The devil you know: PE and Southeast Asian entrepreneurs

KKR’s actual and announced private equity investments in Vietnam over the past six years amount to more than $600 million, committed to three different entities. However, all of these businesses are controlled by the same parent group. The scale and concentration of this activity is notable, but in the context of Southeast Asian market that is still getting to grips with PE, it should not be surprising.

This week KKR returned to the scene of a previous investment when it agreed to invest $100 million in Masan Group and $150 million in the conglomerate’s subsidiary, Masan Nutri-Science, which has ambitions to revolutionize the domestic meat industry. The GP’s first foray into the country came in 2011 with a $200 million commitment to Masan Consumer Corporation (MCC). Two years later, the company received a further $159 million, and KKR exited last year with a more than 2x return.

The first deal helped secure the second: KKR approached the competitive situation knowing that relationships forged during the MCC investment were still intact and that senior management at Masan Group were well aware of its value proposition.

This seems to be a fairly routine example of the networking effect in private equity, but Masan Group’s network is not limited to KKR. The company has likely had more PE partners than any other in Vietnam, with TPG Capital, PENM Partners and Mekong Capital among past investors. PENM, which sold part of its stake in Masan Group to KKR, estimates that it has backed various Masan entities about five times in the last eight years. The firm has also invested in steelmaker Hoa Phat Group on four occasions.

This scenario plays out, albeit with some twists, across Southeast Asia. CVC Capital Partners, for example, has one of the most successful exits in Indonesian private equity on its track record with Matahari Department Store. The GP bought a majority stake in the retailer in 2010 from Lippo Group, which is controlled by the Riady family. CVC and Lippo teamed up again the following year on broadband and cable TV provider Link Net, and then again last year with an investment in Siloam International Hospitals.

Meanwhile, in the Philippines, AVCJ Research has records of only about 50 private equity investments of $10 million or more since 1998 – and fewer than 25 above $50 million – but business process outsourcing company SPi Global has gone through three different backers. The current owner is CVC, which bought an 80% stake in the business in 2013 at a valuation of more than $300 million. It remains the largest private equity deal ever seen in the country.

There are two takeaways. First, there are not a lot of attractive – and accessible – companies of meaningful size in these relatively immature markets. Indeed, a number of mid-market private equity firms in Southeast Asia see potential in identifying high-growth businesses, cleaning them up and helping them expand, before exiting to a larger financial sponsor.

Second, few business groups have proved themselves capable partners for private equity, demonstrating a clear understanding of the asset class, what appeals to investors, and how there is a need to exit after a certain period of time. When proposing a deal to an investment committee, it is much easier if the team can point to past positive experiences for private equity – or even for that GP itself – of working with a particular local group.

As Hans Christian Jacobsen, managing partner at PENM, puts it: “Like a good marriage, it doesn’t come easy. This doesn’t mean you can’t argue – you need to do that – but there has to be trust among partners based on a respect for the different things they bring to the table. When you find people who are willing to listen to you, then you are more likely to keep working with them.”

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• Topics
• Southeast Asia
• Expansion
• GPs
• KKR
• CVC Capital Partners
• PENM Partners
• Vietnam
• Indonesia
• Philippines