Fund focus: MSPEA takes on Thailand

Having closed its debut Thailand fund at $440 million, Morgan Stanley Private Equity Asia (MSPEA) can point with satisfaction to one full exit and one liquidity event from the first two investments. 

The full exit was announced last month when Japan's Unicharm Corporation agreed to pay $530 million for diaper producer DSG International. MSPEA picked up a 26% stake in the business in late 2016 for THB1.6 billion ($45.6 million), which suggests an approximately 3x return. The private equity firm teamed up with the majority shareholder to privatize DSG – they thought the share price undervalued the company – and secured its minority interest through a tender offer.

The liquidity event came at the end of last year when skincare products specialist Do Day Dream went public in Bangkok, raising THB4 billion. MSPEA committed $15 million to the company about six months earlier and its post-IPO holding of 4.97% is worth roughly the same, despite the recent global sell-off.

The two investments could be seen as characteristic of the private equity firm's approach to Thailand in several ways: they are at the heart of a sweet spot that features consumer products and related services, ranging from healthcare to finance; their core businesses are domestic but there is an international angle, with DSG active in Malaysia and Indonesia and Do Day Dream selling well in China; and they were the product of private negotiations with family owners.

"The critical factor is you need access to these families. You can't expect transactions to be intermediated – you have to create your own deal flow," says Chin Chou, head of PE investing in Asia Pacific for Morgan Stanley Investment Management. Bangkok Bank, Morgan Stanley's partner on the Thailand fund, had preexisting commercial relationships with the majority shareholders of both DSG and Do Day Dream (although Morgan Stanley was familiar with DSG's owner as well). 

Relatively few GPs have succeeded in generating significant mid to large-cap deal flow. From aggregate consumer spending to GDP per capita to economic stability over the past decade, Thailand outscores most of its Southeast Asian peers. However, its average annual PE investment of $169 million over the last seven years trails the likes of Indonesia, Malaysia, and Vietnam.

For Chou, the underpenetrated nature of the market adds to its appeal. "We viewed it as the most attractive market in Southeast Asia and curiously there weren't many existing GPs focusing on it," he says. Other plus points include the country's relatively deep equity and debt capital markets, its robust private equity, and its increasingly important role as a beachhead for other economies in the region, notably Cambodia, Laos, Myanmar, and Vietnam.

There was enough LP support for North Haven Thai Private Equity that MSPEA reached its overall target for the fund of $300 million by the middle of 2017.   

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• Topics
• Southeast Asia
• Fundraising
• GPs
• Growth
• Thailand
• Morgan Stanley Private Equity Asia
• Growth capital