GPs see potential in SE Asia mid-market buyouts - AVCJ Forum

"We are seeing entrepreneurs who have built up the business and their family members are not interested in continuing to own it and that lends itself to a mid-market buyout strategy," said Peter Amour, CEO of AIF Capital, which primarily focuses on large-stage growth investments in China, India and Southeast Asia.

In addition to succession planning, change of control situations arise from helping overleveraged companies with their debt burdens and supporting entrepreneurs that require capital and expertise to upgrade operations and expand overseas.

Cross-border opportunities are driven by integration within Southeast Asia, but Emmett Thomas, head of Asia at Advantage Partners, noted that they also relate to ties with wider global markets. Advantage opened an office in Hong Kong in 2008 in order to help Japanese companies access other Asian markets and also bring regional firms into Japan. CHAMP Private Equity, meanwhile, set up a base in Singapore - also in 2008 - to capitalize on closer links between Asia and its home market of Australia.

"Companies are often not set up to execute regionalization strategies," said Shane Gong, a director with CHAMP in Singapore. "We can add value in terms of helping these companies go into new markets."

Deal flow in Southeast Asia is lumpy - particularly towards the larger end of the transaction spectrum - and for buyouts GPs must bring specific operational capabilities. Shaw Kwei & Partners, which focuses on Greater China and Southeast Asia, sees control opportunities where companies require restructuring or need improvements to machinery or product lines in order to revitalize profits.

"These opportunities are generally going to be less competitive and valuations are likely to be more attractive," said Kyle Shaw, managing director at the firm. "But you need comprehensive skill sets from the GP to visualize where the company could go and quickly execute a strategy to bring about that change."

For AIF, the key to successful growth deals is thinking strategically about when a portfolio company requires capital. The GP often provides funding in stages, based on the needs and growth trajectory of the company in question. This is part of a broader dialogue with the entrepreneur that focuses on the value PE can bring - and that his stake, once diluted, will be worth more in the long term is growth targets are met.

Creating an alignment of interest with the founder is important even where the PE investor has control, added Advantage's Thomas.

"In many of these Asian family companies, having equity control in many cases is not the same as operating control," he said. "When working with a founder who has a minority stake you have to be careful to earn the right to help him in the way he sees fit. The demarcation line between growth capital and buyout is fuzzier than in the West."

The AVCJ Singapore Forum runs July 20-21. For more information, please go to www.avcjsingapore.com.

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• Topics
• Southeast Asia
• Buyouts
• Expansion
• Southeast Asia
• buyout
• Shaw Kwei & Partners
• CHAMP Private Equity
• Advantage Partners
• AIF Capital