final Stake:
Company Name Deal Role Industry
Private Equity Buyout
Buy-outs (MBO/MBI/LBO)
Deal Type:
Deal Status:
Stage:
Nationality
17.56%
Involved Companies
82.44%
100.00%
Agreement in Principle
Acquisition Technique:
Acquisition Attitude:
Leveraged Buyout
Neutral
Closed Date: n/d
Aug 12, 2012
Amount(US$mln) Deal Stake
$2,877.9400
Closed (US$mln): n/d
United StatesCarlyle Asia - China Investor n/d n/d Private Equity
Hong KongCDH China Management Co.,
Ltd.
Investor n/d n/d Private Equity
Hong KongChina Everbright Ltd. Investor n/d n/d Finance
Hong KongCITIC Capital Partners Ltd. Investor n/d n/d Private Equity
China (PRC)FountainVest Advisors Ltd. Investor n/d n/d Private Equity
China (PRC)Nan-chun Jiang Investor n/d n/d Unclassified
China (PRC)Focus Media (China) Holding
Co., Ltd. (FocusMedia)
Investee n/d n/d Advertising
China (PRC)Fosun International Ltd. Seller n/d -17.20% Steel
United StatesUndisclosed Shareholder(s) Seller n/d -65.24% Unclassified
United StatesCitigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor (Carlyle Asia
- China)
n/d n/d Securities/Investment
Banking
United StatesCitigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor (CDH China
Management Co.,
Ltd.)
n/d n/d Securities/Investment
Banking
United StatesCitigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor (China
Everbright Ltd.)
n/d n/d Securities/Investment
Banking
United StatesCitigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor (CITIC
Capital Partners Ltd.)
n/d n/d Securities/Investment
Banking
United StatesCitigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor
(FountainVest
Advisors Ltd.)
n/d n/d Securities/Investment
Banking
United StatesCitigroup Global Markets Asia
Ltd.
Financial Adviser,
Investor (Nan-chun
Jiang)
n/d n/d Securities/Investment
Banking
United StatesJP Morgan & Co Inc. Financial Adviser,
Investee (Focus Media
(China) Holding Co.,
Ltd. (FocusMedia))
n/d n/d Securities/Investment
Banking
United StatesMorgan Stanley - Beijing
Representative Office
Financial Adviser,
Investor (CITIC
Capital Partners Ltd.)
n/d n/d Securities/Investment
Banking
United KingdomConyers Dill & Pearman Legal Adviser,
Investor (Nan-chun
Jiang)
n/d n/d Legal Services
1
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✔ New features on selection ✔ Performance data on exits ✔ Portfolio holding period
Plus
Number 37 | Volume 28 | October 06 2015 | avcj.com 15
Q: What was OCBC’s track record in PE ahead of the new fund?
A: We have been making private equity investments for more than 10 years and through our team – the Mezzanine Capital Unit (MCU) – that we built up within the bank. We have made 77 investments of which 59 have been realized, delivering an IRR or more than 15%. Over the past six years, the IRR has been over 20%. We wanted to create a more efficient investment platform and raise capital from institutions as well as from individual investors. The Southeast Asia and China stories are very interesting and we have a lot of investors who want to get exposure to these markets. OCBC Bank itself invested S$200 million ($140 million) in our fund. We also have a significant number of high net worth individuals regional banks, two Japanese financial institutions, insurance companies and a sovereign wealth fund. The LP base is highly diversified.
Q: There is a focus on small and medium-sized enterprises (SMEs) – companies that have for a long time struggled to get traditional financing. Why launch the fund now?
A: There are internal and external reasons. First of all, we needed to build our track record and this can’t happen overnight. We also believe there are several advantages for a fund investing in SMEs at this point. We a market leader in the SME space and the Singaporean and Malaysian governments are both supporting the sector. In China and Indonesia, a large proportion of PE deals are in the mid-market segment. Some
companies in Indonesia have reached a certain business size but are still tightly-controlled by the founders. In our view, their behavior is very much like that of an SME. From our experiences in our home markets of Singapore and Malaysia, we understand what these business owners are thinking and what motivates them. That’s why we believe we have the capabilities to tap into the SME sector.
Q: Several PE firms and regional banks also have SME-focused mezzanine funds. How are you differentiated?
A: What differentiates us from others is our longer track record. We also have teams on the ground – there are 22 MCU employees in total across Singapore, Malaysia, Indonesia, and China. Another key consideration is that we will only invest through the fund, not cherry-pick better deals for its own balance sheet. Just as importantly, we are able to leverage OCBC Bank’s strengths. There are many funds out there but they are often standalone funds. When we invest into companies, one part of our value-add is banking support. A lot of deals only address the investee’s need for equity or mezzanine financing and so they have to look elsewhere for debt funding. Through our banking relationships we can offer complete financing solutions.
Q: TTo what extent do these banking relationships help generate deal flow?
A: We recently acquired Wing Hang Bank in Greater China, but even before that OCBC Bank already had a significant presence on
the ground in China. MCU, being a unit within OCBC Bank, has a very close working relationship with the bank’s customer relationship units. It’s always a two-way traffic. On one hand, we can bring a lot of clients to the
bank. And on the other hand, the banking units can refer deals to us and their clients want to invest in our fund as well.
Q: What strategies are you looking at in each market?
A: We operate as three clusters: China, Indonesia, and Singapore and Malaysia combined. We don’t allocate a specific amount to each cluster but it’s a pretty even split. We have already made one investment in Singapore, and we’re looking to complete 15-20 deals in total across the four key markets. By the end of this year, we hope to have
another 3-4 deals, deploying about $100 million. Our sector focuses are in line with the growth areas in the countries in which we’re operating – these include utilities, telecom, and education. That said, our investment strategies are tailor-made to each country. For example, a lot of deals we have done in Singapore and Malaysia have been structured as debt with an equity kicker. In China, there are more direct equity investments. Regardless of how we structure deals, we must ensure there are multiple exit options. If a trade sale or IPO doesn’t happen, we will look at the secondary exit possibilities. Sometimes we also consider a debt-to-equity swap with the shareholders.
Q: What role does Lion Global Asset Management play in the fund?
A: Public markets are a very important part of our investment strategy. We think Lion Global and the MCU complement each other well: We make private investments, and they can give an opinion on what is the best listing venue for our portfolio companies. They have also brought a lot of institutional investors – their customers – to invest in our fund.
Q: OCBC launched a $100 million PE fund under the Shanghai Qualified Foreign Limited Partner (QFLP) program. Will this link with the new fund?
A: We’ve already made investments through the QFLP fund. The Lion-OCBC Capital Asia Fund I will be able to use the QFLP quota to gain exposure to investments onshore in renminbi.
OCBC | INDUSTRY Q&A [email protected]
The SME angleThe $392 million Lion-OCBC Capital Asia Fund I represents the first time OCBC has tapped third-party investors for a PE vehicle. Daniel Kwan, head of the mezzanine capital unit, explains the investment strategy
“We understand what these business owners are thinking and what motivates them”
Advanced paid registration is required. For more information, visit www.empea.org or call +1.202.333.8171
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