Asia exits have 'never been easier,' GPs say - AVCJ Forum

“It has never been easier to exit – there is a ton of money, capital is cheap, and China is acquisitive,” said Rodney Muse, a managing partner at Navis Capital Partners, which primarily focuses on Southeast Asia. “If you are not able to exit there is something challenged about your industry or your business. In the last 10 years the emphasis on China has become more important. Of our last 10 exits, four have been to Chinese buyers.”

For many company founders, an IPO has traditionally been the preferred way of providing an exit for their private equity backers because there is often no need to give up control. It is therefore incumbent on the GP to engage the founder in discussions about the various exit options and gauge their appetite for a trade sale, even if it is run as a parallel process with an IPO.

Hamilton Tang, a managing director at CDIB Capital International observed that the trade tensions between the US and China could result in the trade sale route being taken more seriously because it “brings certainty and speed of closure in a world of macro risks.” CDIB, which targets businesses across Asia that have a Greater China angle, has also found that companies are increasingly open to rolling over their stakes as bigger buyout players acquire CDIB’s position.

Secondary buyouts are a feature of Navis’ string of China-related exits as well. Earlier this year, the GP – working in collaboration with Novo Tellus Capital Partners – generated a 3x money multiple on the sale of Singapore-based circuit board manufacturer MFS Technology. The buyer was DCP Capital Partners, a PE firm set up by two former senior executives with KKR in China.

Speaking about interest from large buyout firms on a more general basis, Muse noted that a 3x investment by Navis usually means a company has become large enough to meet the minimum check size requirements of a large-cap GP.

“I will do anything to get close to the big buyouts,” he added. “We invest in industries where strategic investors are very acquisitive and willing to pay a premium. If private equity outbids strategics you have to scratch your head and wonder, but it’s happening today.”

Many investments by Navis have essentially involved taking an imperfect or subscale company and reconditioning it to appeal to a larger strategic or financial investor. Over time, the firm has adjusted its approach with a view to accelerating the value-add process. Bringing operating partners into the process earlier, making them work with the deal team and tying compensation to the achievement of certain goals has been central to this evolution.

CITIC Capital, a Chinese investor with a lengthy track record of cross-border deals, has undergone a similar transformation. Hans Allegaert, a managing director with the firm, explained that operating partners and experienced executives who can be dropped into portfolio companies are only part of the process. CITIC Capital has also segmented its approach to sectors – developing expertise in consumer services rather than broad consumer plays – and built up functional capabilities.

“We started off with operating partners and they get involved earlier on valuation and sourcing,” Allegaert said. “But now one of our most go-to operating partners is an HR specialist who used to be with a headhunting firm. It’s about more than just hiring CEOs. We drill down and evaluate the needs at deeper levels of management.”

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• Topics
• Exits
• Trade sale
• IPO
• Southeast Asia
• Greater China
• China
• Navis Management
• CITIC Capital
• CDIB Capital
• Operating partners
• AVCJ Events