Portfolio: Navis Capital and Thailand's Golden Foods Siam

Egbert Segers thinks chicken is the answer to a question that most people haven't thought to ask: how to feed the ever-increasing number of mouths in the world.

"The feed conversion ratio [the amount of feed needed to produce a kilogram of meat] for a chicken is very low, and is generally only outperformed by insects and fish. This means that the demand for natural resources to grow chicken is low," says Segers, CEO of Thailand-based chicken producer Golden Foods Siam (GFS).

As one of several exporters of cooked chicken products in Thailand, GFS is doing its part to provide the world's protein. A consumer tucking in to a pre-made kebab in London probably has no idea that the meat on the stick came from a different hemisphere. But in order to grow to the level management wanted, the company required support that its previous owner was not willing to give.

Navis Capital Partners provided the answer, buying a 100% stake in GFS in 2009. Now the company's management team has the loosened reins that it yearned for. "Management was always strong and experienced, but the change in ownership led to aggressive investment," says David Ireland, partner at Navis. "This energized the team, as they were finally able to pursue new opportunities."

GFS, founded in 1997 as Golden Foods International, has passed through numerous hands. UK-based Grampian Country Foods Group took over the company in 2001, renaming it Grampian Foods Siam, before being itself acquired by Dutch conglomerate VION Food Group in 2008. The turmoil took its toll on the company; with owners half a world away, management had a hard time making the case for needed investments.

The owners' tight-purse-string policies were perhaps understandable in the middle of the global financial crisis. But they came at the wrong time for GFS, which was seeing impressive growth in Thailand's cooked chicken export industry following its recovery from the 2004 avian influenza scare. Between 2007 and 2010, total export volume increased from 322,000 metric tons to 418,000 metric tons. This made Thailand the leading exporter of cooked chicken in Asia and the third-biggest in the world, behind the US and Brazil (fourth if the EU is considered a single market).

"[Grampion and VION] are quite large companies, so there was quite a bit of restriction on capital investments," says Segers. "With Navis, it went much faster. We got much bigger into business, investment came in and that allowed us to grow the business to the level where we are today."

Past experience

Navis was already experienced in Thailand's poultry industry through its previous investments in duck processor Bangkok Ranch. The firm had held its investment in the company for 13 years, one of its longest holding periods, before eventually exiting most of the business to a consortium led by founders of Bangkok Ranch and Netherlands-based duck producer Duck To.

Navis felt that its direct involvement in the poultry business made it better attuned to manage GFS than the current owners, which never really saw the company as part of their core business. With a base of operations in Thailand, Navis also offered much more hands-on and responsive control than the Europeans could.

"That was something that was very interesting to us, as a theme that we had pursued over the years, where we see a good business that's not necessarily in the core of a big multinational or a big player elsewhere," says Ireland.

From the private equity firm's standpoint, the deal looked advantageous as well. It was aware of the potential of Thailand's poultry export industry, it liked management's ideas, and it recognized that dealing with a producer of cooked chicken products offered a degree of insulation from the vicissitudes of the raw chicken market.

"We liked the focus on value-add. Pure chicken is just a commodity play, there are lots of ups and downs, which is difficult for a company that wants to hold for five or six years, because you may get a bad cycle," Ireland says. "That emphasis on value-add to a certain extent de-risks the pure commodity risk of chicken."

Navis implemented its new style almost immediately, supporting management in several key investments. One major change, made only months after the acquisition, was the approval of a new cooking factory. The plant, which went online in April 2011, doubled GFS' cooking capacity and mainly serves the Asian market, which the company has targeted for significant expansion.

The private equity firm has continued to invest in improvements even up to the present year. The most recent project that the company embarked on was a new feed mill for its farming operation. The mill, which will improve GFS' vertical integration, is scheduled to be completed this year, although as Ireland acknowledges, it is a time frame that the firm would normally be looking for an exit.

"It was an investment that we made relatively late in our investment timeline, but one that we didn't shy away from taking," Ireland says. "We had great confidence in the management team. They recommended it, we did the financial analysis, and because of the success of our previous investment, we had the confidence to make it."

Navis' investments have enabled the company to increase its output, rising from 26,000 metric tons in 2010 to 43,000 metric tons in 2014. This has elevated GFS to the third-largest cooked chicken producer in Thailand, behind multinational Cargill and Charoen Pokphand Foods (CPF), a division of family-owned conglomerate Charoen Pokphand Group. GFS' has also seen steady compound annual growth of nearly 14% during Navis' ownership period, higher than the 8% rate of the market as a whole. In a sign of the company's strength, sales volume continued to rise even during a decline in the overall market in 2012.

New additions

Along with overtaking its rivals, GFS' growth has also allowed the company to build on its services to existing customers, which include quick service restaurant chains and groceries, along with other settings that require large amounts of premade meals such as nursing homes and hospitals.
"Some customers wanted to grow with us, but they couldn't because there were restrictions on the capacity we had," Segers says. "Once the new assets went online, they now had the possibility to grow with us."

Management has also set its sights on attracting new customers, in addition to improving services to existing clients. The company's previous efforts had brought it success in Japan and the UK, but management was concerned that the customer base lacked diversity. A decline in demand from just one of these markets, as happened in 2004 when Japan banned imports of Thai chicken in response to the avian influenza scare, could potentially have devastated the company's business.

To prevent this happening, GFS is reaching out to underserved markets such as the Middle East, Korea, Europe and Southeast Asia. The company has built up its sales and marketing teams. Navis has provided the capital for these efforts and also worked with management to produce an action plan.

Where possible, the private equity firm has introduced potential clients to GFS through its own network, but this has been a rare occurrence. Most often, the firm's support has come in the form of patience. Building up a new customer base takes time and effort: Sales teams have visited trade shows in target markets, sent product samples, and invited company managers to visit the production facilities.

Existing customers have also been a major help. Not only can GFS appeal to a customer's competitors in the same country, in the case of a multinational chain it can also introduce itself to the same company's franchisees in a different market.

"That's been a real entree for us into some of these other markets," Ireland says. "Volumes are big, their demands are hard, they need a really secure supply chain, and they need a proven capability. So our ability to serve some of these really well-recognized restaurants, say in Japan, or the UK, has opened the door for us in some of these other, more emerging markets."

The renewed focus on building the customer base has paid off, with a geographically diversified client list that Navis and management feels should be better able to weather any potential local disturbances. One region that managers are particularly interested in is Southeast Asia, where they expect rising disposable incomes to fuel a demand for relatively cheaply-produced chicken.

But the strength of chicken goes beyond its cost. As Segers points out, unlike other major meat products such as pork and beef, chicken has few cultural or religious restrictions. "There are not many religions, to my knowledge, that have any issue with eating chicken," he says. "It's very much accepted by all kinds of cultures and religions."

Exit options

With the investment entering its sixth year, Navis is considering exit options, though it has not felt the need to make any commitments at this point. The private equity firm feels that GFS is sufficiently well-positioned to sell to a strategic or trade investor; a public market listing is unlikely, as the GP feels more comfortable with a private sale.

Another source of confidence for Navis is GFS' unique position as an independent producer that nevertheless has strong international experience, with a multinational management team and a history of global involvement through its customer list.

Significantly, GFS is one of the few homegrown chicken producers in the Thai poultry market that are eligible for private equity investment. Other leading players in the industry are either multinational conglomerates, such as Cargill, or, in the case of CPF and Saha Farms, are owned by the founders or their families. In the first case, Navis feels, PE investors will likely be unable to afford the conglomerates' asking prices. In the second, the owners will probably be unwilling to sell. This means that GFS is the only company that investors can consider purchasing.

"No other producer will ever come up for sale. Our competitors are all basically family-run businesses, or really huge businesses. It is a unique opportunity and I think there is a fair amount of strategic interest," says Ireland. "We would consider financial sponsor interest as well, but we would have to feel comfortable that they knew this space well and that it was something they considered a very interesting investment thesis, which we think many people do."

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• Topics
• Southeast Asia
• Industrials
• Expansion
• GPs
• Thailand
• InvestIndustrial
• Navis Management
• Growth capital
• GPs