Q&A: Advent International's Filippo de Vecchi
Following the recent closing of Advent International’s eighth global private equity fund at $13 billion, Filippo de Vecchi, the firm’s managing director and co-head of Greater China, explains how Asia fits into the strategy
Q: What proportion of the recently-closed global fund is likely to be deployed in Asia?
A: We don't have a specific allocation for the geographies we invest in. But we can invest up to 20% of the fund, or $2.6 billion, outside of Europe and North America, predominately in Asia and Latin America. We already have a $2.1 billion Latin America-dedicated fund, so the majority of the $2.6 billion is likely to be deployed in Asia if we find the right opportunities.
Q: How has Advent build up its business in the region in terms of geographic coverage and human resources?
A: We have been active in Asia for about 30 years. Initially we invested through our affiliates and more recently opened our own local offices. In 2009, we set up an office in Mumbai and then in 2012 we opened in Shanghai. We have 13 investment professionals in Asia working alongside a number of external operating partners, who act as independent advisors to Advent and the companies in which we invest.
Q: To what extent is Advent looking at markets beyond China and India?
A: China and India are the two biggest markets in Asia, which is why we set up local offices there. With people on the ground, we have increased our investments in Asia over the past few years. Our Shanghai office covers Greater China, including Hong Kong and Taiwan, as well as Singapore. In 2014, we made an investment in The Learning Lab, a Singapore-based education company.
Q: Of Advent's four target sectors - financial services, healthcare, industrials, retail and technology - in which ones does Advent see the most opportunities in Asia?
A: In Asia we focus on healthcare, education, chemicals and outsourcing services. For example, in China, we're actively looking at opportunities in education and healthcare, which have attractive growth prospects driven by the rising middle class. The healthcare services sector in China is still underdeveloped and has insufficient supply.
Q: Given Advent is investing globally, are cross-border transactions an important theme in Asia?
A: Yes, very much so. One of the key activities of the Shanghai office is supporting cross-border transactions. For example, we helped Belgium-based chemicals company Allnex increase its presence in Asia substantially and have completed a global transaction - The Coffee Bean & Tea Leaf - which has a China component to it. The investment is a cross-border collaboration between our Boston and Shanghai offices. The company is headquartered in the US, but we are focusing on growing the business across Asia with different franchise partners. The first coffee shop in China since our investment opened a few weeks ago.
Q: To what extent is Advent's operating partner program a differentiator in PE?
A: We have worked with operating partners for many years and I believe this program is a real differentiator in the private equity industry. Operating partners are typically former CEOs in the sectors we invest in. We retain them as third-party consultants to advise our deal teams during the due diligence process, assist the management of our portfolio companies on strategy and operations and help develop and execute value creation plans. They either sit on the board or take up posts within companies. Globally we work with over 70 operating partners, who augment our internal team of more than 170 investment professionals
Q: Can you explain how these operational resources were brought to bear with India's CARE Hospitals and other deals?
A: For the CARE Hospitals deal, our operating partner was Dr. Vikram Chhatwal, the former CEO of Reliance Healthcare. He served on CARE's board and advised the company on a variety of projects. During the course of our ownership, CARE expanded from 12 to 19 hospitals and doubled its bed capacity. We subsequently sold the company to The Abraaj Group. With The Learning Lab we have used exactly the same approach. We have retained an operating partner, Peter Jovanovich, the former CEO of Pearson Education. He advised us during the due diligence stage and now sits on the board. He is helping us carry out the value creation plan.
Q: While CARE Hospitals was a majority control deal, Advent has also made a number of minority investments. How important is majority control in Asia?
A: Globally, Advent focuses on majority control deals, but in Asia we have adopted a flexible approach in terms of minority and majority investments. For minority deals, the key is to establish a strong alignment of interest with other shareholders.
Q: What developments have there been in Advent's approach to co-investment with LPs and others?
A: Advent is typically the sole investor in its transactions, but in certain situations we have co-investors. For example, with The Coffee Bea & Tea Leaf, we were joined by two financial investors, CDIB Capital and Mirae Asset Private Equity. We will consider co-investing with other firms on a case-by-case basis.
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