Affinity secures first Indonesia deal
Regional buyout firms have struggled to gain traction in Indonesia. In some cases, private equity investors have opened offices in Jakarta or Singapore and, years later, still haven’t a deal to their name. Affinity Equity Partners is no longer part of this dubious club.
The pan-Asian GP opened an office in Jakarta three years ago, hiring Inghie Kwik from Morgan Stanley to lead its investment activities. This month Affinity closed its first deal in the country, acquiring a minority stake in auto services group Mitra Pinasthika Mustika (MPM) for about $100 million. The investment values the entire company at up to $330 million.
According to a source familiar with the transaction, Affinity initiated discussions with MPM in 2009 and dialogue continued sporadically, "with a lot of back and forth," before an agreement was struck. During this period the private equity firm helped MPM open up two new business lines.
The company started in 1987 as the exclusive franchisee for Honda motorcycles in east Java. It retains the Honda franchise and claims to have a network of around 280 showrooms, 600 workshops and more than 1,200 spare parts outlets.
MPM is owned by a number of large shareholders, most of them former employees of Astra International, a domestic conglomerate now controlled by Jardine Matheson Group. Astra Honda Motor, a joint venture between Honda and the Indonesian company, is the local licensee and sole distributor of Honda motorcycles and parts in the country. Of 29 geographical sales areas, 11 are directly controlled by Astra. MPM's east Java territory is one of those that falls outside the Astra remit.
Motorcycle sales nationwide grew 7.3% year-on-year in 2011 to 7.9 million units, according to the Indonesian Motorcycle Industry Association, with Honda, Yamaha and Suzuki the most popular brands. However, sales have slowed over the course of 2012, partly as a result of the down payment requirement increasing to 25% from 10% in order to curb excessive lending for vehicle purchases.
Indonesia remains the world's third-largest motorcycle market after China and India, with 10 motorcycles on the road for every one car. Despite rising domestic consumption, GDP per capita is still only about $4,000, which means cars are beyond the means of most households.
MPM's other businesses include motorcycle components and peripherals, notably lubricant oil, and auto financing for car and motorcycle purchases. Four in five sales are said to involve credit lines from banks or financing companies, with monthly repayments.
Affinity is helping the company set up a vehicle insurance unit - it recently received an operating license - and assisted in the acquisition of a local car rental business, which largely focuses on long-term leases to the corporate market. "Car rental is a capital-intensive business and Affinity's investment will help MPM absorb and operate this unit," the source adds.
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