Q&A: Creador's Stefanus Hadiwidjaja

Q: What sort of competition do you see in Indonesia?

A: We divide it into mid-market and buyout players doing deals of $100 million and above. We have a $550 million fund, so we can be flexible, the largest investment we have made anywhere is $100 million. But we are more mid-market. In Indonesia, our investments range from $20-70 million. It is not as competitive as it was seven or eight years ago. We've seen a few of the regional players shift their focus from Indonesia to markets like Vietnam and Singapore, while there is only a handful of Indonesia-focused mid-market funds. That doesn't mean it's easy. There is a limited number of high-quality deals available in the country and educating entrepreneurs is always a long process.

Q: How big is your team and what does that mean in terms of how you work with portfolio companies?

A: We probably have one of the largest private equity teams in the country, with five investment professionals and three people on the operations side. We spend a reasonable amount of time with our portfolio companies, it's not like we are sitting on the board of commissioners and attending meetings once a quarter. They have different needs, but there are a few things we almost always do. First, we help companies on strategic direction, leveraging our regional network and understanding of key trends. Second, we strengthen organizations. Most mid-market companies we invest in are run by the entrepreneur, so we sometimes put in a second layer below the CEO comprising experienced people. Third, we focus on management systems. We want companies to be more data-driven and introduce more structured reporting, which means building things like KPI [key performance indicator] systems.

Q: What about cross-border expansion?

A: That is sometimes an important theme. We have eight portfolio companies in Indonesia and a couple are expanding regionally. Another four or five businesses have entered Indonesia from other markets.

Q: How do you decide which companies are right for cross-border expansion?

A: We are quite pragmatic about it. Something that does well in Malaysia and Vietnam will not necessarily be successful in Indonesia. There must be a clear value proposition that works in Indonesia. And we must understand the nature of the local competition and whether the product can easily be replicated in Indonesia. That is our initial assessment. Apart from specific areas like legal, we tend not to hire outside consultants, all the work is done by our team. We advise the company directly, explaining point-by-point how they need to adapt their strategy, or we tell them we don't think the strategy will work in a certain market. We also help with execution. We know the culture, we know how to deal with regulators, we know how to set up a company. Perhaps most importantly, we know where to find the right talent.

Q: Creador's investments in Indonesia range from carve-outs to PIPE deals. What is the preferred mode of entry?

A: We prefer minority deals where we support entrepreneurs. Indonesia is very different to a market like India. Entrepreneurs are conservative, they are very picky about working with third parties. But we do find they are more open to private equity than before. They understand the model better and appreciate that it is smart capital, not just additional capital on top of a bank loan.

Q: Does this make it easier to complete deals?

A: We still meet with hundreds of companies every year. After a couple of meetings, you usually know whether a company is good, and it takes about the same amount of time to convince them to work with us. If it's one shareholder, the process is easier, but you still need a few meetings to bring in different people to speak to them. We explain ourselves and our value add. If they say no, if it's clear they don't want to partner with an investor or they don't need the capital, we stop the discussions. A lot of companies don't need additional capital, and that's fine. Indonesia is not an easy market. It takes between three months and one year to get from the first meeting to agreeing a deal.

Q: Which investment proved especially difficult to negotiate?

A: Our investment in [hospital operator] Medikaloka Hermina was complex because there were more than 10 shareholders, all of them doctors. Some of the doctors were involved on the management side, so we focused on them. They wanted to do an IPO and needed our help with some restructuring and to get them ready for the listing.

Q: Hermina ended up going public last year. Are IPOs a typical exit channel?

A: We've had one IPO and one other exit. There is a fair amount of strategic interest, mainly from international players.

Q: How has rupiah depreciation impacted your portfolio?

A: Indonesia, India, Malaysia, the Philippines – there is a currency risk in all these markets. We underwrite high-growth companies that can deliver strong returns even after we incorporate depreciation. It's been a tough few years, but our portfolio companies are still growing faster than the overall market. You must bet on the right companies and entrepreneurs; smart people will know how to adjust their strategy in response to the macro situation.

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• Topics
• Southeast Asia
• GPs
• Indonesia
• Creador