PE must define itself to take advantage of Asia buyout opportunities - AVCJ Forum

"A lot of what I suspect all of us do is education, because this is not right now a widely understood asset class," said Kabir Mathur, a director at KKR. "People don't always fully understand the benefits of partnering with a PE firm, so a lot of what we do in the first, second or third meeting is to start almost with first principles around what private equity is and the benefits we bring."

While this approach results in long gestation times for deals - Mathur said the quickest turnaround time he has seen is one year - it is necessary in order to make investees comfortable with relinquishing control. In Asian markets particularly, company managers need to feel comfortable with the GP's management on a personal level so they can trust the firm's judgment.

Bain Capital Managing Director Jim Hildebrandt agreed, pointing to the firm's 2010 acquisition of the Domino's Pizza franchise in Japan as an example of a long warming-up period that ultimately paid off. A managing director with Bain had spent years building a relationship with the franchise's previous owner, who eventually sold to Bain in 2010 for a reported JPY6 billion (then $66.5 million) due to the GP's global restaurant experience.

"That's the kind of expertise you need to bring to market, which I think is very valuable in Japan," Hildebrandt said. "A few GPs have done that, but others have not, and it's those GPs who have been successful."

Communication is equally important for the firm to understand the target company's situation and goals. David Ireland, a senior partner at Navis Capital Partners, said that a target company's attitude can be a more important consideration to the firm than the sector in which it operates. Navis is attracted to founders that have built their companies aggressively and want to continue, but see areas in which an external investor can lend its own strengths.

"Sometimes the founder is feeling isolated, has driven the business to a certain point but feels ‘I need someone to bounce ideas off, I need someone to give me the financial muscle, but also give me the strategic interaction that I lack, because I built this business up from zero to 100 million,'" he added. "That's also a situation that we quite like."

Yi Li, a partner at China-focused GP Lunar Capital, pointed out that GPs need to delve into every aspect of a portfolio company - to add value, but also to build their own industry expertise and grow their contacts as they look toward future deals.

"Even a distributor for one of our portfolio companies might recommend us some good brands, for which they also distribute," Li explained. "So these things can actually really be a good source of deals."

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• Topics
• Southeast Asia
• Buyout
• GPs
• Singapore
• Navis Management
• KKR
• Bain Capital Asia
• Lunar Capital Management
• AVCJ Private Equity & Venture Forum