an eye on affluence - avcj.com · its track record with matahari department store. the gp bought a...

Asia’s Private Equity News Source avcj.com April 04 2017 Volume 30 Number 13

DEAL OF THE WEEK DEAL OF THE WEEK

An eye on affluencePrivate equity finds ways to target Asia’s high net worth individuals Page 7

Integration agendaKKR backs Masan’s meat industry move 2

Repeat prescriptionTrue North adds to its India hospital assets Page 13

INDUSTRY Q&A

GE Ventures invests in shipping software

Page 12

GSSG leverage Japan’s solar power renaissance

Page 13

DEAL OF THE WEEK

CITIC Private Equity’s Feng Zhai on value-add

Page 15

GPs opt for familiar bedfellows in SE Asia

Page 3

Apax, Bain, HighLight, Kaizen, Morningside, PEP, Providence, TPG

Page 4

EDITOR’S VIEWPOINT

NEWS

years

Both same font

Inside China’s evolving outbound M&A story

Page 10

FOCUS

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1 Network with over 130 institutional investors that are looking to meet fund managers from across the globe and make commitments to the asset class

2 Discover the forces shaping private equity and what is the outlook for 2017/2018

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GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjsingapore.com

Southeast Asia: The next chapter in the Asia growth storyAfter China and India, Southeast Asia is poised to become the next battleground for private equity and venture investors, as global players are looking to expand into the region. The investment thesis is brimming with potential but in practice market fragmentation and political instabilities have made barriers to entry problematic and minimised deal opportunity.

However, deal activity is increasing and investor appetite for exposure to Southeast Asia is on the rise. Strategically, companies in the region offer a number of opportunities serving the local market and as an exporter of goods in demand across the region.

The 7th annual AVCJ Singapore Forum will provide an unrivalled in-depth analysis and debate on the latest trends, challenges and opportunities for private markets investors attracted to Southeast Asia, as the next destination in their quest for diversifying their portfolios and delivering alpha.

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Singapore 2017 7th Annual Private Equity & Venture Forum

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Number 13 | Volume 30 | April 04 2017 | avcj.com 3

EDITOR’S [email protected]

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.”

Tim BurroughsManaging EditorAsian Venture Capital Journal

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The 7th annual AVCJ Singapore Forum will provide an unrivalled in-depth analysis and debate on the latest trends, challenges andopportunities for private markets investors attracted to Southeast Asia, as the next destination in their quest for diversifying their portfolios and delivering alpha.

Southeast Asia: The next chapter in the Asia growth story

295+Participants


50Speakers






Registration enquiries: Anil Nathani T: +852 2158 9636 E: [email protected]

Sponsorship enquiries: Darryl Mag T: +852 2158 9639 E: [email protected]



Singapore 201719-20 July • Westin Singapore

1 Network with over 130 institutional investors that are looking to meet fund managers from across the globe and make commitments to the asset class

2 Discover the forces shaping private equity and what is the outlook for 2017/2018

3 Find out what is driving cross-border deals and which sectors are most active

4 Understand how corporate venture is changing the ecosystem

5 Hear how family offices are increasing their exposure to private market investments

Key reasons to attend include:

avcjsingapore.com

GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY avcjsingapore.com

Southeast Asia: The next chapter in the Asia growth storyAfter China and India, Southeast Asia is poised to become the next battleground for private equity and venture investors, as global players are looking to expand into the region. The investment thesis is brimming with potential but in practice market fragmentation and political instabilities have made barriers to entry problematic and minimised deal opportunity.

However, deal activity is increasing and investor appetite for exposure to Southeast Asia is on the rise. Strategically, companies in the region offer a number of opportunities serving the local market and as an exporter of goods in demand across the region.

The 7th annual AVCJ Singapore Forum will provide an unrivalled in-depth analysis and debate on the latest trends, challenges and opportunities for private markets investors attracted to Southeast Asia, as the next destination in their quest for diversifying their portfolios and delivering alpha.

Join your peers#avcjsingapore

2016 Forum key statistics:

Singapore 2017 7th Annual Private Equity & Venture Forum

19-20 July • Westin Singapore

295+Participants


50Speakers




Book by 31st March 2017 and SAVE US$700ONLINE: avcjsingapore.com EMAIL: [email protected] PHONE: +852 2158 9636



REGISTERNOW!

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avcj.com | April 04 2017 | Volume 30 | Number 134

AUSTRALASIA

PEP, CHAMP win approval for NZ acquisitionsPacific Equity Partners (PEP) has received the green light from New Zealand’s Overseas Investment Office for its acquisition of food supplier Leader Products. The deal is a bolt-on by portfolio company Patties Foods, which is best known for the Four’n Twenty meat pie brand. CHAMP Private Equity also won approval for its purchase of various shipping and freight assets from the family of industry pioneer James Barker.

Vantage in first close on fund-of-fundsVantage Asset Management has reached a first close of A$20 million ($15.2 million) on its third Australia-focused fund-of-funds. The vehicle, which launched in February 2016, has an overall target of A$100 million. Vantage Private Equity Growth 3 (VPEG3) will develop a diversified portfolio of middle-market managers in Australia.

GREATER CHINA

HgCapital invests $25m in New Zealand’s GentrackHgCapital has agreed to invest NZ35.5 million ($25 million) in New Zealand industrial software specialist Gentrack to support an acquisition and expansion process in the UK. The GP will take an 11.4% stake in the Australia-listed company and the capital will go towards the NZ$74.6 million acquisition of utility customer information and billing system provider Junifer Systems.

Morningside closes renminbi fund at $143mMorningside Venture Capital, a China-focused early-stage VC firm that used to manage only US dollar-denominated funds, has closed its first renminbi vehicle at RMB1 billion ($143 million). LPs include financial institutions, fund-of-funds, family offices and internet entrepreneurs.

CDB, Sino IC commit $22b to Tsinghua UnigroupTsinghua Unigroup, which is controlled by an investment arm of Tsinghua University, has secured RMB150 million ($22 billion) financing from two government-backed investors - China Development Bank (CDB) and Sino IC Capital.

Sino IC – manager of the government-backed China Integrated Circuit Industry Investment Fund - will invest up to RMB50 billion.

HighLight seeks $250m for healthcare fundChinese healthcare-focused GP HighLight Capital, which was set up by Steven Wang, formerly of CDH Investments, is targeting $250 million for its second US dollar-denominated fund. The launch follows the completion of fundraising for the firm’s second renminbi vehicle, which closed at RMB1.5 billion ($218 billion) in October.

One Belt One Road project gets $1.4b facilityPakistan’s Karot hydroelectric power project has secured a $1.4 billion facility from a group of

Chinese investors and the International Finance Corporation. It is seen as the first infrastructure deal under China’s One Belt One Road initiative. Investors include Export-Import Bank of China, China Development Bank and Silk Road Fund.

UCloud secures $140m Series DChinese cloud computing services provider UCloud has raised RMB960 million ($140 million) Series D round of funding from Oriza Holdings and CICC Alpha, a direct investment arm of China International Capital Corporation. The company offers cloud infrastructure-as-a-service (IaaS) - such as cloud storage and data analytics - to online gaming, e-commerce operators and mobile internet developers.

Apax commits $388m to Guotai Junan’s IPOApax Partners has agreed to invest $388 million in Guotai Junan Securities as the largest cornerstone investor in the Chinese brokerage’s HK$16.5 billion ($2.1 billion) Hong Kong IPO. The private equity firm will hold, 190.4 million shares, or a 16.65% stake, in Guotai Junan’s Hong Kong-listed unit on completion of the offering. This amounts to 2.2% of the entire company, which is also listed in Shanghai.

Personal lending platform raises $68mYongqianbao, a Chinese mobile app that provides personal loan services, has raised a RMB466 million ($68 million) Series C round co-led by Golden Brick Capital and CICC Alpha. CASH Capital, the VC arm the state-owned Chinese Academy of Sciences Holdings (CASH Holdings), Source Code Capital, Sinovation Ventures and GX Capital also participated in the round.

ClearVue leads round for convenience store chainClearVue Partners has led a RMB200 million ($30 million) Series B round of funding for I Believe, a Chinese convenience store operator. In addition to operating more than 1,500 stores and building an online retail business, I Believe supplies goods to third-party convenience stores, enabling them to buy in bulk at discount prices.

Oceanwide, IDG buy International Data GroupChina Oceanwide Holdings has completed its acquisition of International Data Group (IDG) and

KKR, CPPIB invest $953m in Bharti InfratelKKR and the Canada Pension Plan Investment Board (CPPIB) have invested INR62 billion ($953 million) in the cell tower arm of Indian telecom services provider Bharti Airtel.

They bought over 190 million shares in Bharti Infratel, about a 10.3% stake, for INR325 per share, a premium to the previous day’s closing price of INR313.85. After the sale Bharti’s stake in the subsidiary will drop to 61.7%, while KKR

and CPPIB’s stake will become the single largest public shareholder block.

Proceeds from the purchase will primarily be used to reduce Bharti’s debt, which stood at INR839 billion as of March 2016, up from INR668 billion the year before. In its most recent annual report the company recorded revenue of INR965 billion and net profit of INR55 billion for the year ended March 2016, up from INR920 billion and INR52 billion the year before, respectively.

KKR is a previous investor in Bharti Infratel, having paid $250 million for a 2.6% stake in the company in 2008. The firm exited its investment two years ago for $272 million.

NEWS


now holds a 90% stake in the target’s operating business, with IDG Capital owning the remaining 10%. The deal, announced in January, split the IDG portfolio in two: Oceanwide would take a controlling interest in operating assets while IDG Capital would assume ownership of IDG Ventures, a global network of venture capital funds.

Redpoint, Sinovation back online TCM playerRedpoint Ventures and Sinovation Ventures have led a Series B round worth RMB100 million ($14 million) for Xiaolu Clinic, a traditional Chinese medicine (TCM) online services provider. The company connects thousands of TCM doctors in China to provide medical consultancy services to patients online. After diagnosis, patients can purchase herbal medicines through the platform.

Tiger Brokers gets $14m Series B roundChina Growth Capital has led an extended Series B round worth RMB100 million ($14 million) for Tiger Brokers, a Beijing-based online brokerage start-up, with participation from existing investor ZhenFund. The company provides online brokerage services for Chinese investors to trade shares listed on domestic exchanges, as well as in the US and Hong Kong.

NORTH ASIA

Bain makes $314m partial exit from SkylarkBain Capital has sold nearly one third of its remaining stake in Japanese restaurant operator Skylark, generating proceeds of JPY34.9 billion ($314 million). The GP’s stake has fallen from around 40% to 28%. It also exited shares through Skylark’s IPO in 2014 and a sell-down in 2015.

Korea commits $102m to life science start-upsThe South Korean government has pledged to establish a KRW113.5 billion ($102 million) fund to support life science start-ups through related ecosystem and infrastructure investments. The initiative seeks to help entrepreneurs attract Series A funding rounds by supporting industry and academia-linked R&D programs.

IMJ Investment rebrands as SpiralJapanese GP IMJ Investment Partners has spun

out from its corporate parent and changed its name to Spiral Ventures. A group of existing shareholders led by the firm’s management bought a majority stake from the previous owner, Japanese lifestyle brand operator Culture Convenience Club (CCC). Spiral will incorporate the Japan and Singapore offices of IMJ Investment, with each branch continuing to manage its own investments.

SOUTH ASIA

Greenko receives $155m from GIC, ADIAGIC Private has joined the Abu Dhabi Investment Authority (ADIA) to invest $155 million in Indian renewable energy developer Greenko Energy

Holdings. ADIA will provide $31.1 million, while GIC will invest the remaining $123.9 million. GIC will remain the majority shareholder of Greenko, as it has been since 2015 when it paid GBP162.8 million ($252 million) to delist the company.

Kaizen in $44m first close on second fundIndian education-focused GP Kaizen Private Equity has reached a first close of $44 million on its second fund. Five investors, including pension funds, family offices and high net worth individuals, have committed to the fund. The vehicle launched in 2014 with a target of $125 million and a hard cap of $150 million, and is targeting a final close by next March.

Providence to scale back India operationsProvidence Equity Partners, which invests globally in communications and media-related companies, is scaling back its India business, with country head Biswajit Subramanian set to leave the firm. Varun Lal will be the sole India-based representative and manage the remaining assets.

B Capital leads Series C for IcertisB Capital Group has led a $25 million Series C round for Icertis, an India and US-based company that provides cloud-based contract management software. Existing investors Ignition Partners and Greycroft Partners also participated alongside E.ventures and Eight Roads Ventures. It brings Icertis’ total funding to $46 million.

PE-backed Byju’s gets $30mIndian online education start-up Byju’s has received a $30 million investment from Verlinvest, an investment holding company created by the founders of Anheuser-Busch InBev. The company announced earlier this year that it would launch a global app and to acquire several US and India-based online gaming and learning start-ups.

IFC proposes $20m investment in MFIThe International Finance Corporation (IFC) is considering a $20 million investment in Indian microfinance institution (MFI) RGVN Microfinance. IFC’s commitment will come in the form of a senior debt investment and will be used to expand RGVN’s presence in its core territories of northeast India and add to its portfolio of loan products.

TPG buys majority stake in Vietnam schoolTPG Capital has agreed to acquire a controlling position in Vietnam Australia International School (VAS), facilitating an exit for existing backers Mekong Capital and Denmark-based MAJ Invest.

Financial details were not disclosed. The private school group was valued at around $67 million in 2010 when it raised a $26 million round. That deal saw Mekong take a 14% stake for $6 million, while local investor FPT Fund Management acquired a 25% interest for $10 million. MAJ first invested in VAS in 2012, taking a 25% stake. In 2014, it reported the school’s

revenue and EBITDA at $34 million and $4.7 million, respectively.

TPG’s 3-5 year plan will include follow-up investment in staff training and efforts to improve teaching-learning activities and school facilities. Operational expansion is expected to entail additional large-scale campuses in Ho Chi Minh City and other regions, including Hanoi. VAS currently operates seven campuses in the city.

The private equity firm also invested $21.5 million in FPT in 2006, but is understood to have since exited its holding in the company.

NEWS

Begin Date: 1/1/2011

PE Investment Summary

Investee Name RoundInvestee

Country

Amount

(US$mln)

Deal

StakeFinancing Stage Industry Investor Name

Expansion/ Growth

Capital

Ashoka Concessions Limited SBI Macquarie Infrastructure

Management Pvt Ltd.

$149.3085 n/dIndia Highway & Street

Construction

1st Round

Macquarie SBI Infrastructure

Management Pte. Ltd.

Expansion/ Growth

Capital

DJ HealthUnion Systems

Corporation

HAO Capital$12.5000 n/dChina (PRC) Computer Software2nd Round

Expansion/ Growth

Capital

Jiangxi Lianchuang Electronic

Co.Ltd.

Zhejiang Silicon Paradise

Equity Investment

Management Co., Ltd.

n/d n/dChina (PRC) Electronics1st Round

Expansion/ Growth

Capital

Mahindra First Choice Wheels

Ltd. / Mahindra First Choice

Services

Valiant Capital Management$15.0000 n/dIndia Automotive Dealers2nd Round

Start-up/ Early Stage Nanolocal Technologies Pvt.

Ltd. (Bounty)

Mumbai Angelsn/d n/dIndia Internet-Online

Services

1st Round

MAPE Advisory Group Pvt.

Ltd.

Individual Investor(s)

Fireside Ventures

Buy-outs

(MBO/MBI/LBO)

Obex Medical Archer Capital Pty. Ltd.n/d 88.38%New Zealand Surgical InstrumentsDeal Details

Expansion/ Growth

Capital

Olive Bar & Kitchen Aditya Birla Capital Advisors

Pvt. Ltd. (Aditya Birla Private

Equity)

$9.4655 n/dIndia Eating & Drinking

Places

1st Round

Start-up/ Early Stage Rakyan Beverages Pvt. Ltd.

(RAW Pressery)

Sequoia Capital India

Advisors

$1.8000 n/dIndia Beverages1st Round

DSG Consumer Partners$4.50002nd Round


Advisors

Saama Capital India

Advisors, LLP

Copyright 2016 AVCJ Group Ltd. All rights reserved.

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Asian private equity and venture capital intelligenceThe AVCJ Database is the most comprehensive database on the private capital of Asia and spans the full spectrum of the private markets including private equity, venture capital, distressed debt and real estate funds. Updated on a real-time basis, the AVCJ Database is an important business tool used by leading private equity GPs, institutional investors, management consultants, investment banks, corporate dealmakers and legal advisers in their day-to-day business analysis.

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Detailed coverage of more than 40,000 private equity and venture capital investments including investment types, deal size, sectors, as well as, 7,000 exits including over 3,500 PE-backed IPOs

An extensive LP search of more than 4,600 limited partner profiles including company overviews, investment preferences and performances, fund commitments as well as, their portfolio of direct/co-investments

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Information on more than 110,700 M&A transactions

League table rankings, advisor details including detailed profiles and deal histories

AVCJ subscribers will have access to our exclusive concierge service, which allows them to send in requests for a particular data set or customized report to our market leading research team. Response are prompt and there is no limit on the number of requests.

Some of the key features for the AVCJ Database includes:

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COVER [email protected]

MORE THAN 4,000 CLIENTS HAVE experienced Enoch Education in the past two years. Some have been sent to the Wharton School of Business to learn about portfolio construction, to Switzerland for sessions on family office management, and to Silicon Valley for visits to Apple and Tesla. These trips are part of how Enoch, as the investor education arm of Chinese wealth manager Noah Holdings, fulfills its mission to explain to high net worth individuals (HNWIs) how private equity works.

For Noah, these relationships are big business. Last year, the firm’s wealth management unit – a distributor of domestic and offshore fixed income, private equity and secondary market products – received $159.4 million in commissions from managers and $107.5 million in service fees from clients. A further $69.3 million in service fees came from the asset management unit, which creates products such as fund-of-funds for the alternatives space.

PE accounted for one quarter of the $15.2 billion Noah raised for third-party products, and for half of the $17.4 billion it held in discretionary portfolios under the asset management business. The asset class is of increasing interest to the firm’s 135,000 registered clients as they look to diversify and internationalize fortunes that have thus far been invested in a relatively unsophisticated manner. But education efforts emphasize that PE is not for everybody.

“As wealth accumulates and individuals become more informed they want to learn from the best and mimic big institutions – and as a result they discovered private equity,” says Piau-Voon Wang, co-CIO at Noah. “However, private equity is more for HNWIs than affluent white-collar, middle-class office workers. That’s why we spend so much time on investor education, explaining that there’s a 7-8 year lock-up and the compound return may be 15% or lower, but you exchange time for returns.”

As Chinese institutional investors took time in devising outbound alternatives programs, the likes of Noah and CreditEase quietly established themselves as international LPs – Noah alone deploys $1-2 billion a year out of its Hong Kong office. While capital controls imposed by Beijing have reined in activity somewhat, China remains a key part of strategies drawn up by private banks

and wealth managers to channel more Asian HNWI capital into international private equity.

“Our platform provides a connection to an underrepresented segment of the market,” says Lester Lim, associate director in the alternative investment group at HSBC Private Bank. “Family offices are active investors in the asset class – we deployed over $1 billion in alternatives globally last year and 80% of that came from Asia – but it is hard to access these people.”

Global playThis is not solely an Asian phenomenon. Of The Blackstone Group’s $367 billion in assets under management across all its strategies, retail or high net worth investors contributed about 17% as of year-end 2016. Stephen Schwarzman, Blackstone’s chairman, said in his annual letter that the firm is working to “bring institutional-quality solutions to the high net worth retail and family office channels that historically have been denied access to those types of products.”

Other listed global managers such as The Carlyle Group and KKR, which place an emphasis on accumulating fee-generating assets, are also seeking to penetrate the high net worth segment. While HNWIs generally participate by pooling their capital in a feeder vehicle that takes up a single LP position, they aren’t necessarily entering a single fund. The products offered could deliver exposure to several strategies through funds operated by the same manager.

In order to manage these deeper and more complex relationships, most global firms have investor relations teams dedicated to HNWIs and the private banks and wealth managers that represent them. For example, Carlyle’s 50-person LP relations group includes eight professionals who concentrate on high net worth distribution.

A key motivating factor is LP diversification. First, large institutional investors are seen by some GPs as increasingly difficult to service, given their tendency to push for preferential terms by virtue of their size. Second, and more importantly, these investors tend to act in concert, whether that is due to a herd mentality or a similar response to macroeconomic shocks. HNWI money can serve as a balancer.

One industry participant recalls asking the principal of a North American buyout firm why he had come all the way to China to market to local HNWIs when fund-of-funds were willing to contribute the same amount. The response was: “We want to develop private wealth and China is important. So even though it’s $150 million I’m throwing resources at this as if it were a $1.5 billion commitment.”

Richard Williamson, managing director for overseas business at CreditEase, sees this as a familiar trend. He notes that HNWI money is generally harder and costlier to raise, but it

moves in different cycles to institutional capital. Moreover, trends differ between geographies: Chinese money moves in different cycles to Western money, and so might be prioritized by GPs for bringing additional diversification.

Regardless of geography, this wealth has become a sizeable target. According to Capgemini’s latest World Wealth Report, in 2015 a total of 145,200 ultra HNWIs – each with investable assets of at least $30 million – controlled $20 trillion in assets. Another 1.38 million people, with $5-30 million apiece, had $13.2 trillion. Asia Pacific is the fastest-growing market in these two categories. There were 37,400 ultra HNWIs and 431,400 mid-tier millionaires in the region in 2015, and between them, they held $8.9 trillion.

Retail channelsPrivate equity firms keen to diversify their LP bases are looking to establish relations with Asia’s high net worth segment, and the private banks and wealth managers who facilitate access to this community

Begin Date: 1/1/2011

PE Investment Summary

Investee Name RoundInvestee

Country

Amount

(US$mln)

Deal

StakeFinancing Stage Industry Investor Name

Expansion/ Growth

Capital

Ashoka Concessions Limited SBI Macquarie Infrastructure

Management Pvt Ltd.

$149.3085 n/dIndia Highway & Street

Construction

1st Round

Macquarie SBI Infrastructure

Management Pte. Ltd.

Expansion/ Growth

Capital

DJ HealthUnion Systems

Corporation

HAO Capital$12.5000 n/dChina (PRC) Computer Software2nd Round

Expansion/ Growth

Capital

Jiangxi Lianchuang Electronic

Co.Ltd.

Zhejiang Silicon Paradise

Equity Investment

Management Co., Ltd.

n/d n/dChina (PRC) Electronics1st Round

Expansion/ Growth

Capital

Mahindra First Choice Wheels

Ltd. / Mahindra First Choice

Services

Valiant Capital Management$15.0000 n/dIndia Automotive Dealers2nd Round

Start-up/ Early Stage Nanolocal Technologies Pvt.

Ltd. (Bounty)

Mumbai Angelsn/d n/dIndia Internet-Online

Services

1st Round

MAPE Advisory Group Pvt.

Ltd.

Individual Investor(s)

Fireside Ventures

Buy-outs

(MBO/MBI/LBO)

Obex Medical Archer Capital Pty. Ltd.n/d 88.38%New Zealand Surgical InstrumentsDeal Details

Expansion/ Growth

Capital

Olive Bar & Kitchen Aditya Birla Capital Advisors

Pvt. Ltd. (Aditya Birla Private

Equity)

$9.4655 n/dIndia Eating & Drinking

Places

1st Round

Start-up/ Early Stage Rakyan Beverages Pvt. Ltd.

(RAW Pressery)


Advisors

$1.8000 n/dIndia Beverages1st Round

DSG Consumer Partners$4.50002nd Round


Advisors

Saama Capital India

Advisors, LLP

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Asian private equity and venture capital intelligenceThe AVCJ Database is the most comprehensive database on the private capital of Asia and spans the full spectrum of the private markets including private equity, venture capital, distressed debt and real estate funds. Updated on a real-time basis, the AVCJ Database is an important business tool used by leading private equity GPs, institutional investors, management consultants, investment banks, corporate dealmakers and legal advisers in their day-to-day business analysis.

Comprehensive coverage of 10,000+ partnerships focused on Asia including data on fund size, vehicle currency, key dates, investment strategies and selected limited partners

Detailed coverage of more than 40,000 private equity and venture capital investments including investment types, deal size, sectors, as well as, 7,000 exits including over 3,500 PE-backed IPOs

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Information on more than 110,700 M&A transactions

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High net worth population: Asia vs globalUS$1-5m US$5-30m Above US$30m

Asia Pacific - no. of people 4,663,500 431,000 37,400

Asia Pacific - total assets (US$t) 8.45 4.16 4.76

Global - no. of people 13,831,600 1,388,100 145,200

Global - total assets (US$t) 25.4 13.2 20

Source: Capgemini


With these statistics in mind, almost all private banks and wealth managers offer alternatives exposure to their clients. “Alternatives is becoming more mainstream,” says Michael Henningsen, a partner at placement agent First Avenue. “In the past, a private bank would tell you it could sell a product but their client advisors didn’t fully understand it. Now they have specialists in alternatives.”

Pick ‘n mixNot all of these investors are suited to a feeder fund. Wee Teck Tay, global head of private equity and real estate in the wealth management division at Standard Chartered, puts the cut-off point at $10 million in assets: those above would go direct into funds or individual co-investments; those below are most likely writing checks of between $250,000 and $1 million for a feeder. Standard Chartered offers two to three feeder

opportunities – usually for a single underlying fund – to its clients each year, and the average aggregate commitment is $100 million.

HSBC is in a similar position, with four or five funds available on the platform per year, spread out evenly over 12 months to avoid congestion. The minimum check size is $250,000 but most investors are putting in $2-5 million. A single feeder vehicle might run to $200 million. “There has to be some scale to the target fund. Banks will usually need the allocation to be at least $150-200 million to make it worth their while to distribute,” explains Justin Dolling, a partner at law firm Kirkland & Ellis.

From a client perspective, access comes at a high price, but there are few other ways to enter the asset class. Fee schemes vary considerably between the private banks, but one way or another, the client ends up paying the 2% management fee and 20% carried interest charged

by the underlying GP plus fees to the bank. In certain cases, a PE firm might pay the bank

a distribution fee, which would either be retained or offset against fees charged to the client. On top of that, clients are liable for a one-off fee paid to the bank for access to the feeder vehicle and perhaps also an ongoing management fee to cover administrative costs. Standard Chartered, for example, asks for an upfront arrangement fee equal to 3% of the commitment and annual trailing fees of around 70 basis points.

Just as a private bank needs a fund to be a certain size to justify marketing it as a feeder, the manager behind it must be strong enough to generate interest among HNWIs. “The clients are generally not as familiar with alternatives so there is an affinity for brand-name platforms,” says Vincent Ng, a partner at placement agent Atlantic Pacific Capital. “But you do see some of these platforms looking a bit deeper and asking what else would be viable to represent to clients. At the end of the day, the clients don’t do any due diligence, it is purely a menu option for them.”

L Catterton Asia is a good example of a regional manager that used brand recognition to get traction with the high net worth segment. Prior to its merger with US-based Catterton, L Capital Asia was a private equity business sponsored by luxury goods conglomerate LVMH, and these ties clearly resonated with HNWIs wanting consumer exposure. A feeder fund established by J.P. Morgan is said to have accounted for about half of the $950 million L Capital Asia raised for its second fund in 2013.

Crescent Point, meanwhile, represents the other extreme. The GP spent more than a decade operating below the radar on a deal-by-deal basis with the support of a family office network. It has since switched to a hybrid model with two pools of third-party capital supplementing family contributions. The first of these – worth around $200 million – was raised as a separately managed account through a private bank. This also enabled the firm to widen its network of HNWIs, according to an industry source.

A blurred lineIt takes years for client advisors to win the trust of HNWI clients, and once it has been established they don’t want to let go. As such, private banks and wealth managers increasingly tailor their products to meet specific needs. The traditional feeder fund remains on the menu, but it is not alone. For example, a private bank might pre-select four funds under a particular strategy and pitch it to clients as a diversification play and an opportunity to invest in smaller funds that might not warrant a single feeder.

This blurs the line between those who intermediate products and those that create


Fundraising disrupted You know in life you have to have a dream. And one of the dreams is our desire and the

market’s need to have more access at retail to alternative investment products,” Stephen Schwarzman, chairman and CEO of The Blackstone Group, told analysts on the company’s earnings call in January.

Intermediaries are central to this strategy, whether it involves working with international private banks or wealth managers in different geographies. Blackstone is also extending its focus from high net worth individuals (HNWIs) to the mass affluent, targeting independent broker dealers. The firm is said to offer week-long, university-style education programs so that advisors can better understand its private equity, real estate, hedge fund and credit products.

Will these educational efforts one day include sessions on a dedicated Blackstone platform through which advisors can research pooled investment products, make commitments, and track investments through to redemption? It is unclear to what extent alternatives could see disintermediation, but there are already technology providers working on more cost efficient solutions for HNWI fundraising.

Privatemarket.IO was established last year in Hong Kong as a B2B platform for accessing, analyzing and executing primary and secondary market transactions online. Commitments from family offices, private banks or independent financial advisors (IFAs) are funneled into an Ireland-based feeder vehicle, which invests in the fund. “We have a huge advantage in terms of pricing, given how much our technology allows us to lower the costs of setting up a vehicle and managing it,” says Loic Engelhard, founder & CEO of Privatemarket.IO.

The funds available on the platform are Asia-focused and most of the participating investors are European. At present, execution happens partly offline, using electronic signatures, but the goal is to digitize the entire process through distributed ledger technology and smart contracts. “We will build the business on that because I am 100% convinced it’s where the industry is going,” Engelhard adds.

Privatemarket.IO has competitors, including US-based iCapital Network, which has received backing from a string of placement agents that also serve as strategic partners. To some in the industry, it is only a matter of time before global alternatives managers develop their own versions of these products.

“As the market matures you will see things like iCapital continue to grow, particularly targeting capital from the US managed by individual IFAs,” says Michael Hennningsen, a partner at First Avenue, which is one of iCapital’s backers. “Having platforms on which IFAs can register and pick funds for their clients they like is the Holy Grail very attractive for global PE firms given how scalable it has the potential to be.”


them, and for Noah and CreditEase it represents logical business development given the dynamics of the China market. “We think the fund-of-funds structure is a great product for our clients because it provides access to funds they wouldn’t otherwise get and it provides fund selection and portfolio construction, which is difficult for them to do,” says CreditEase’s Williamson. Secondaries and co-investment are also on the agenda.

Not all industry participants plan on taking this course: some say they are uncomfortable with fund-of-funds due to the added fee burden; others don’t have the resources or remit to offer such products, conscious that their relationships with HNWIs already cover a range of services that stretch beyond alternatives. But these customized approaches do potentially open up a new source of funding for private equity firms that are not among the global brand names.

From a GP perspective, these pools of capital function much like any other LP position. Responsibility for know-your-customer (KYC) and anti-money laundering (AML) due diligence, meeting capital calls and perhaps even serving on the LP advisory committee rests with the private bank or wealth manager.

Feeder vehicles, unlike fund-of-funds, do pose an additional complication when they are

established solely for investing in a particular fund. Under US regulations, the GP must look through the feeder and establish that each HNWI meets the criteria to participate as a qualified investor or is not a US resident. While a full client list isn’t required, the GP would have to get comfortable with how its product

is marketed. This is easier if the counterparty is an international private bank rather than an unknown Asian wealth manager.

As to whether HNWI feeder vehicles can replicate the impact they are having with the global managers at mid-market level, opinion is divided. A PE firm raising funds of limited size on an infrequent basis, may welcome feeders in the interests of diversification, but it doesn’t have access to the investors or visibility about re-ups. “Would an oversubscribed manager take two pension plans and a sovereign fund or $300 million from a feeder? I think it might be the former,” says Dolling of Kirkland & Ellis.

Even though classic sources of institutional capital will remain the foundation of most successful fundraises, the stigma previously attached to “retail money” is dissipating. As these investors grow in wealth and sophistication, the infrastructure has been put in place in Asia through which those without the means to go

direct can participate in the asset class. For now, attention is largely focused on global players that have the scale, internal resources and brand names to make it happen.

“There are still a lot of misconceptions about what this investor group is like; and it not an easy space, with a lot of work in terms of servicing and legal and regulatory compliance,” says Noah’s Wang. “But the old school bias against retail investors has gone. When I joined Noah I was worried we wouldn’t see the best deals and funds, but the reality is all the big names are moving in this direction. It is important strategic initiative.”

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“The clients are generally not as familiar with alternatives so there is an affinity for brand-name platforms” – Vincent Ng


[email protected]

PROLIFIC SUMS OF MONEY CAN HAVE A strange effect on a market. Such was the case in the explosion of China outbound M&A deals in recent years. Many sell-side investment banks saw the outpouring of capital as an opportunity, seeking to bring Chinese buyers into the bidding process purely as to force other participants to put their best bids on the table at the beginning.

“There was a game being played to make sure you always had a Chinese bidder in there, even if you had some doubts about their ability to ultimately execute,” explains Christopher Kelly, head of Asia M&A for law firm White & Case.

This approach left a bad taste in the mouths of market participants who saw it as next to extortion, with bankers putting good assets at risk of being acquired by groups that didn’t really know what they were getting into simply for the sake of driving up the deal price. In some cases, far from making a bidding process more competitive, the strategy would reduce it until the deal became unviable.

“We’ve had some situations where the Western buyers decide not to engage, because they feel that the Chinese are going to make the bidding process very messy,” says Samson Lo, managing director and head of Asia M&A at UBS. “Then in the end the Chinese drop out as well, and you end up with no buyers.”

Now that era of unrestrained investment seems to have passed. Established Chinese buyers continue to be attracted to overseas assets, but they are more sophisticated in their approach, while a new crop of participants is emerging with better-defined goals for their acquisitions. The M&A market seems set for a new phase of growth based on more measured assessments of target companies’ potential rather than irrational exuberance.

Behind the numbersThe exponential growth in Chinese outbound investment over the last 10 years is unmistakable. MergerMarket data shows 44 overseas deals announced in 2007 for a total of $17 billion. In 2016, the total swelled to 386 transactions worth a combined $208 billion – more than doubling the $92 billion invested the previous year.

The Chinese government’s recent moves aimed at slowing the outflow of foreign currency appear to have placed this overseas push on

temporary hold. In the most recent quarter just 81 deals were announced for $14 billion, a sharp drop from the $82 billion in the same quarter last year. However, industry participants say these figures do not tell the whole story.

For example, the China National Chemical Corporation’s $47 billion purchase of Swiss seed and agrochemicals player Syngenta counted for more than half of that $82 billion committed in the first quarter of 2016. Such enormous deals are rare occurrences at any time, and likely to be

more so in light of the current challenges around financing. But many say activity at the lower end of the deal scale remains robust.

“There’s still a genuine interest for the Chinese to make outbound investments, and the government is supporting it,” says Lo of UBS. “It’s just that because of the capital controls and the regulatory risk, people are looking at smaller deals these days, because smaller deals are easier to finance.”

Going for smaller deals does not necessarily guarantee success, as shown by the proposed purchase of US-listed money transfer services provider MoneyGram by Ant Financial, the online financial services affiliate of Alibaba Group, in a deal that would value the business at $880 million. The acquisition was announced in January, but a recent $2 billion offer for MoneyGram by US rival Euronet Worldwide has put its completion in doubt.

Market participants say the challenge to Ant

Financial’s bid is notable because it highlights a cause of significant skepticism toward Chinese buyers venturing overseas. Euronet’s bid emphasized Ant Financial’s need to gain approval from the Committee on Foreign Investment in the United States (CFIUS), which has been difficult in recent years for technology companies. MoneyGram’s consideration of the rival bid is seen as a sign that its management is wary of the chance of trouble with a Chinese bidder.

Whether it is completed or not, the MoneyGram deal illustrates another important shift in the M&A market, away from the previous emphasis on energy, mining and utilities and toward the industrial, technology and financial services sectors. While energy and mining represented the vast majority of capital invested overseas from 2008-2013, this balance abruptly shifted in 2014, and by last year the value of industrials and chemicals purchases alone more than doubled that of energy and mining. Technology deals’ value nearly equaled that of energy and mining as well.

This change in focus is seen to reflect the growing confidence of domestic Chinese companies in a wider variety of sectors – another example is Shandong Ruyi, the textile manufacturer that bought French apparel retailer SMCP Group from KKR last year. These players have come to see themselves as having unique strengths that can benefit an acquisition target

The smarter moneyDespite regulatory curbs on Chinese outbound investment, companies are still interested in M&A opportunities – and they are pursuing less high-profile assets with greater sophistication

China outbound M&A deal value by sector

Source: MergerMarket

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

US$

billi

on

250

200

150

100

50

0

OtherPharma, Medical & Biotech TechnologyFinancial ServicesConsumer Energy, Mining & Utilities

Industrials & Chemicals

[email protected]

just as much as it benefits the parent.“Because China is a huge market, all these

Western companies can benefit from the value increase by expanding their market share in China,” says John Gu, head of private equity for KPMG China. “In addition, this kind of acquisition is consistent with the Chinese government’s policy to encourage Chinese companies to move up the value chain.”

Willing targetsThis point of view is increasingly shared among potential target companies, many of which, particularly on the consumer side, are eager for a crack at the Chinese market and unenthusiastic about expanding into smaller, fragmented markets such as Southeast Asia or Europe.

“A lot of these Western assets have been in the market for a long time, and the fact that they still haven’t been sold means that the appetite for them from the Western world is quite limited,” says Lo. “They see these emerging Chinese buyers, and given how many companies there are and that they all have a need to do something significant, maybe a Chinese player can come into the game.”

However, attracting a Chinese buyer does not ensure the target company’s success in penetrating the new market. Industry

professionals point out several challenges that typically emerge post-acquisition.

Lin Feng, founder and CEO of advisory firm Dealglobe, points to the reticence of many Chinese owners to get deeply involved in newly purchased companies as an ongoing difficulty that bidders from other markets shed long ago. He contrasts the very hands-on approach of Japanese buyers, who get into the details of a business and start making changes right away with the tendency among Chinese companies to leave the details to management.

“That’s not a completely bad thing for the management team, since it means they have more independence,” Feng adds. He notes, however, that if a Chinese buyer is unable or unwilling to make necessary changes to help a portfolio company compete in China, it negates one of the attractions of such an acquisition.

Ironically, target companies’ perceptions of Chinese buyers do not always agree with this assessment – particularly among management teams that expect buyers to focus on cutting costs. New owners must ensure they don’t scare off the leaders of the companies in which they have invested so much, while still taking the steps to position the target for continued success.

“The ability to run overseas assets once you’ve bought them has not historically been a strong

point for Chinese buyers,” says White & Case’s Kelly. “Buyers need to give thought to transition services and incentivizing management teams in the right way to entice them to stick around and run the business under the new owner.”

Market participants say the recent slowdown in outbound M&A could provide a needed respite for Chinese buyers to develop their overseas acquisition strategies in more depth. Better planning for local regulatory hurdles such as CFIUS in the US will increase the chances of deals going through.

Even with increased investor sophistication, however, this unsated appetite for outbound M&A is expected to crystallize in a surge of activity once regulators’ capital controls are lifted. This could happen by the end of the year. Valuations are also likely to remain high because Chinese corporate buyers are working off of different priorities than Western investors.

“Chinese investors are willing to pay higher premiums because they have a different value proposition for those types of deals,” says KPMG’s Gu. “They’re not necessarily looking at the historical performance of the portfolio company; they’re thinking more about expanding the target’s products and services into China, so the value enhancement may not be the same as other buyers.”

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WHEN PENM PARTNERS BACKED MASAN Food in 2008, the company’s product line was limited to sauces and seasonings, with annual revenue of less than $100 million. But the GP liked both the market opportunity and the management team. “It was clear there was potential to sell branded goods to local consumers at affordable prices, and on a large scale,” says Hans Christian Jacobsen, managing partner at PENM. “We wanted to get involved and we believed in the founder’s vision.”

Eight years on, Masan Food – now known as Masan Consumer Corporation (MCC) – is one part of Masan Group, a domestic conglomerate with interests in financial services and natural resources as well as food and beverage. Revenue came to VND31.3 billion ($1.37 billion) in 2015. It was an opportune moment for PENM to sell part of its interest in Masan to KKR, which is backing the company in its latest endeavor to bring consolidation and vertical integration to Vietnam’s meat industry.

PENM’s second fund invested approximately $50 million in several Masan entities between

2008 and 2009. As the company restructured its divisions under Masan Group, PENM converted its holdings into shares in the parent, which subsequently listed. The private equity firm sold $100 million worth of shares to KKR, but this represents the last in a string of partial exits. The overall return for Fund II – PENM still owns shares in Masan Group through its third fund – is said to be more than 5x.

KKR also has a history with Masan, having invested $359 million in MCC across two tranches in 2011 and 2013. The exit, completed in 2016, came as Thailand’s Singha agreed to invest $1.1 billion to take the Masan consumer platform to the next level. This established relationship proved crucial as KKR won a competitive process to invest $150 million in Masan Nutri-Science. The decision to buy shares in the parent as well was driven by PENM needing to exit and the view that Masan Group was undervalued.

Masan Nutri-Science is Vietnam’s leading

independent animal feed supplier and it is already expanding into mid-stream agriculture. The company has options to buy two existing farms, with 5,000-10,000 sows, and is building a new facility that will have capacity for 10,000

sows in the first phase alone. It also owns a 25% stake in large-scale pork processor Vissan. The plan is to leverage MCC’s consumer goods capabilities to push into the downstream branded meat space as well.

KKR will contribute to this development, relying on expertise from similar

investments in China. Across several deals covering meat and dairy, the directive was also to integrate and consolidate with a view to providing high quality and safe food products to an increasingly protein-hungry population. “The ability to provide capital to a scale player, to help them restructure how the industry works, that is a really exciting theme,” says a source familiar with the deal.

ISRAELI ENTREPRENEUR ZVI SCHREIBER discovered the world of international shipping was incredibly old-fashioned on becoming CEO of Lightech, which made electronic power supplies for LED lights. The company shipped its China-made products to the US and Europe by air and sea, and Schreiber would often wait four days for a basic price quote from logistic companies. Seven years on, the industry hasn’t changed.

“It’s also hard to know whether you’ve got the best price or not – import and export companies can end up paying 30% or even 100% more for their shipments,” he says. “It’s very strange. When you buy a plane ticket to travel from one country to another, you can see all the prices online. It has been this way for more 20 years. It’s time people bought shipping services online as well.”

Following the sale of Lightech to a division of General Electric (GE) in 2011, Schreiber founded logistics technology company Freightos in Hong Kong. Its flagship product is software-as-a-service (SaaS) AcceleRate, which enables carriers, freight forwarders and shippers to automate pricing and

routing. Last year, it introduced a marketplace that provides instant price quotes for freight forwarders, which has already accumulated 10,000 registered users. Freight forwarders pay Freightos a finder’s fee equal to 2% of the overall transaction whenever they generate business through the marketplace.

The company raised an equity crowdfunding round in 2012. This was followed by $15 million in Series A funding in 2014 and a $14 million Series B in 2015. The latter round featured existing investors Aleph, Annox Capital, ICV and OurCrowd, as well as MSR Capital and Sadara Ventures. Last week, Frieghtos added GE Ventures to roster as the investor led a $25 million extended Series B round. Schreiber says he wants to continue working with GE, which he describes as an important strategic investor for Freightos.

“Since GE is an industrial company we hope it will start using Freightos’ marketplace to order shipments. Their vision is to become a digital

industrial company, and logistics digitalization is an important part of it,” Schreiber adds.

Freightos’ services are underpinned by a freight pricing and routing engine as well as a database of more than 300 million ocean, air and land freight price rates. The database, which is updated daily, is growing by over 10 million price points every week. While Freightos works

with more than 1,000 logistics providers that have worldwide coverage – including the likes of Nippon Express and CEVA Logistics – most of the exporters and importers who access freight forwarders through the company’s platform are based in the US.

The new capital will be used to scale the marketplace globally, with a particular focus on Europe and Asia. “International shipping generates about $1 trillion in revenue per year and right now 99.9% of that market is offline operations. We believe we’re the leading online player,” Schreiber adds.

DEAL OF THE [email protected] / [email protected]

KKR returns to Masan, PENM exits

Freightos looks to take shipping digital

Shipping: Stuck in the past

Masan: More than seasoning


INDIA’S HEALTHCARE SECTOR HAS BEEN very good to True North. The PE firm, previously known as India Value Fund Advisors, has stakes in several hospitals across the country as well as medical technology manufacturer Trivitron Healthcare.

But when presented with the opportunity to invest in hospital chain Kerala Institute of Medical Sciences (KIMS) several years ago, True North turned it down. It wasn’t that the company was unsuitable for investment – rather, the GP preferred not to invest in a potential competitor to its portfolio company Aster DM Healthcare, which like KIMS operated both in India’s Kerala state and in the Middle East.

True North kept KIMS in mind, however, and when the chance arose earlier this year to take out positions held by Ascent Capital and OrbiMed Advisors, the private equity firm was ready. The feared competition had not materialized, since the two chains operated in separate countries in the Middle East and different areas of Kerala, and with Aster DM’s upcoming IPO providing a full exit for the firm it

was unlikely to be a concern in the future. Now, having invested $200 million for a

40% stake in KIMS, True North is ready to put what it has learned from its previous hospital investments to good use.

“We have experience in managing a portfolio across the Middle East and India, and in the Middle East even managing across the different formats of clinics and hospitals, handling insurance and looking at greenfield and brownfield expansion,” says Satish Chander, a managing director at the firm. “I think we can bring a lot of that experience from working with Aster DM to bear.”

True North’s investment came from its fifth fund, which closed two years ago at $700 million. The investment was supplemented by LP capital from a dedicated co-investment vehicle established alongside the main fund to give investors a chance to participate in deals above the normal threshold.

This LP participation is seen as a vote of confidence for True North, which expects private equity to play an increasing role in the hospital space in both India and the Middle East. Rising

incomes and standards of living in both regions are fueling demand for quality healthcare, and PE will be indispensable in providing the financial support and technical expertise to help hospitals meet that demand.

True North plans to let the company’s existing management, headed by

founder and Chairman M.I. Sahadulla, lead the way on domestic and international expansion. This is the GP’s preferred approach to healthcare investments, limiting itself to an advisory role.

“Our investments in other sectors mostly focus on control transactions, but in healthcare we believe that the promoters should play a really large role in terms of holding the doctor team together and in terms of their entire clinic management,” says Chander.

True North keeps healthcare ball rolling

Healthcare: Repeat target

THE SUN HAS BEEN DEPICTED ON Japan’s national flag since the 1800s, so it’s not hard for solar investors to see the country as a long-termer when it comes to culturally embracing this timeless source of power. Yet Japan’s emergence as arguably the hottest solar market in the world has hardly represented the culmination of a long, gradually building story.

In the few years since the Fukushima nuclear disaster and the ensuing energy diversification legislation, Japan has experienced a stark role reversal in solar. Global operators have a unique perspective on this renaissance, with portfolios becoming increasingly weighted towards what used to be a relatively fringe jurisdiction for the sector due to land scarcity issues.

US-based GSSG Solar is a case in point. The solar-focused GP built up a portfolio of 300 megawatts in the US and 175 MW in Japan under its first fund. The successor vehicle, which recently closed at $120 million, will be wholly deployed in Japan. Fund II will support a broader agenda of installing $1 billion of mega-projects in the country across a three-year period, starting

with 350 MW of new acquisitions. No specific targets have been declared, but negotiations are underway for a number of potential development sites.

“Any project we look at has local risks and nuances, but at the end of the day, they’re under a well-structured feed-in tariff that allows for scale,” says Tomakin Archambault, GSSG’s CEO and managing director. “Compared to other markets, there’s a lot more opportunity in Japan to structure a recurring investment thesis in a low-risk currency with long-term yield.”

GSSG team members have been working in Japan since the early 2010s, when a majority of solar business in the country consisted of bringing Japanese investors to the US, or helping US operators access Japanese technology. The implementation of the country’s feed-in tariff scheme in the wake of Fukushima has inversed this flow of investment dramatically. Rapid internationalization of the local solar

market is now said to be contributing to the addition of nearly 10 gigawatts to nationwide energy infrastructure capacity every year.

For its part, GSSG has raised more than $2.5 billion in total – mostly for Japanese investments – and backed some 100 projects, including 2.6 GW of acquisitions. While much has been said about a possible overheating of the Japan market

due surging foreign interest, long-term investors remain upbeat about ancillary industries and a macro view of favorable supply-demand dynamics.

“We’re keeping our eye squarely on the [energy] storage market, which obviously complements solar,” says Archambault. “In Japan, there’s

a scarcity of domestic resources that are easy to exploit – except for the sun. That’s why it has become one of the most efficient economies in the world and why we see a real opportunity long-term for solar to play a big role in the country’s energy future.”

DEAL OF THE [email protected] / [email protected]

GSSG sharpens focus on Japan solar

Japan solar: Role reversal

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Stability and opportunities for private investors The first event of its kind in Vietnam, the inaugural AVCJ Vietnam Forum will offer in-depth analysis of the risks and rewards presented to private market investors looking to commit capital to the growing economy of Vietnam.

The Forum will provide a platform for attendees to showcase the latest alternative investments opportunities, share strategies for navigating the Vietnamese market whilst networking with a diverse audience of LPs, GPs and service providers.

Felix LaiDirector InvestmentsGAW CAPITAL

Henry NguyenManaging General PartnerIDG VENTURES VIETNAM

Dominic PiconeManaging DirectorTPG CAPITAL

Binh TranVenture Partner500 STARTUPS

Pete VoManaging DirectorCVC CAPITAL PARTNERS

Mark MobiusExecutive ChairmanTEMPLETON EMERGING MARKETS GROUP

Other speakers confirmed include:

Asia Series Partner Co-Sponsors

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Q: How has CITIC PE’s control-focused strategy evolved?

A: We have been operating in the private equity industry for nearly 10 years, we’re still a young firm. But we have benefited from the rapid growth of the Chinese economy and our assets of under management (AUM) have expanded quickly. By the end of 2016, we had over RMB100 billion ($14 billion) across US dollar-denominated funds, renminbi funds, fund-of-funds, separate accounts, and dedicated secondary investment funds. We have invested in more than 100 companies and of these 40 have been buyouts. We focus on six areas: industrials and energy; financial and business services; consumer and leisure; medical and health; technology and the internet; and real estate. Most of the buyouts have come in the first four categories.

Q: What is your process for identifying and executing investments?

A: Every year we review trends and market dynamics in each sector we cover and then we identify some candidates and establish a dialogue with the management teams. Oftentimes, we follow a company for more than two years before deciding to invest. In terms of deal execution, we have an investment team of nearly 100 and a strong operating team to provide post-investment support and value-add services. Chinese entrepreneurs appreciate our deep involvement in their business, which means they are more likely to sell a controlling stake to us. That’s how we win buyout deals, even in competitive processes.

Q: How developed is the Chinese buyout market?

A: There have been opportunities for buyouts over the last four or five years, but we haven’t seen many completed in China. This is partly because there aren’t many private equity firms with the capabilities needed to do buyouts – in-depth deal sourcing, developing complicated deal structures, and putting in place professional management post-acquisition. To do this effectively, a firm must have focus and a deep understanding of certain industries. When we do buyouts, we see ourselves as being in the driver seat, not just a passenger. If a private equity firm isn’t ready to take that approach, it will go for minority investments.

Q: What is the make-up of CITIC PE’s operating team?

A: At present we have 12 team members, focusing on eight core corporate functions: corporate governance, business strategy, supply chain management, human resources, corporate finance, IT systems, branding and marketing, and capital operations. All of our team members have previously worked for international or large domestic corporations. We also hire external professionals to provide value-added services. Our approach to post-investment management has gone through three phrases of development. In the early days, our focus was to add value to a company when we were a minority investor. Once we started targeting buyouts, we were active in different areas and trying to add value on an individual company basis – we

didn’t have the scale within our portfolio to exploit synergies between companies. Now we have that scale we think about portfolio companies and the CITIC PE platform in a different way. For example, we can adopt a centralized procurement policies in order to reduce operating costs for our companies, and we can apply standardized operating procedures for routine functions, irrespective of the sector. As a result, we are better positioned to improve operational efficiency and financial profitability.

Q: To what extent are existing management teams important in driving value creation?

A: While we seek to play an active role over the course of the investment – with decision power at the board level – we rely on existing management to

oversee day-to-day operations. The CITIC PE operating team can provide assistance role, but we can’t replace company management. If members of core management teams demonstrate strong capabilities and share our vision, we will try to retain them. We use employee stock option plans and team-building programs to make sure new and existing staff are motivated to get more involved in operations.

Q: Has CITIC PE exited any of its buyout investments?

A: We are still a young firm, so not yet. Our previous exits have been from minority investments. With buyouts, because we want to exert a lot of influence on a company’s strategy and operations, we don’t expect to see results overnight. Having said that, we do assess the enterprise valuation of each portfolio company once a year as part of efforts to track financial performance. Beauty Farm, a spa chain operator in China, is a good example of how we try to generate returns through post-investment management. The company provided traditional facial and spa beauty services, but we repositioned it as a medical beauty brand – supporting bolt-on acquisitions intended to expand market share and broadening product offerings, as well as helping to improve internal financial management systems and digital marketing. We went through two CEOs as the objectives for the business changed over time. In 2016, Beauty Farm recorded a 20% year-on-year increase in revenue and a 40% increase in net profit.

FENG ZHAI | INDUSTRY Q&A [email protected]

Operating agendaCITIC Private Equity has sought to differentiate itself from other Chinese GPs with an operations-driven buyout strategy. Feng Zhai, managing director and head of the portfolio management team, explains the approach

“When we do buyouts, we see ourselves as being in the driver seat, not just a passenger”

Vietnam 2017 Private Equity & Venture Forum

25 May 2017, Park Hyatt Saigon, Ho Chi Minh

Join your peers#avcjvietnam

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Registration Enquiries:Gavin Lam T: +852 2158 9675E: [email protected]

Sponsorship Enquiries: Anil Nathani T: +852 2158 9636E: [email protected] Enquiry

Stability and opportunities for private investors The first event of its kind in Vietnam, the inaugural AVCJ Vietnam Forum will offer in-depth analysis of the risks and rewards presented to private market investors looking to commit capital to the growing economy of Vietnam.

The Forum will provide a platform for attendees to showcase the latest alternative investments opportunities, share strategies for navigating the Vietnamese market whilst networking with a diverse audience of LPs, GPs and service providers.

Felix LaiDirector InvestmentsGAW CAPITAL

Henry NguyenManaging General PartnerIDG VENTURES VIETNAM

Dominic PiconeManaging DirectorTPG CAPITAL

Binh TranVenture Partner500 STARTUPS

Pete VoManaging DirectorCVC CAPITAL PARTNERS

Mark MobiusExecutive ChairmanTEMPLETON EMERGING MARKETS GROUP

Other speakers confirmed include:

Asia Series Partner Co-Sponsors

AND SAVE

US$200(until 7 April 2017 only)

NOW!

Amit AnandFounding PartnerJUNGLE VENTURES

Dayu Dara PermataCo-FounderGO-LIFE

Julianto SidartoSpecial AdvisorALPHA JWC VENTURES

Sandhya DevanathanCountry Head - SingaporeFACEBOOK

Florian HolmCo-CEO, IndonesiaLAZADA GROUP

Jonathan SudhartaCEO & Co-FounderHALODOC

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Keynotes

Capturing the next wave of private market opportunities

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Noni PurnomoPresident DirectorBLUE BIRD GROUP HOLDING

Sandiaga S. UnoFounding PartnerSARATOGA CAPITAL

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