Deal focus: Navis thinks long, goes fast with MFS

Sometimes investors have to play a long game, even when they're targeting quicker returns. The latest exit by Navis Capital Partners offers a case in point by repositioning a portfolio company for extended business cycle timeframes, and then icing the turnaround in only three years. 

The investment in question, Singapore-based circuit board maker MFS Technology, is the first exit from the private equity firm's seventh fund and, as such, signals a renewed focus on execution efficiency. Navis acquired a 90% stake in the company as part of a $95.7 million buyout alongside Novo Tellus Capital Partners in 2014 and exited this month with a 3x money multiple and an IRR of more than 40%.

"This deal demonstrates an evolution in our investment philosophy with Fund VII and going forward," says Jean-Christophe Marti, a partner at Navis. "We're aiming for more rapid results with clear, sharp strategies where we can hit the ground running and implement very fast. We did about a year of work up front with MFS and knew exactly what we wanted to do before we invested."

The buyer was DCP Capital Partners, a private equity firm established by David Liu and Julian Wolhardt, who previously held senior positions in KKR's China business. Navis engaged with a number of interested parties over the course of an approximately one-year buyer matching process.  

MFS was founded in 1988 and produces customized flexible printed circuits across Malaysia, China and Singapore, with important customers in the US, Europe and China. Although Liu and Wolhardt's track record is largely built on China investments, at present MFS does less than 40% of its business in the country.

At the company level, Navis' long-dated value-add plan almost seems at odds with the punchiness of its Fund VII doctrine. The firm quickly dissolved MFS' connections to high-volume, low-margin sectors such as mobile telephony, and doubled down on longer-cycle markets related to the automotive, healthcare technology, and data storage sectors. The idea was to maximize exposure to gradually evolving trends around the internet-of-things, clean cars and medical wearables. 

This effort included investing at least $15 million in a key Malaysian plant with a view to doubling its size and upgrading its production capabilities. Lower throughput of higher complexity products was the essential point of the overhaul, so unlike many factory upgrades, automation was not high on the agenda. 

"If you just focus on automation and roll-to-roll processes, then it's a cost of capital game, and you won't have value-add," Marti explains. "Anyone can upgrade with new machines, and the ones with the most machines wins. We really wanted to take more of a development partner's approach by being a low-volume, high-mix job shop. That's where the real value-add and margins are in manufacturing."   

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• Topics
• Southeast Asia
• Trade sale
• Industrials
• Singapore
• Navis Management
• manufacturing
• DCP Capital Partners