Deal focus: A very modern Masan

Masan Group is nothing if not ambitious. Within four years, the Vietnamese conglomerate wants to develop its reconstituted consumer business into an ecosystem comprising 10,000 self-owned stores and 20,000 smaller franchise partners, an efficient supply chain, a portfolio of private label brands, and an online-to-offline (O2O) grocery model. Target revenue is $7-10 billion.

This is the vision for The CrownX, formed last year through the consolidation of Masan Consumer Holdings and VinCommerce. The former brings branded food and beverage assets and generated VND23.9 trillion ($1 billion) in revenue last year. The latter contributed VND30.9 trillion, primarily from a network of 123 supermarkets and 2,231 minimarts. Masan said that VinCommerce was losing over $100 million a year at the time of acquisition.

However, the project is not only notable in terms of the scale of the expansion effort. Masan is also looking to break new ground as to what an integrated consumer business looks like in Asia, according to Janice Leow, a managing director at Baring Private Equity Asia.

“If you look across the region, there are very few companies that are best in class in both consumer and retail,” she says. “Masan is trying to combine them under one entity, and that is a differentiator. You learn a lot about consumers after years of innovating products for them, and this can be fed into retail. Then, on the retail side, you know what customers are putting in their baskets, which means you can innovate more on products. We see a lot of synergies.”

Baring has thrown its support behind this strategy, committing $400 million to The CrownX alongside Alibaba Group. They are taking a 5.5% interest at a pre-money equity valuation of $6.9 billion. Masan will remain the largest shareholder with 80.2%. An additional $300-400 million is expected to be committed by other investors before the end of the year.

This represents Alibaba’s first direct investment in Vietnam. The Chinese e-commerce giant, which already has a sizeable presence in Southeast Asia through Lazada, is said to have teamed up with Baring because it wanted an established partner with experience operating in the country.

The CrownX’s needs go beyond capital. There was an expectation that Masan might have to raise funding to support the VinCommerce acquisition, but it secured sufficient debt to support the deal. For the latest round, the emphasis was more strategic, specifically bringing in investors that could help accelerate the business plan.

Alibaba’s contribution will be on two levels. VinCommerce will become the preferred grocery retailer for Lazada in Vietnam, and its offline stores will serve a dual function as pick-up points for online orders. The two companies will also explore logistics synergies with a view to bringing down costs. A separate Alibaba team will work on digitalization initiatives, such as building the backbone for The CrownX’s e-commerce operation. Baring will also participate in these efforts.

“We will focus on the digital piece, looking at what they need for digital transformation,” says Leow. “They must put in place the right digital infrastructure – things like revamping the loyalty program – to understanding what can be done across the ecosystem. They also want to expand their product reach in Vietnam, and they could eventually expand beyond Vietnam into neighboring countries.”

For now, though, The CrownX is essentially a domestic modern retail play. Masan has previously stated that the modern share of overall retail sales will rise from below 10% to 50% over the next decade, as standardized store formats and sophisticated supply chains become the norm. At the same time, grocery accounts for 50% of Vietnam’s retail market, but e-commerce penetration is less than 1% of grocery spend, compared to 3% in Singapore and 5% in China.

“Vietnam is way behind other Southeast Asian countries and way behind China on modern trade. It is just 10% of the market, but it’s going to reach 30-50% and Masan can get in early,” says Leow. She draws comparisons with Thailand, noting that Vietnam’s GDP per capita is approximately where Thailand’s was in 2004. There are structural similarities as well, with the Vietnamese economy underpinned by Ho Chi Minh City and Hanoi, while Bangkok is the commercial epicenter of Thailand.

Baring accepts that Masan’s strategy is bold. The grocery platform is a turnaround that is still in progress, yet the conglomerate wants to layer an O2O financial services offering – it also owns Techcombank – on top of it. For context, should The CrownX achieve even $7 billion in annual revenue, that would be more than double what Masan generated at group level last year.

The private equity firm’s underwriting isn’t necessarily based on The CrownX hitting the stated targets. It is comfortable The CrownX will not try to do too much too soon, and importantly, that the company is bringing in people capable of executing organic and M&A expansion strategies.

“Can you recruit the right talent? That was one of the big areas of due diligence for us,” says Leow. “Masan has a track record of bringing in the best and being professional in its approach to incentivizing management.”

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• Topics
• Southeast Asia
• Consumer
• Expansion
• Vietnam
• Baring Private Equity Asia
• Alibaba Group
• TMT
• Growth capital