The Best Private Equity Exit Strategy

Exit Strategy
Darwin Jayson Mariano

A N

I Q P C

W O R L D W I D E

S P E C I A L

R E P O R T

Contents
Intro

1

Private Equity in Southeast Asia

1

Choosing an Exit Strategy

3

IPO: The success story everyone loves to hear

5

Strategic Acquisition: A simpler, more viable approach

7

Management Buyout: A clashing interests?

9

Exits in Asia Pacific

11

The Interviews

Joseph Pacini

13

Chris Chia

17

Edward Gordon

21

Krit Phanratanamala

23

Simon Hopkins

25

Kian Hwa Tan

29

Disclaimer

33

What makes an exit, successful? Of all
the different strategies that investors
can employ, what can be considered
as the best one?

Perhaps one of the most uncontested truths in the world of private equity (PE) investment is
that investors always begin with an ‘exit’ in mind. More specifically, a successful exit. But
what makes an exit, successful? Of all the different strategies that investors can employ,
what can be considered as the best one? To get some valuable insights on this matter, we
spoke with Joseph Pacini, Managing Director for BlackRock; Simon Hopkins, Group CEO for
Milltrust; Krit Phanratanamala, Investment Director for Thai Prosperity Advisory Co Ltd;
Edward Gordon, Head of IB for Ho Chi Minh City Securities Corporation; Kian Hwa Tan,
Senior Vice President for SBI Ven Capital Private Limited Securities Corporation; and Chris
Chia, Managing Partner for Kendall Court.

Private Equity in Southeast Asia

million; and “growth in the region’s six
largest economies is forecast to
accelerate by, on average, 4.5% to 6.7%
compounded annually through 2015.”
Great headlines that make global private
equity firms take notice.

Private equity funds are the reserve of
capital that is invested by private equity
companies. PE funds are usually set up as
either a limited liability company or a
limited partnership (LP). There are,
however, other types of structures that
exist which are also controlled and
managed by the specific private equity
firm that is acting as the general partner
(GP).*

In a recent Asia-Pacific Private Equity
Outlook 2013 report by Ernst & Young,
Luke Pais, Ernst & Young’s M&A Leader
for the ASEAN, opined that investors‟
strategy is shifting. “Historically, China
and India have been high on limited
partners’ (LPs) radars, but increasingly we
are seeing a shift in investment strategy
and a recognition of Southeast Asia as a
destination for that shift.” he says.
“Curiosity from LPs is piquing, and
Southeast Asia is becoming a very
exciting market.”

In Southeast Asia, there is much
optimism going on among PE investors
as key indicators present a promising
outlook. In 2011, Southeast Asia’s
aggregate GDP topped US$2 trillion**;
the region is home to young and
increasingly affluent population of 600
____________________
*Source: secondventure.com
**Source: Bain Southeast Asia Private Equity Brief

1

The Best Private Equity Exit Strategy

Robust fund-raising activity has
also been seen in the region.

Let’s look at some deals that happened
lately.

capital” last year. And that may be just
the tip of the iceberg.

Gathering from the same Ernst & Young
report, we’ve learned that since 2011,
Indonesia has seen 13 deals worth close
to US$900 million. Deal value in Thailand
is at US$114 million over the same period.
On the sell side, firms and fund managers
are able to take advantage of their
investment on Southeast Asian assets.

“Three funds focusing exclusively on
investments in Indonesia and six smaller
ones targeting opportunities in Vietnam
are looking to line up more than US$2.5
billion.
“Twenty-two funds focused on Southeast
Asia are currently on the road, aiming to
raise an aggregate US$6.4 billion for
investment in the region. This is in
addition to the capital that global and
pan-Asian funds will deploy into the
region.”

“In 2011, Navis Capital Partners sold
Singapore-based King’s Safetywear
Limited, a manufacturer of industrial
safety footwear and personal protective
equipment, to US-based Honeywell
International for US$345.8m. Navis
purchased the company in 2008 for
US$83.5m. That deal was preceded by
Navis’ sale of Linatext, a Malaysia-based
maker of specialty rubber-based products
purchased for US$31.1m, to the Weir
Group for US$200m.” the report says.

Even countries that are not a traditional
investment destination are making good
showing. One such example is the
Philippines.
“The Philippines awaits its share of
investment. Historically, private equity
firms have had a fleeting interest in the
country, opening and closing
representative offices as needed. This
was largely due to political instability, but
that is changing. The current trend is
seeing a rapid shift away from corruption

Robust fund-raising activity has also been
seen in the region. According to Bain
Southeast Asia Private Equity Brief, PE
funds focused on Southeast Asia
“attracted US$1.6 billion dollar in new

www.private-equityseasia.com

2


Given the relative confidence vested in
the region, choosing an appropriate exit
strategy for private equity investments
becomes an imperative.
Choosing an Exit Strategy

to transparency, fostering a more
welcoming environment for international
businesses and creating confidence
among foreign investors,” says Renato
Galve, Head of Transactions Advisory
Services in the Philippines.

Given the relative confidence vested in
the region, choosing an appropriate exit
strategy for private equity investments
becomes an imperative. There are a
couple of exits available for investors but
among the top considerations are: a)
Initial Public Offering or IPO b) Strategic
Acquisition and c) Management Buyout.

In fact, Bloomberg reports that the
Philippines beats global stocks by an
amazing 124% as of Feb 2013, showing
signs that things are doing well,
economically, in the country.

Initial Public Offer (IPO)
In an IPO, you come out with a public
offer of the company, and sell your own
shares as a part of the IPO to the public.
As the case may be, you may sell your
share immediately, or sell the shares
allotted to you after the company gets
listed and the shares start trading on the
exchange. Using this approach, your
company will be subject to additional
regulations, analysts and institutional
investors will scrutinize your quarterly
performance.

Bain & Company and the Singapore
Venture Capital & Private Equity
Association (SVCA) ran a survey lately to
look at the region’s prospects and results
revealed that there are clear signs of
optimism going around, “which could
mark 2012 as the start of Southeast
Asia’s time to shine.”
The financial foundations for PE
expansion look solid. Debt issuance is at
record levels. Mergers and acquisitions
activity is buoyant. Singapore’s pipeline
of initial public offerings is full.


3


There are a couple of exits available among the top considerations are: a)
Initial Public Offering or IPO b) Strategic
Acquisition and c) Management Buyout.

Strategic Acquisition
Another alternative is strategic
acquisition or trade sale, where the
company you have invested in is sold to
another suitable company, and then you
take your share from the sale value. This
is one of the most popular exit routes for
private equity funds. The buyer will
usually have a strategic advantage in
acquiring this business as they both may
complement each other. For this reason,
the buyer will often pay a premium to
acquire such a business. One common
disadvantage of this exit is that you are
likely to lose operating control.


Management Buyout
A management buyout is when you
decide to recapitalize and sell the
company to the next generation of
managers. This type of transaction is
usually financed through some
combination of debt, with the debt
collateralized by the assets of the
company. Typically, management buyout
deals would require external financing,
which is a challenge.

4


While IPO’s always make a nice headline story, the real story on the ground could
spell a far more different picture. In Southeast Asia, there has actually been a
slowdown in IPO’s with only a few notable transactions that come to mind, such as
Courts Asia. According to Joseph Pacini, Managing Director for BlackRock, IPO “isn’t
actually the most profitable exit,” as what many people tend to believe.
Joseph Pacini, Managing Director,
BlackRock:
There’s a common misconception that an
IPO is the most profitable exit. It actually
isn’t. If the IPO market is hot, an IPO can
be a great way to exit. It’s fairly clean, it’s
straightforward, and management can
remain in control. But the timing must be
right. More difficult IPO environments
might not give the best position to sell.
However, private equity investors have to
sell at some point. So if you can’t get
that, management might be willing to
strategically acquire the company or
potentially buy you out. On the IPO side,
management can retain control
generally, and can get liquidity. But the
downside is that the exit has to be timed.

today, that is still the case. Furthermore,
IPOs are not an exit; they can only ever be
a partial exit. It is highly unlikely that
you'd be able to sell all of your PE
investment through an IPO.

Krit Phanratanamala, Investment
Director for Thai Prosperity Advisory:
I think if we invest in certain kinds of
companies, taking the company public
could be a good option because it would
make for an easier exit. Because if we
start with, for instance, 10% or 15%, once
an IPO is done, we could dilute this to
maybe 7%, 8%, so that portion should be
easier to release to the market. But, by
contrast, if we hold a majority, say, 50,
60% or more, going with an IPO may not
be a good choice. After the IPO, our share
would be diluted to maybe 40 or 50%.
This portion would be quite huge if
released to the market.

Simon Hopkins, Group CEO for
Milltrust:
Taking the company public through an
initial public offering (IPO), I think this is
often overplayed. If you ask most
regional private equity players whether
they have successfully exited an
investment through an IPO, you'll
discover that they have almost never
done so. For instance, there are
companies in the Asian markets that seek
to raise capital in Hong Kong or
Singapore because they feel that they'd
be more likely to attract international
capital there than on their local stock
exchange. That will change in time, but


Edward Gordon, Head of IB for Ho Chi
Minh City Securities Corporation
Obviously an IPO would be subject to
market conditions. In the Vietnamese
market, towards the end of last year, we
saw not only the values go down but
volumes as well. There were days we
were looking at US$20m of total market
turnover. I think these conditions
obviously put a great deal of constraint
on the company’s ability to exit via IPOs.

5


Your exposure and your volatility in the
market – those are downsides. There are
certain other technical areas, such as the
level of corporate governance, that also
place constraints on this exit strategy.

Chris Chia, Managing Partner for
Kendall Court:
I think going for an IPO always makes for
a nice story – building a company to a
certain level and then securing an IPO –
but it can be risky. Firstly, it’s clearly a
binomial equation: either you get there or
you don’t. What happens when you
don’t? And you’ll be subjecting yourself to
a lot of forces that you may not have
control over. We’re living in a practically
zero-interest rate environment at the
moment. What happens when interest
rates start to rise? Have economies
grown enough to be able to compensate?
Are they enjoying real growth, low
inflation, and full employment? If not, all
the easy money floating around will be
sucked out pretty rapidly when
conditions change.

Kian Hwa Tan, Senior Vice President for
SBI Ven Capital Pte. Ltd.
Although an IPO is definitely an option to
be considered, it’s important to note that
it’s all about financial returns. You would
probably go for listings, but there are
constraints in pursuing this option: the
regulatory compliance to the target
exchange, the lockup period, liquidity of
the capital markets, just to name a few.
One recent success story that comes to
mind is Courts Asia’s IPO. But that is just
one relatively large deal in the PE world.
So my point is that definitely it’s a good
consideration, but I don’t think we can
just rely on IPO as the main sort of way to
exit.


6


In the current economic climate in the Southeast Asian region, selling the company
to a strategic acquirer seems to be a more reliable option. Strategic buyers are
usually a business partner or someone who understands the industry very well, in
which case convincing said buyer will be relatively easier. However, “trying to get
one single buyer might be far easier said than done” says Edward Gordon.
Minh City Securities:
In a sense, if you are talking to one player,
there are less moving parts, and it can be
a simpler process to go through.
However, there’s always that meeting of
the minds and often enough, not just in
Vietnam but in many markets, everyone
is looking for the perfect match.
Sometimes, that can work against you.
Trying to get one single buyer might be
far easier said than done, given the
market conditions that companies must
consider.

lot of value to a lot of people at a certain
size and scale. You feel that at some
point, a natural buyer of this business will
be a bank, an MNC, or an industry leader.
If you’ve got a lock on that strategic
advantage, then well and good. If not,
however, you might have a very hard
time selling.
Joseph Pacini, Managing Director,
BlackRock:
I would say the wisest decision is to
identify multiple exit options before
entering into a deal. When BlackRock
Alternative Investors look at any deal, we
always consider the management team.
We need to see that everyone is aligned
regarding the exit strategy, that everyone
has a very clear picture of what they’re
going to do when you get to that point.
Then you can decide on the timing.
In the case of strategic acquirer, the exit
has to be timed correctly.

SBI Ven Capital:
I think this is a more reliable option. It’s
easy to convince the strategic buyers
because they are probably business
partners already, or they understand the
industry very well. Also, there’s a stronger
need for these guys to look at M&A
nowadays. But I would look at that as a
more likely avenue for creating a liquidity
event for PE investors. The assumption
could be that your business is attractive
enough or big enough that you can get
attention from a few strategic players.

Simon Hopkins, Group CEO for
Milltrust:
There is likely to be far more opportunity
in strategic acquisition because the
Southeast Asian marketplace is
extremely fragmented. You may have a
contract to supply or distribute an
international product in the province of
Mindanao, for example. And it may be a
powerful franchise - but it is not a
nationwide business. So the opportunity

Chris Chia, Managing Partner for
Kendall Court:
This will always be at the back of one’s
mind if you’re going into an industry and
you know that your company will carry a


7


is for you to develop that franchise into other regions by acquiring other
franchise holders and then to start to extract value from the logistics and
supply chain that you manage, potentially with respect to other products too.

Krit Phanratanamala, Investment Director for Thai Prosperity Advisory:
This would be a better choice. Especially because the Southeast Asian market
is going up, I think in terms of a company’s potential selling price, we could be
able to earn more from selling said company. We can see that this market will
be growing very fast as well, which adds another element to the equation.
But take note, selling to strategic acquirers isn’t perfect; there would be a
downside to it too in terms of negotiating prices.


8


Management Buyout (MBO) is an interesting concept and one that could result in a Catch22 situation. There are not a lot of buyouts that have taken place in recent years and all the
ones that Milltrust’s Simon Hopkins has seen “all taken place within families.” One key
advantage of this option though is that it increases the likelihood that the business will
survive and grow as the acquiring party will have a keen familiarity with the business
already.
Simon Hopkins, Group CEO for Milltrust:
Management buyout is interesting, but the
buyouts that I have seen have all taken
place within families. This can be very
challenging for private equity investors;
they have to be able to ensure that when
they make the initial investment, there is a
clearly understood path which will lead to
monetisation at a fair price.

Krit Phanratanamala, Investment
Director for Thai Prosperity Advisory:
This is another option for companies, when
they are manned by us because they have
already served their investment and you
can see that the company may need
another four or five years before it is ready
to go public. But this, of course, would
depend on the company’s strategy – it
would be the choice of the company
whether or not to embark on this venture.

Chris Chia, Managing Partner for Kendall
Court:
It can be a Catch-22 situation to agree early
on that management will buy you out at a
certain point in time, or to try and instigate
such a purchase three to five years down
the road. Management may give you a
price that you don’t like. If you reject it, will
you continue to work with them and
constantly second-guess their intentions? A
misalignment of interest can occur in such
instances.

Minh City Securities:
One of the benefits is that the management
has been involved in the business, so they
know exactly what it requires to survive and
grow the company. It can be a very good
option to consider. However, getting
returns for everyone may be a problem. In
markets with high interest rates, the
classical model comes under some strain
and can make the dynamics of the deal
different.

Joseph Pacini, Managing Director for
BlackRock
The downside risk of management buyouts
is that if the business goes through a
problem, management can’t buy you out.
The upside risk is that you can always get
out at a certain point. I think it’s good to
look at multiple options. A deal in which all
three exit strategies (IPO, strategic acquirer
and management buyout) are potential
options would be ideal.


SBI Ven Capital:
Management buyout is possible, PE exit
through management buyout is considered
as secondary sale, which is not usually the
favorite of PE investors. Typically,
management buyout deals would require
external financing, which is a challenge as
evident in the observation that not many
PE investors exit via MBO (though entry via
MBO is fairly common).

9


The consensus from all the experts that
we’ve spoken to is that, focus must be
given on the underlying business at hand
and ensure its natural growth
One size fits one
There is clearly no single strategy that works best across all markets and industries. In nonmature markets, the “best strategy is still keeping it as simple as possible and to get things
right” says HSC’s Ed Gordon. The truth is no one can predict what will happen three, five
or ten years from now. The consensus from all the experts that we’ve spoken to is that,
focus must be given on the underlying business at hand and ensure its natural growth. If
the business can at least redeem a bond, pay a preference share, and/or have some point
of liquidity, then deciding to get out will be easier and much more profitable.

“If I have 10 companies in my IPO portfolio, and if not all of them have reached the IPO
point, at least I know I’ll exit most of them naturally and in a manner that I’ve structured
and worked on from day one,” concludes Chris Chia of Kendall Court.


10


Exits in Asia Pacific
# of Exits

125

140
120

90

78

100
80
60
40

20
0
2009

2011

Up to Q3 2012

Exit Deals
50
45
40
35
30
25
20
15
10
5
0

US$44.96b

US$14.5b

US$12.22b

2009

2011

Up to Q3 2012

Source: Asia Pacific Private Equity Outlook 2013 by Ernst & Young


11



12


Joseph Pacini
Interview with Joseph Pacini, Managing Director, Head of BlackRock’s
Alternative Investment Strategy Group for Asia
What are the most significant
developments in the Private
Equity industry in Southeast
Asia and what are the impact?
I think we’re in a very interesting
position when considering
private equity in Southeast Asia.
There are some firms that have
been investing in Southeast Asia
for 10, even 15 years, and on a
case-to-case basis as well. But
most of those firms are global
firms. Over the last five to seven
years, what we’ve seen is what I
would call ‘phase 2’ of the
private equity maturity. If in
Phase 1, the aforementioned
global players invested in
Southeast Asia, phase 2 now
involves new, homegrown,
private equity businesses that
are coming forward and joining
these global players. So what
the market is experiencing is
additional investors in the
region.
Another benefit is that it
provides entrepreneurs with a
better understanding of what
private equity firms as potential
partners can provide. By doing
so, it helps that kind of private
equity environment to mature.


Regardless of the kind of
regulatory environment and
funds coming into the region, I
think what’s most significant is
the expertise that exists – it’s
really homegrown expertise
now.
It’s interesting that you
mentioned that Phase 1 started
when global players invested in
the Southeast Asian region on
a case-by-case basis. As we’re
now on Phase 2, how do you
see the situation evolving?
At this point in terms of deal
size and number of deals, there
is still room to grow. But when
dealing with an entrepreneur
and with growth equity, for
instance, considerations such as
these will become more familiar.
Additionally, I think people are
also finding that partnering with
private equity players adds
significant value.
I believe it’s a three-step
process. There are the global
players initially in Phase 1, and
Phase 2 involves some local
talent creating its own funds
alongside the global players in
the region – that’s where we are
right now. I foresee that Phase 3
would be a continual kind of

13

growth and maturation of that
process, involving more players,
bigger deals, more deals and
more financing available – with
all of that becoming more
sophisticated as time passes. So
I do think it is a progression. A
lot of private equity professional
investors will expect, for
instance, Singapore to invest in
Indonesia, Malaysia, even all the
way to India. There’s a lot of
exciting growth in those markets
at present. If private equity can
be used as a way to bring about
efficient growth regionally, that
would be quite compelling.
Specifically, Indonesia’s GDP
growth is about 6%, and the IMF
projects that by 2017 Indonesia’s
economy will grow by about 6.8
or 6.9 percent. As for India, in
2012 its GDP grew by 4.8%, and
we’re looking at a 6.9%, almost
7% GDP growth. Each year from
now until 2017, it’s going to keep
growing. That’s pretty exciting
when you have this kind of fiveyear outlook. Plus there is
additional consumer spending in
countries such as Indonesia and
India, and it’s similar in
Singapore as well.

It will take baby steps to get
there; investors have to be

“The most important consideration when
making private equity investments is
knowing the management team.”
- Joseph Pacini, Managing Director, BlackRock

cautious and can’t just jump at
every deal. But global investors
are also going to be more and
more focused on where the
growth in the world is occurring,
and how they can benefit from
that. I’m cautiously optimistic on
the opportunities for Southeast
Asian private equity over the
coming years.
In making private equity
investments, what are your
typical considerations?
The most important
consideration when making
private equity investments is
knowing the management team.
There are lots of good
businesses that go bad when run
by bad management teams, and,
conversely, there are also lots of
bad businesses that improve
because of a good management
team.
There’s a saying that when you
go to a horse race, you always
bet on the jockey and not on the
horse – that rings true in private
equity. Do you know the
management team? Can it
deliver in the future? Sometimes
to get there you might have to

have a very honest conversation
with that management team.
Maybe they knew how to get
from zero to a certain size, but
maybe they can only go so far. If
that’s the case, maybe
professional investors with
private equity experience can
help them leap forward.

Does a company have the talent
pool that can augment existing
management to make sure that
it’s even more efficient going
forward? Can managers
incorporate best practices from
global experience into those
markets to help them become
more efficient? That’s really the
model of private equity:
partnering with a good
management team, working
with a company that boasts a
good product or good business,
and helping them become even
better over time.
These are the key movement
areas that we focus on. Also,
investors always need to keep
legal and other considerations in
mind.
How would you characterize
Southeast Asia’s frontier
14

markets? How do you see it
improving in the next 3-5
years?
With private equity investment,
many different questions have to
be asked. These are some of the
most important: Is this a market
you want to be in? Is there going
to be growth in this market?
More importantly, can you get
out when you want to, or when
you need to?
These frontier markets are still
developing. If the right time is
picked, investors may be able to
make a lot of money in a single
deal. However, there are
opportunities but there are also
some substantial risks. Investors
could get completely stuck in a
deal, for example. To be safe, it
is always good to mitigate those
risks.
I think there’s potential in those
markets, but I would exercise
caution when investing in them.
Potential investors need to
make sure they’re not placing all
of their eggs in one basket. My
preference would be to tiptoe in
on a case-by-case basis, and as
part of a more diversified

portfolio. Investors are already
going into something that’s less
liquid; if it becomes even more
less liquid, no one will buy it from
them. Additionally, there are
plenty of issues that could prove
problematic, such as
infrastructure-related concerns.
Even if you own a business, can
you efficiently transport your
goods to your market? There are
a lot of things that need to be
considered.
Is BlackRock currently looking
at investing in these markets
right now?

BlackRock Alternative Investors
looks at all markets and weighs
them on a case-by-case basis. I
would not rule out any market;
however, I would say that
regarding frontier markets in
particular, investors would need
an exceptionally compelling
opportunity to be willing to step
in because of the additional risks
that are present vis-à-vis other
markets today. That said, of
course, there are plenty of
opportunities around the region.
Part of the decision where to
invest boils down to where the
opportunities are. If investors
can still find opportunities in
regions where they may face
fewer risks, they might be giving
up some of the upsides, but the
trade-off is greater security.


Can you share some insights on
the following exit strategies?
Pls tell us the ups and downs of
each option:
Taking the company public
through an initial public
offering (IPO);
Selling the company to a
strategic acquirer;
Management buyout
Compared to strategic acquirers
or management buyouts, there’s
a common misconception that
an IPO is the most profitable
exit. It actually isn’t. Strategic
acquirers tend to be more willing
to pay a premium for something
that will enhance their
businesses.
I would say the wisest decision is
to identify multiple exit options
before entering into a deal. So if
there is a situation where you’re
in a growth equity position,
could the management buy you
out after five to seven years,
could you potentially work with
them on an IPO, or could there
be a strategic buyer that might
acquire the business?
This is very important especially
for Southeast Asia, where most
of the investments today are still
growth equity-oriented. In most
cases, the founders themselves
are managing businesses. They
may have a great opportunity to
grow, but they may not want to
sell to a strategic buyer,

15

especially after some may have
fought off such buyers for long
periods of time. They may only
want an IPO; conversely, they
might balk at being bought out
by management.

When BlackRock Alternative
Investors look at any deal, we
always consider the
management team. We need to
see that everyone is aligned
regarding the exit strategy, that
everyone has a very clear picture
of what they’re going to do
when you get to that point. Then
you can decide on the timing.
If the IPO market is hot, an IPO
can be a great way to exit. It’s
fairly clean, it’s straightforward,
and management can remain in
control. But the timing must be
right.
More difficult IPO environments
might not give the best position
to sell. However, private equity
investors have to sell at some
point. So if you can’t get that,
management might be willing to
strategically acquire the
company or potentially buy you
out.
On the IPO side, management
can retain control generally, and
can get liquidity. But the
downside is that the exit has to
be timed. This would also be the
case with a strategic acquirer.
Going with one would allow for a
potentially greater premium,

however management would no
longer retain control under such
circumstances.
Regarding management
buyouts, if the business goes
through a problem,
management can’t buy you out –
that’s the downside risk. The
upside risk is that you can always
get out at a certain point.
.


I think it’s good to look at
multiple options. A deal in which
all three exit strategies are
potential options would be ideal.
Are there any exit strategies
that you would like to add?
A reverse IPO involves buying a
public company. But you
become public to that
acquisition; that’s another
option to explore.

16

There are also different types of
investing. Businesses can issue
private shares and can have a
distribution for certain share
practices, so there are other
ways to get returns.

I think these are the most
straightforward ways as they
tend to be the most preferential.


Chris Chia
Interview with Chris Chia, Managing Partner, Kendall Court
I think Southeast Asia has grown
into one of the most dynamic
regions in the world. Today,
Southeast Asia boasts of a
macro outlook that’s far more
favorable than even that of
China or India. This is primarily
because of the region’s assets:
600 million people,
heterogeneous markets, sound
domestic economies with Forex
reserves at record highs and
sound monetary policies – all of
which present a pretty dynamic
case for investors.
Within that context, the private
equity market in the region,
which was somewhat of a
laggard in the early ‘90s, has
now become ripe for
investment. A lot of private
equity flows are starting to head
here. This is a development
that’s really matured in the last
three or four years. Even during
the bubble-like environment in
the region during 2004 and 2007,
the flow of private equity was
not this strong.


One of the factors has been the
growth of Indonesia as a
country, the immense scale and
size of which has created a major
need for investment. Indonesia
by itself has provided a vertical
lift to the general sentiment
regarding private equity. In fact,
a lot of large transactions are
happening over there.
Thailand is starting to look a
little bit more interesting, the
political crises of the past
notwithstanding. The Philippines
has become one of the fastestgrowing economies of the
region, thanks to the care and
attention its economic managers
have been lavishing on its
economy. Malaysia has been
showing a lot more maturity,
and we’ve also gotten wind of
big private equity deals taking
place over there. Most of the
multinationals in the region are
out there pursuing strategic
transactions. You’ve seen this in
the recent F&N deal with some
also looking to close private
equity interest deals.
We’re in a very liquid
environment at the moment. We
can see that the deployment of
capital may not be in lockstep
with the opportunities that are

17

available. Some markets can get
quite hot in terms of people
looking for transactions. I think
what would be good for
Southeast Asia’s overall
development would be more
opportunity sets for the midsized space. The bigger boys are
looking to do mega-sized deals,
but the mid-sized space still
presents a lot of opportunity.
The percentage of private equity
vis-à-vis stock market valuations
is still relatively small across the
region. Obviously, it’s not going
to be all smooth sailing; some
people will win and others will
lose. So we’re going to have to
put some thought into which
parts of the cycle need more
investments. But I think our local
entrepreneurs or companies
know more now about attracting
private equity investors, and
they’re also being chased for
opportunity sets. It’s starting to
look a little bit like a seller’s
market at the moment. We hope
that, over the course of time,
this doesn’t negate the available
opportunity sets.
investment, what are your


“We cannot predict what will happen 3-5 years
from now. I’d rather focus on the underlying
business and see what its natural growth would
be like.”
- Chris Chia, Managing Partner, Kendall Court

We typically work with the
existing sponsor or management
of the business, and we provide
them with growth capital. We
also determine what’s in it for
the person. We look for
confidence: business owners
have to believe that his business
is going to double, triple or even
quadruple in the next five years.
I think the first thing I would
consider is management
capability and integrity. You’re
going to have to rely a great deal
upon your partner on a daily
basis, so you’re going to need an
excellent partner.
The second thing I would look
for is a risk-adjusted structure
that serves both partners. In
return for giving a partner some
level of freedom to run the
business, based on his
commitment to his success, I
require a level of comfort –
markers that let me track how
his business is performing, how
it’s governed and so forth.
The third thing is compliance
with environmental, social and
governance standards. ESG is


very important for us. It’s about
making sure that the business
governs itself in a very sane way,
servicing the triple bottom line.
It’s an indication of a good,
sustainable business, one that
can govern itself in a way that
evinces transparency and a bit of
integrity.

These are three things that we
watch out for as we enter into a
transaction. We make sure that
these issues are continuously at
the forefront.

years?
I see the frontier markets as
going through a natural cycle.
None of the four or five countries
we’ve mentioned is big enough
for anyone to play with by itself.
Larger markets like the U.S.A.,
China or India can absorb a
tremendous amount of capital.
That is not the case with a
smaller market like, say,
Thailand or Malaysia. You will hit

18

that saturation point at which
the opportunities in those
smaller markets do not match
the capital you need to deploy.
At this point, the capital will
start flowing to these frontier
markets.
For this to happen, the more
developed Southeast Asian
markets must grow consistently.
Also, these frontier markets are
going to have to be seen as good
prospects. So these markets
need to have a very good track
record, good governance policy,
leverage ratios that are under
control and sane monetary
policy.
That said, we’ve always
preferred to stay where we are
familiar and do what we know
best. There is enough to do in
four or five countries we are
focused on, so we don’t need to
head to frontier markets as a
first-generation investor. We
could perhaps support a
Singaporean firm going to
Cambodia to expand its
products, for instance. Doing so
would give us some local, onthe-ground knowledge, without
which, we will refuse to work.

So I think the frontier markets
will clearly be very interesting
within the next five years. If
Southeast Asia continues to
grow at this pace, I think you’ll
start seeing private equity
money running off to those
frontier markets.
each option:

A. Taking the company public
offering (IPO)
I think going for an IPO always
makes for a nice story – building
a company to a certain level and
then securing an IPO – but it can
be risky. Firstly, it’s clearly a
binomial equation: either you
get there or you don’t. What
happens when you don’t? And
you’ll be subjecting yourself to a
lot of forces that you may not
have control over.
We’re living in a practically zerointerest rate environment at the
moment. What happens when
interest rates start to rise? Have
economies grown enough to be
able to compensate? Are they
enjoying real growth, low
inflation, and full employment?
If not, all the easy money
floating around will be sucked
out pretty rapidly when
conditions change.


I think that if you’re investing in
a business today and then exit
suddenly in the next three years,
you’ll have to consider where
you are in the investment and
liquidity cycles, and map as well
what’s going to happen over the
next three years. Even if the
company might be doing well
when you undertake an IPO, you
might have a lousy IPO as a
result. We’ve seen that happen
time and again.

B. Selling the company to a
strategic acquirer
I think this will always be at the
back of one’s mind if you’re
going into an industry and you
know that your company will
carry a lot of value to a lot of
people at a certain size and
scale. You feel that at some
point, a natural buyer of this
business will be a bank, an MNC,
or an industry leader.
If you go into a business like this,
then you’ll need to understand
the core competitive value of the
business you’re about to invest
into, and determine that a
strategic buyer will definitely
want to acquire it. You’ll need to
understand who your supposed
strategic buyers will be in three
or five years’ time as well as
what their plans might be.

If you’ve got a lock on that
strategic advantage and your
potential buyer can’t replicate it,

19

then well and good. Your buyer
would definitely pay a strategic
premium for it. If not, however,
you might have a very hard time
selling.
C. Management buyout
It can be a Catch-22 situation to
agree early on that management
will buy you out at a certain
point in time, or to try and
instigate such a purchase three
to five years down the road.
Management may give you a
price that you don’t like. If you
reject it, will you continue to
work with them and constantly
second-guess their intentions? A
misalignment of interest can
occur in such instances.
It’s always a very tricky situation
and puts you in a very precarious
position. I actually haven’t heard
of too many instances where
something like this has gone
tremendously well.
We cannot predict what will
happen three to five years from
now. I would rather focus on the
underlying business and see
what its natural growth would be
like. If it all works out – if the
business can at least redeem a
bond, pay a preference share,
and/or have some point of
liquidity or at least a fixed tenure
to my investment – then I can
decide to get out.

I think that’s always how we’ve
been structured. We started as a
need provider that’s evolved into
taking on more quasi-equity
risks. But we’ve never lost sight
of the importance of a certain


level of certainty on the exit and
on the yield that you will get.
You’ll have to temper your
equity-like returns in exchange
for that kind of certainty, and
that’s something I’m prepared to
do.

20

If I have 10 companies in my IPO
portfolio, and if not all of them
have reached the IPO point, at
least I know I’ll exit most of them
naturally and in a manner that
I’ve structured and worked on
from day one.


Edward Gordon
Interview with Edward Gordon, Head of IB, Ho Chi Minh City Securities
Corporation
It’s hard to generalize across a
market that covers such
different areas. For example, in
the more developed markets in
Singapore, after peaks and
troughs in recent years, it’s true
that investors are seeing a
greater depth and variety as well
as a good amount of capital
coming into the markets. In
Vietnam, where we are, the
development is towards more
sophistication, and the market is
playing a very significant role.
Other areas might be in different
stages of development, and for
such markets, this outlook would
not necessarily apply.

Our firm is more of a brokerage,
often working with the funds
which are actually doing the
investment. However, our
concern is that when the
numbers are provided, people


have to see the returns on their
investment. There are also
concerns on how to exit and how
to realize liquidity – a very
significant part of the
investment process.
Depending on the investor, the
question of which sector
becomes extremely important.
For example, in a market like
Vietnam, “consumer” is a word
that you hear quite a lot. This
means that there is considerable
interest, which means money
available for investment, in the
sector, but also signals
significantly greater
competition.
years?
We are a frontier market along
with Myanmar and Cambodia.
Each one has a different profile,
given that they’re all
independent to some extent.
There seem to be differing
characteristics in terms of which
sectors each market is
promoting, but again I think that
one common objective,
especially for growing players

21

that are not yet major
market forces, is to obtain
straight debt finance or debt
finance on terms which are
acceptable.
Given issues in the banking
sector, in the foreseeable future,
while there will be good and
strong demand, it may not be
fully met by regular financiers.
As such, for the next three to
five years, I think you will only
see a greater demand for private
equity and alternative financing
in the frontier markets.
each option:
offering (IPO)
Obviously an IPO would be
subject to market conditions. In
the Vietnamese market, towards
the end of last year, we saw not
only the values go down but
volumes as well. There were
days we were looking at
US$20m of total market
turnover. I think these conditions
obviously put a great deal of
constraint on the company’s
ability to exit via IPOs.

“I think that, in frontier markets at least,
keeping it as simple as possible is still
the best strategy.”
- Edward Gordon, Head of IB, Ho Chi Minh City Securities Corporation

Your exposure and your volatility
in the market – those are
downsides. There are certain
other technical areas, such as
the level of corporate
governance, that also place
constraints on this exit strategy.
On the other hand, undergoing
an IPO can work to one’s benefit;
for instance, it can raise the
company’s public profile, thus
helping build a company’s
presence even in less obvious
areas. Also, you may not want to
just sell out to one particular
company lock, stock and barrel.
Selling shareholders may want
to retain control of the ship and
yet still see some return or some
way to liquidate some of their
assets.
strategic acquirer

In a sense, if you are talking to
one player, there are less moving


parts, and it can be a simpler
process to go through. However,
there’s always that meeting of
the minds and often enough, not
just in Vietnam but in many
markets, everyone is looking for
the perfect match. Sometimes,
that can work against you.
Trying to get one single buyer
might be far easier said than
done, given the market
conditions that companies must
consider. So while it is easier in
some sense IF you get that
perfect match, I wouldn’t say it’s
an easy process.
I think that’s definitely an option.
Obviously, one of the benefits is
that the management has been
involved in the business, so they
know exactly what it requires to
survive and grow the company.
It can be a very good option to
consider.

22

Getting returns for everyone
may be a problem. In markets
with high interest rates, the
classical model comes under
some strain. This can make the
dynamics of the deal different,
and maybe to a certain extent,
alter the way in which the deal is
structured. In Vietnam for
example, in a management
buyout, you rely on your private
equity base almost exclusively.
Well, really I think that, in
frontier markets at least,
keeping it as simple as possible
is still the best strategy. I think
that for us at HSC at the
moment the focus is in getting it
right. For me, this would
definitely be the first step. After
this, I can consider being a bit
more fancy down the line.


Krit Phanratanamala
Interview with Krit Phanratanamala , Investment Director, Thai Prosperity
Advisory Co Ltd.
Four to five years in the past, the
private equity industry in the
Southeast Asian region was very
young, so nobody quite
understood it. There was of
course considerable action
already at the time; many
entrepreneurs were already
operating businesses here, and
were working with banks. Also,
some entrepreneurs were taking
their companies public early,
through smaller exchanges or by
targeting the bigger exchanges.
The private equity industry fully
started up and information
started to flow through at a
much faster rate when Indonesia
and Vietnam kicked off and
Thailand came up next.
As for the impact of these
developments, from what I can
see, they have been boosting the
wealth of opportunities in the
region. More specifically, they
are helping make the pace of
development so rapid that
people are getting impatient.


Having to wait for bank loans to
help finance growth through
investments, for instance, would
not be feasible. Additionally,
using their earnings to fund
these initiatives would be quite
difficult too, and equally
unfeasible. So they would be
looking for some source of
equity to fund such vital
initiatives. That’s where private
equity enters the picture.
Basically we need to see the type
of business model employed by
a business we are considering, as
well as what the entrepreneur
under consideration has in mind.
We also want to find out how
entrepreneurs plan to
implement their business model
– that is our key concern. This
usually differs from industry to
industry.
For example, if we look at the
rice industry in Thailand, and
even in other countries as well,
we would want to determine
what kind of business model
they use, how they work with
sales agents, and how they work
with retailers. Or even how they

23

invest in their companies as well
– we are concerned with that
too. And we also try to find out
which niche markets they
compete in.
years?
I am optimistic about these
frontier markets. One major
reason for our optimism: you
have to be aware that the
ASEAN Economic Community or
AEC is coming up in 2015. We
see the AEC’s inception as a
massive opportunity for
entrepreneurs to invest outside
of their countries, and an equally
enormous opportunity to help
grow the market areas of certain
countries and boost the access
of new products to these
markets as well.
There are also plans each
country is working on that
involves being part of what they
call the Heart of Southeast Asia.
In pursuit of this, they are
making significantly more
infrastructure investments. Such
investments would provide
opportunities for entrepreneurs

“We want to find out how entrepreneurs
plan to implement their business model
– that is our key concern.”
Krit Phanratanamala, Investment Director, Thai Prosperity Advisory

by further expanding their
market.
So we see a lot of upcoming
improvements. Furthermore, we
can see opportunities for private
equity investors to gain a
foothold in these markets before
they really take off in the next
two or three years.
each option:
offering (IPO)

I think if we invest in certain
kinds of companies, taking the
company public could be a good
option because it would make
for an easier exit. Because if we
start with, for instance, 10% or
15%, once an IPO is done, we
could dilute this to maybe 7%,
8%, so that portion should be
easier to release to the market.
But, by contrast, if we hold a
majority, say, 50, 60% or more,
going with an IPO may not be a
good choice. After the IPO, our


share would be diluted to maybe
40 or 50%. This portion would be
quite huge if released to the
market.
And if minority investors see
that we are tough financial
investors, the market would
know that we have time to exit
also. So this would make the
stock price go nowhere – and it
would make it also difficult to
get out, too.
strategic acquirer
That would be a better choice.
Especially because the
Southeast Asian market is going
up, I think in terms of a
company’s potential selling
price, we could be able to earn
more from selling said company.
We can see that this market will
be growing very fast as well,
which adds another element to
the equation.

negotiating prices, so that it
would have to be planned at the
beginning when we make an
investment if they need income
money. Then, if we want to take
a significant stake, we need to
see who might be the potential
acquirer or buyer, or if we are
going to put investment A in
investment B and start looking
for another acquirer. We have to
keep these things in mind before
we get into the whole process.

Yes, that’s another option for
companies, when they are
manned by us because they have
already served their investment
and you can see that the
company may need another four
or five years before it is ready to
go public. But this, of course,
would depend on the company’s
strategy – it would be the choice
of the company whether or not
to embark on this venture.

Now, take note, selling to
strategic acquirers isn’t perfect;
there would be a downside to it
too. I would say that it would be
a little bit limiting to some
acquirers in terms of

24


Simon Hopkins
Interview with Simon Hopkins, Group CEO, Milltrust International Group
The culture of business here is
one largely of business
ownership - ownership of real
assets, whether a business, a
commercial enterprise or
commercial real estate. The
private equity market is
therefore far more developed
than the public equity market in
many respects. However,
institutional capital is still largely
absent from the public equity
markets in many Southeast
Asian countries, even though
these markets have been some
of the best performing in recent
years. And that is because these
markets are historically very
volatile, in addition to the issues
relating to corporate
governance, the way businesses
have been managed historically,
and the treatment of minority
investors.

I believe that, while there has
been a significant shift in recent
years, most of the capital that
has been flowing into these
markets has come through fairly


indiscriminate pools that tend to
buy index exposure. As Japan
has shrunk, the rest of Asia has
grown in importance. But
investors in these markets only
tend to buy the largest cap
stocks, and when they leave the
marketplace because they want
to take risk off the table or
because they're concerned
about the volatile profile of
emerging markets, they
withdraw their capital, thus
exacerbating the very problems
that put them off in the first
place. This is the irony of the
emerging markets, whether it's
the ETFs or the big global
emerging market funds.
Additionally, there's too little
high quality on-the-ground
research into companies. With
investor capital coming in and
out in a very indiscriminate
fashion, the development of an
essential component of the
capital markets i.e. deeper and
more sophisticated markets, has
been severely hampered.

Private equity is increasingly
seen as an alternative source of
capital in addition to borrowing
money from banks and or from
local investors. However, it has
also been an expensive option in
recent years, with interest rates

25

at records lows in the developing
world. There's also a global pool
of capital, both in the PE and the
venture space, which is
increasingly seeking out
opportunities in the markets of
Southeast Asia. And as a
consequence, conferences in
Asia are increasingly well
attended by a pretty
sophisticated crowd of
international investors. Most,
however, are asset managers as
opposed to institutional
investors themselves, i.e. they
are what we call the LPs. They
represent people who
themselves have to go to the
ultimate pool of capital and raise
that capital in their own
domestic market for deployment
into Asia.
Many smart people recognize
that the demographics in Asia
are compelling, that the
economies of the Asian markets
are amongst the world's fastestgrowing economies, and that
whilst some businesses are
indeed well-managed others
could benefit from the
assistance that professional
private equity investors can
provide. However, a shift away
from private equity in domestic
markets into emerging markets

Many smart people recognize that the
demographics in Asia are compelling.
Simon Hopkins, Group CEO, Milltrust International Group

is only just beginning.
Goldman Sachs forecast that as
much as 4 trillion dollars of
capital could flow into Emerging
Markets during this decade, and
whilst one can only acknowledge
the performance of South East
Asian equity markets in recent
years, volumes are still relatively
small by any comparison with
the world's major bourses.
There have been some success
stories of people raising
significant pools of assets
through Asia, but there hasn't
been a wholesale shift of
institutional capital into private
equity. This has proved far more
challenging for international
investors for a host of reasons.
We're a relatively new company
and we've only been in business
for a couple of years. And in that
time, we haven't yet made a
principal investment into
Southeast Asia, much to my
dismay. However, we have made
investments into projects in
agriculture in Australasia and


Latin America. We're also very
close to making our first
investment in an agricultural
project in Africa. And in our
agricultural land investment
program, we absolutely want to
have an investment opportunity
in Southeast Asia.
In all of the projects we have
looked at in this region, our
initial co-investors have become
the primary investor, and they
haven't needed to seek
additional capital from the types
of investors that we traditionally
work with in the West. To give
you an example, we had a client
that wanted to grow coffee in
Laos. We conducted due
diligence on the opportunity to
acquire land and a license from
the local municipality, so that
they could vertically integrate.
They were seeking co-investors
to buy land, plant coffee and
harvest it there. As it turned out,
however, the company would
have ended up being an
absentee landlord, so we advised
the company not to embark
upon a vertical integration
strategy and to simply continue
to operate as a local buyer,

26

because of the risks associated
with not being present. They
would not have been in a
position to manage the risks
properly as an American
company operating a long, long
way away from its primary place
of business. Consequently, no
additional capital was required.
Our focus so far has been largely
focused on real assets, primarily
the opportunity to acquire
agricultural land. We're also
interested in any kind of
commercial real estate that
generates a recurrent income i.e.
some form of yield, because the
message that we're getting from
our investors is a deep concern
about long term inflation, and
short term sovereign default, or
further currency depreciation,
especially with respect to
Western currencies.
We are also interested in
investing in businesses which
focus on the primary necessities
of life, i.e. power, water,
transport and infrastructure,
healthcare, education, food.
These are the big themes of the
developing world, driven by
population expansion and
changing demographics.

Southeast Asia's frontier
years?
I think that it's extremely risky
for small investors to go into
these countries without local
knowledge. The risks of not
having sufficient resources to
deal with unexpected business
challenges would be
unmanageable for smaller
enterprises. Larger,
multinational corporations can
come in at a governmental level
and secure the necessary
support from the authorities. For
them, a single frontier market is
likely to be just one part of a
broadly diversified, expansion
strategy.
Also, countries that have been
deprived of capital and haven't
developed at the same pace as
some of their other neighbours,
may not have been exposed to
the pressures of the big
multinational companies. For
example: if you're a
manufacturer of any basic, fast
moving consumer good in
Myanmar as a domestic player,
and you suddenly experience
international competition, it is
highly unlikely that your
domestic business will be able to
compete with the multinationals
on the points of price and
quality. Customers will gravitate
away from the local product to

the international offering. This is
the "Proctor and Gamble effect".
So, from a private equity
standpoint, going into an
economy like that and acquiring
businesses in the hope that you
can help them and turn around,
or improve them or put them on
a stronger footing to compete in
the new world in which these
countries have entered, could be
an enormous challenge.
To conclude, frontier markets,
while fascinating, and while
ready for modernisation - for
instance through infrastructuretype investments - are likely to
be challenging to private equity
investors because of these
limitations.
each option:

offering (IPO)
Taking the company public
through an initial public offering
(IPO) I think this is often
overplayed. If you ask most
regional private equity players
whether they have successfully
exited an investment through an
IPO, you'll discover that they
have almost never done so. For
instance, there are companies in
the Asian markets that seek to
raise capital in Hong Kong or

27

Singapore because they feel that
they'd be more likely to attract
international capital there than
on their local stock exchange.
That will change in time, but
today, that is still the case.
Furthermore, IPOs are not an
exit; they can only ever be a
partial exit. It is highly unlikely
that you'd be able to sell all of
your PE investment through an
IPO. You might manage to sell
some of the investments and be
in a position where you retain a
portion of the stock - but then
you are then exposed to the
vagaries of the stock market
with respect to the valuation of
your investment. This is
something to bear in mind. The
stock market might be far less
kind than a compliant auditor.
strategic acquirer
There is likely to be far more
opportunity in strategic
acquisition because the
Southeast Asian marketplace is
extremely fragmented. You may
have a contract to supply or
distribute an international
product in the province of
Mindanao, for example, or in the
province of Western Sumatra.
And it may be a decent business,
a powerful franchise - but it is
not a nationwide business. So
the opportunity is for you to
develop that franchise into other
regions by acquiring other
franchise holders and then to
start to

extract value from the logistics
and supply chain that you
manage, potentially with respect
to other products too.
I think that a lot of businesses
with low cost bases, are in a
strong position in their own
domestic markets but often
haven't developed an
international angle to that
business. They may have had
some inquiries, but they haven't
got the capital or experience to
develop their business
internationally.

Management buyout is
interesting, but the buyouts that
I have seen have all taken place
within families. Let's say a
business is owned by fathers and
uncles who've reached the age
of 70. They decide that they
would rather play golf, buy a
new car, and relax and spend
their money than continue with
the business. Their sons or
nephews step up and acquire the


business. So the younger
generation buys the older
generation out. Otherwise, often
there is considerable resistance
when it comes to selling
companies that perhaps have
strong family ties, and broad
family ownership. One of the
issues that I've heard repeated
many times is that many private
equity investors make a
significant minority investment
into a business, but then they
find it very difficult to encourage
the principals to sell their
company once their job is done,
so the increased value in the
stake cannot be monetised. This
can be very challenging for
private equity investors; they
have to be able to ensure that
when they make the initial
investment, there is a clearly
understood path which will lead
to monetisation at a fair price.
The alternative is selling to a
family member at a price which
is not fully reflective of the
business's value.

28

Typically exits for Southeast
Asian investments, with the
exception of large infrastructure
or mining projects or other
resource-related investments,
tend to be relatively small
quantum. Many of the players in
Southeast Asia are looking to
invest somewhere between 25
to 100 million dollars per
investment, which, whilst small
by western standards, is
significant in terms of the typical
Asian business. Many western
PE firms would thus be
precluded from investing in
opportunities in Asia. The
opportunity therefore for the
mid-sized, local private equity
firms is to invest into businesses,
nurture them, and then sell them
to the bigger, international
private equity firms to take the
businesses to the next phase of
growth. This is probably the
most prevalent form of exit in
both in Southeast Asia and India.


Kian Hwa Tan
Interview with Kian Hwa Tan, Senior Vice President, SBI Ven Capital Private
Limited
Over the last few years, I have
observed the Private Equity (PE)
industry maturing rapidly. More
funds have been raised, many
businesses accepted
investments from PE players and
entrepreneurs are generally
much more receptive to PE style
of partnership. So I think it’s a
good thing that private equity is
becoming an alternate source of
funding for the entrepreneurs
vis-à-vis the traditional and more
conventional way of raising
funds.

Investments that I make must fit
the investment mandates, which
could be different from one fund
to another but share the same
basic elements. We look for
good returns, specifically, a
company which is more or less at
the inflection point where we
can nurture it further over the


next few years before we can
achieve liquidity. Sector’s
fundamental and strong
management is key. A company
that has easily distinguishable,
clear and strong market
positioning and exit potential.
years?

Southeast Asian countries are
more and more integrated
nowadays, and trade is flowing
more freely. There’s more
collaboration internationally –
and that’s an encouraging sign.
However, investors have to be
cautious on these frontier
markets like Myanmar.
I think everyone should try to
understand, or should at least be
aware, that this is the reason
that expectations should be
balanced out. Obviously, the risk
profile in these countries is very
different and the exit strategies
sometimes are not very clear, so
I think the risk management plan
is very, very important. So is an
understanding of the local
culture as well as the business
environment.

29

Overall, it’s a good thing that
people are starting to look at
these countries that have not
been previously focused on. But I
think investable opportunities
are still few and far in-between.
It’s very important that investors
have a way to mitigate the risks
that they can identify.
each option:
offering (IPO)
I think logically, IPO is definitely
a consideration. However,
realistically, given the capital
markets and the demand, you
don’t see much PE company-IPO
story.
Although an IPO is definitely an
option to be considered, it’s
important to note that it’s all
about financial returns. You
would probably go for listings,
but there are constraints in
pursuing this option: the
regulatory compliance to the
target exchange, the lockup
period, liquidity of the capital
markets, just to name a few.

“Investments that I make must fit the
investment mandates, which could be
different from one fund to another.”
Kian Hwa Tan, Senior Vice President, SBI Ven Capital

One recent success story that
comes to mind is Courts Asia’s
IPO. But that is just one
relatively large deal in the PE
world. So my point is that
definitely it’s a good
consideration, but I don’t think
we can just rely on IPO as the
main sort of way to exit because
of all these constraints I just
outlined.

strategic acquirer
I think that’s a more reliable
option. It’s easy to convince the
strategic buyers because they
are probably business partners
already, or they understand the
industry very well. Also, there’s a
stronger need for these guys to
look at M&A nowadays. But I
would look at that as a more
likely avenue for creating a
liquidity event for PE investors.


Though the assumption could be
that your business is attractive
enough or big enough that you
can get attention from a few
strategic players, the choices
could be quite limited if you are
operating in a very closely-knit
industry where people know
each other. If people are
communicating, the moment
you begin your initiatives,
everyone will know about your
plans, and this can work to your
detriment.


the observation that not many
PE investors exit via MBO
(though entry via MBO is fairly
common).
One typical is exit via
redemption clause.

Another one I can think of is
secondary sales, which is one PE
fund selling to another PE fund.
Again I don’t see that happening
a lot, due to valuation issue.

Management buyout is possible,
PE exit through management
buyout is considered as
secondary sale, which is not
usually the favorite of PE
investors. Typically,
management buyout deals
would require external financing,
which is a challenge as evident in

30


About BlackRock
BlackRock is a leader in investment management, risk management and advisory services for institutional and
retail clients worldwide. At March 31, 2013, BlackRock’s AUM was $3.936 trillion. BlackRock offers products that
span the risk spectrum to meet clients’ needs, including active, enhanced and index strategies across markets and
asset classes. Products are offered in a variety of structures including separate accounts, mutual funds, iShares®
(exchange traded funds), and other pooled investment vehicles. BlackRock also offers risk management, advisory
and enterprise investment system services to a broad base of institutional investors through BlackRock Solutions®.
Headquartered in New York City, as of March 31, 2013, the firm has approximately 10,600 employees in 30
countries and a major presence in key global markets, including North and South America, Europe, Asia, Australia
and the Middle East and Africa. For additional information, please visit the Company's website at
www.blackrock.com
About Ho Chi Minh City Securities Corporation
Ho Chi Minh City Securities Corporation ("HSC") is a leading, premier investment and financial services provider in
Vietnam, providing a comprehensive range of products for customers in one of the fastest growing economies in
Asia today. HSC focuses on its core competencies in research, technology and service to cater its customer
segment in both retail & institutional divisions.
About Kendall Court
Kendall Court started in 2004. We started with assets under management of US$35 million. The 3 founding
partners were the only employees of the firm. At the end of 2012, our assets under management were
approximately US$260 million, and there were 15 employees across Indonesia, Singapore and Malaysia.
About Milltrust International Group
Milltrust International Group was founded in Singapore by Simon Hopkins, the group CEO, as a multi-asset class
investment platform focused entirely on Emerging Markets. Simon formerly served as founder and CEO of Fortune
Group, one of the UK's leading investment advisors with a focus on alternatives. Close Brothers Group plc, the UK
merchant bank, acquired a controlling interest in Fortune in 2006 with the transaction completing in January 2010.
Mr. Hopkins served as head of the global institutional business at Close Brothers, overseeing the integration of
Fortune with the asset management business. He left in November 2010 to found Milltrust International Group.
Today, Milltrust employs over 20 professionals and has offices in London, Geneva, Buenos Aires, Cape Town, Seoul
and Kuwait City in addition to its HQ in Singapore. To know more, visit www.milltrust.com
About SBI Ven Capital
SBI Ven Capital is the overseas private equity arm of SBI Group. SBI Group is one of the largest Japanese private
equity/venture capital firms, with more than USD 3 Billion of committed capital. Singapore-based, we are a leading
private equity firm that invests in growth capital opportunities across Asia. We have a proven track record of
partnering with growth-stage companies and assembling critical resources needed to grow businesses in Asia. Our
investment team combines financial acumen, industry insight and operational expertise to enhance the value of
the companies we invest in.
About Thai Prosperity Advisory Company Limited
Thai Prosperity Advisory Company Limited (TPA) is an investment advisory firm that specializes in equity
investments. TPA has advised on transactions including capital raising for growth expansion, financial
restructuring, as well as, buyouts.


31


Southeast Asia’s leading private equity event brings together
the region’s leading CEO’s, chairmen and business owners
focused on buyouts, growth capital, distressed assets and
venture capital investments. Book now!


32

NOTE

The views or opinions expressed by the speakers are solely their own and do not
necessarily represent the views or opinions of the company they represent.

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Please note that we do all we can to ensure accuracy and timeliness of the
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cases. If you believe that a serious inaccuracy has been made please let us know.
This article is provided for information purposes only. IQPC accepts no
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this report or its contents.
ABOUT IQPC

Darwin Jayson Mariano is the Online Content Manager and the Regional Editor Asia for International Quality & Productivity Center (IQPC), a leading producer of
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him on LinkedIn or email darwin.mariano@iqpc.com.sg
IQPC provides business executives around the world with tailored practical
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33

SOURCES

Private Equity Outlook 2013 – Ernst & Young
http://www.ey.com/Publication/vwLUAssets/Asia-Pacific_private_equity_outlook_2013/$FILE/Asia-Pacific_private_equity_outlook_2013.pdf

Southeast Asia Private Equity – Industry Brief - Bain
http://www.bain.com/Images/INDUSTRY_BRIEF_Southeast_Asia_Private_Equity.pdf

Philippines Beats Global Stocks by 124%
http://www.bloomberg.com/video/philippines-beats-global-stocks-by-124-sA8WLH1xSSWeXPDUFHyQfA.html

Private Equity Firm Bets on Asia’s Frontier Markets
http://www.cnbc.com/id/46451418/Private_Equity_Firm_Bets_on_Asiarsquos_Frontier_Markets

Can Private Equity Strike Gold In Emerging Markets?
http://www.forbes.com/sites/baininsights/2012/06/26/can-private-equity-strike-gold-in-emerging-markets

Exit Strategies for Private Equity Investors
http://financetrain.com/exit-strategies-for-private-equity-investors/

Private Equity Funds and General Partners
http://www.secondventure.com/Private-Equity-Funds-and-General-Partners.asp

Interview with Chris Chia of Kendall Court
Interview with Edward Gordon of Ho Chi Minh City Securities Corporation

Interview with Joseph Pacini of BlackRock
Interview with Krit Phanratanamala of Thai Prosperity Advisory Co Ltd

Interview with Simon Hopkins of Milltrust International Group
Interview with Tan Kian Hwa of SBI Ven Capital Private Limited

34

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