Creating cross border opportunities

Results were mixed, but the most successful cases have threatened to dwarf the valuations of the original companies.

Apart from technology plays, the importing of brand name products and services has also proved popular. Inter-Asia Ventures' introduction of McDonald's and IKEA to Hong Kong was a clear winner in the early days, but more recently investors and investees have become more wary of such licensing arrangements. It usually results in the brand owner taking control of the local operations after the license period runs out - not a bankable long-term prospect and difficult to manager if markets are bumpy during the holding period.

In the past few years, as Asian brands begin to gain a wider following, private equity firms have spotted the opportunity to replicate the import model. Japanese brands are popular, although apart from CITIC Capital's takeover of the Pokka Café franchise a couple of years ago, there has been little activity here outside the strategic investor space.

The latest vogue is Korean "K-Pop" culture, largely thanks to the massive following that television dramas from the country have built up in many parts of Asia. Korean brands are now widely sought after by consumers in Greater China and Southeast Asia, creating opportunities for private equity investors to help certain companies enter new markets. Products range from clothing and makeup to restaurant chains.

One difference from past efforts is in the deal structure, where the private equity investor is not only an equity partner in the local joint venture but also has the option to buy a significant stake in the parent company. Based on anecdotal evidence, a fair few deals are being pitched this way by sell side advisory firms.

Despite Korea's popularity, there is increasing talk of cross-border branding opportunities in Southeast Asia.

According to one regional private equity firm, it is a two-pronged strategy: leverage the appeal of products originating in more developed markets such as Malaysia, Singapore and Thailand; and look at how easily these assets can be migrated into the likes of Indonesia and Vietnam.

As with everything, these investment theses seem deceptively simple on paper. The reality is that a lot of work is required to achieve success across markets that are often defined just as much by their differences as their similarities.

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• Topics
• Greater China
• Southeast Asia
• North Asia
• Consumer
• Consumer
• South Korea
• China
• Southeast Asia