The trust factor: Repeat buying in Asian PE

The process, as described to AVCJ, was fairly straightforward. Navis and the Dome management team had stayed in touch and, with the company's existing backer looking to exit, a conversation happened. Dome didn't want to spend time getting to know other PE firms; its preference was to work with Navis again. Navis was keen and a deal was done.

"They had done very well and proved to us they are both capable and trustworthy," Nick Bloy, co-managing partner at Navis, said of the Dome management team at the time.

There was an 11-year gap between Navis' two investments in Dome. Relatively few private equity firms in Asia can boast that kind of longevity. Even if the industry has existed in certain emerging markets for this length of time, it cannot claim to have reached maturity. In short, there are few situations in which investors have owned the same business on two separate occasions. But it has happened and it will happen again, for one reason above all others - trust.

This week the Carlyle Group was reunited with India-based publishing services provider Newgen KnowledgeWorks after three years apart. The PE firm acquired a stake of around 50% in the business in 2004, sold out to a consortium in 2011, and now it's back with a majority interest. Carlyle said it was pleased with how the investment went last time and thinks it can be a valuable partner once again.

CDH Investments, meanwhile, can claim a relationship with Fujian Nanping Nanfu Battery that goes back at least 15 years. The PE firm - then still part of China International Capital Corporation - teamed up with other investors to buy a controlling interest in Nanfu across two transactions in the late 1990s and early 2000s.

Nanfu was sold to Gillette, Gillette was sold to Procter & Gamble (P&G), and when P&G decided to divest some non-core brands, CDH was one of a host of Asia-based PE firms to come knocking. CDH wasn't looking to buy Nanfu specifically, but when the possibility arose, the transaction proceeded smoothly and exclusively. Nanfu and CDH personnel knew they could work together.

Repeat buyouts may be unusual in China, but working with the same people on more than one investment is not. This phenomenon is perhaps most visible in the venture capital space. For example, Qiming Venture Partners and Morningside Technologies have each collaborated serial entrepreneur- super angel investor hybrid Lei Jun around half a dozen times.

But this is the tip of the iceberg. A host of entrepreneurs have been through one or more businesses - as leads or supporting cast - and they are coming up with new ideas. Venture capitalists who know them or have backed them in a previous start-up can get more comfortable more quickly with a new endeavor.

On the PE side, the most prominent China example arguably involves KKR, CDH and the food safety thesis. The two firms relied on the experience and networks they built up as investors in China Mengniu Dairy when forming a joint venture with China Modern Dairy, which was largely exited to Mengniu. Earlier this year, when they returned to the space with Asia Dairy, pre-existing relationships with management teams were invaluable.

KKR has carried this domain expertise into pork with COFCO Meat and chicken with Fujian Sunner Poultry. The pork deal emanated from the private equity firm's longstanding partnership with Mengniu, which is also backed by COFCO. It meant company management were far more willing to buy into investment case and bone fides KKR was presenting.

David Liu, CEO of KKR China and co-head of the firm's Asia private equity business, gives a remarkably similar explanation to Navis' Bloy. "People do business with those they like and trust," he says. "We are able to build a very good relationship with management teams to earn their mutual respect."

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• Topics
• Buyouts
• Greater China
• South Asia
• Southeast Asia
• buyout
• CDH Investments Management
• The Carlyle Group
• Navis Management
• KKR
• China
• India
• Australia