Global PE firms bullish on Vietnam - AVCJ Forum

“In the past two years we have been actively looking for investments in the country. Prior to that, the macro environment was not ready for us to take a risk,” Pete Vo, managing director at CVC Capital Partners, told the AVCJ Vietnam Forum. “In addition, the companies in Vietnam are now of the right size – we believe we can commitment $50-100 million per company, which speaks to the opportunity in the country.”

In the last couple of months alone, TPG Capital has bought a controlling position in Vietnam Australia International School for an undisclosed sum while KKR committed $150 million to Masan Nutri-Science and acquired $100 million worth of shares in parent company Masan Group. For both private equity firms, this is the first investment in Vietnam in four years.

Paul DiGiacomo, managing director at BDA Partners, agreed that deal size has increased in recent years, prompting greater interest from larger private equity firms. He sees the relative lack of competition – from local strategic players and the capital markets, which lack depth – as the major contributing factors.

“There is a lack of capital competing for deals compared to other Southeast Asia markets,” DiGiacomo said. “In Indonesia, for example, you are competing against cashed-up family conglomerates.”

Currency volatility has historically been a significant concern for private equity investors looking at Vietnam, but the government is now credited for keeping the dong stable in addition to pushing ahead with reforms. This has made an already compelling growth proposition – solid GDP growth, a young population, expanding consumer markets – more attractive.

According to Andy Ho, CIO at domestic GP VinaCapital, it makes sense to construct a portfolio with natural hedging, for example by ensuring there is exposure to companies with US dollar revenues, but depreciation in Vietnam’s currency against the dollar has been less than that of its regional peers in the last few years.

“Whereas we might have rated currency as one of the most concerning elements five years ago, it is now one of the best [in the region],” added Dominic Picone, managing director at TPG Capital. He noted that hedging is often not cost effective or not available.

Rising interest in Vietnam has put upward pressure on valuations: the investments made by TPG and KKR came about as a result of competitive processes that were strongly contested. CVC’s Vo warned that the influx of short-term hot money is making it harder to do deals, but he remains convinced by the country’s long-term prospects.

“Companies in Vietnam will get to a level where they are open to more due diligence, transparency, shareholder governance irrespective of whether private equity comes in as a minority investor or as the owner,” he said. “This market, along with Cambodia and Myanmar, are the last remaining drivers of future growth in Southeast Asia and in Asia in general.”

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• Topics
• Southeast Asia
• Buyouts
• Expansion
• Consumer
• Vietnam
• AVCJ Events
• CVC Capital Partners
• TPG Capital
• VinaCapital