Q&A: Navis Capital Partners' Nick Bloy

Q: What does Navis look for when making investments and what sectors do you see as most attractive right now?

A: I don't think sectors come in and out of fashion. Anything we are interested in tends to have a permanency because of the underlying dynamics. If you look at our portfolio, it includes consumer brands, light industrial businesses, heavy industry and sectors such as education and healthcare. We like most things provided they are well established and not in strategic categories where host governments are concerned about foreign investment and may regulate against us. Wherever a business is driven by a consumers or industrial buyers making empirical decisions about what they choose to buy, those industries will be potentially attractive to us.

Q: How important is having a regional strategy when adding value to portfolio companies?

A: Looking at the IRRs across all of the deals we have done, we find the more complex deals generate the best returns by a fairly significant premium. What we mean by that are companies that go cross-border and scale up internationally; those which might require different teams in different countries where you might make follow-on acquisitions. When you have the resources to handle that complexity, as we do, you get the best returns.

Q: How has this strategy benefited from greater ASEAN integration?

A: I am not suggesting that you can suddenly you can do cross-border deals in Southeast Asia - that has been possible for the last 15 years - but they are getting easier to execute and there is less friction. For example, there used to be tariff barriers that we had to overcome and sometimes you couldn't get the management team you wanted in a new geography, but that friction is going away.

Q: Is cross-border expansion the most attractive route to value-add for portfolio companies?

A: It depends. If you are producer of long steel products in Malaysia, for example, and you are a small regional player in a scale-intensive industry then you are going to be disadvantaged. You will have a higher cost position than bigger producers in Thailand or Indonesia where the domestic markets are bigger. A company needs to be coming from an already strong position. This whole process of ASEAN integration is one that will have winners and losers.

Q: Is it important for a company to have a regional footprint when selling to strategics?

A: Not always - some industries are domestic and will remain so. For example, last year we bought two cinemas chains in Malaysia and we merged them to become the number two player in the domestic market. Is that a business we would scale up regionally? I don't think so. A strategic investor might be interested in acquiring the chain but they are not necessarily looking for a regional opportunity. Of course, a brand with a regional footprint is attractive to strategic investors but they are only interested in acquiring industry leaders, not the number 10 player. This is important because before you even do a deal you need to be focus on the competitive position of the company you are buying.

Q: What proportion of your current fund is deployed in each country and how has this changed?

A: The vast majority of our investments continue to be focused on the big economies of Southeast Asia - Malaysia, Singapore and Indonesia. We are not looking to make primary investments in the frontier markets yet because they are too immature and risky. A better way for us to get exposure to these geographies has been indirectly, through regional portfolio companies looking to expand into places like Myanmar.

Q: Is rising competition in Indonesia is making investors look to less penetrated markets in the region?

A: Indonesia has become overheated, particularly in areas like consumer brands and over-the-counter pharmaceuticals, but I don't think it is the right response to say, "Indonesia is too hot so let's look somewhere else." There are other ways to tap into the same underlying dynamic that is driving demand for things like shampoo. The same trend that is behind double-digit multiples is driving for demand in motorcycles, for example. I would rather buy an Indonesian auto parts company supplying the domestic motorcycle industry at 6x than pay 12x for an Indonesian shampoo brand. I don't have to go to Vietnam to buy a shampoo brand to get over my disappointment of not finding one in Indonesia.

Q: Despite being one of the largest regional players in Southeast Asia, Navis has still made few direct investments in Indonesia. Why is this?

A: We have invested in Indonesia in the past. In 2007, we acquired Celebrity Fitness, the largest chain of fitness centers in the country. However, we have always considered it a risky environment. The areas that have become attractive are not ones we felt were investable by Navis as a foreign investor. For example, we don't think foreigners should take the risk of entering the resources space, or anything to do with land. These have been the landmark deals in private equity but they are much more for local money than foreign institutional money.

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• Topics
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• Navis Management
• Southeast Asia