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ASIAN VENTURE CAPITAL JOURNAL
PRIVATE EQUITY ASIA
M&A ASIA
Asia’s Private Equity News Source avcj.com April 19 2011 Volume 24 Number 14
AVCJ will skip An issue next week for the spring breAk. we wish A hAppy holidAy to All our reAders!
China26 - 27 May 2011 www.avcjchina.com
AVCJ Private Equity & Venture Forum 2011
taiwan Outlook11 May 2011www.avcjtaiwan.com
AVCJ Private Equity & Venture Forum 2011
Fundsdeal oF the week
New Horizons for Co-InvestorsThe advantages and implications of GP/LP co-investments Page 6
KKR sees sauce with Masan dealKKR in Vietnam’s biggest-ever deal with food maker
Page 11
GPs and their FeesSquadron examines the price of Asian PE Page 10
AVCJ gears up for Private Equity & Venture Capital Awards China Page 3
editor’s Viewpoint
Axiom, Blackstone, CVC, DCM, FountainVest, HarbourVest, IL&FS, LGT, Paul Capital, Sequoia, Warburg Pincus
Page 4
news
How Equinox highlights M&A opportunities in China’s natural resources segment Page 9
Focus
Venture firms bank on Lashou to keep ahead of the PRC’s group-buying curve Page 11
deal oF the week
AVCJ Private Equity & Venture Forum
10TH ANNUAL
Registration enquiries: Anil Nathani - T: +852 3411 4938 - E: [email protected]
LP (excluding FoFs) complimentary registration request: Joyce Wong - T: +852 3411 4845 - E: [email protected]
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Sponsorship enquiries: Darryl Mag - T: +852 3411 4919 - E: [email protected]
Speaker enquiries: Doris Chan - T: +852 3411 4966 - E: [email protected]
Tom DoctoroffNorth Asia Area Director Greater China CEOJWT
China Banking Regulatory Commission
Corporate Leader
Regulatory
26-27 May Park Hyatt, Beijing
China 2011
GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY
avcjchina.com
China: World’s largest PE market by 2020?
AsiA sERiEs sPONsOR CO-sPONsORs
iNTERNATiONAL BUsiNEss NEWsPAPER sUPPORTiNG ORGANisATiONs
Monte Brem Chief Executive OfficersTEPsTONE GROUP
Weijian shan Group Chairman & CEO PAG
Fredrik Åttingsenior PartnerEQT PARTNERs
James H. BoettcherGeneral PartnerFOCUs VENTUREs
Henry Chen Partner, Co-Head of AsiaPERMiRA ADVisERs
shirley ChenManaging Director & Head of Private EquityCHiNA iNTERNATiONAL CAPiTAL CORPORATiON LTD
York Chen Founding Managing PartneriD TECHVENTUREs LTD.
Grant KelleyHead of AsiaAPOLLO GLOBAL REAL EsTATE MANAGEMENT
Kai Fu LeeChairman & CEO iNNOVATiON WORKs
Andrew LiuManaging Partner & CEO, AsiaUNiTAs CAPiTAL
André Loesekrug-PietriChairman & Managing PartnerA CAPiTAL GROUP
Tony C. LuhFounding Managing PartnerDFJ DRAGONFUND CHiNA
James MiManaging DirectorLiGHTsPEED VENTURE PARTNERs
Mark QiuChief Executive Officer and Managing DirectorCHiNA RENAissANCE CAPiTAL iNVEsTMENT iNC. (CRCi)
Maarten Ruijs Managing PartnerCVC CAPiTAL PARTNERs
Homer sun Managing DirectorMORGAN sTANLEY PRiVATE EQUiTY AsiA
Frank TangCEOFOUNTAiNVEsT PARTNERs
Hiro MizunoPartnerCOLLER CAPiTAL
sebastiaan C. van den BergManaging Director HARBOURVEsT PARTNERs (AsiA) LiMiTED
John ZhaoFounder & CEO HONY CAPiTAL senior VP & Executive Director LEGEND HOLDiNGs
Patricia M. Dinneen Managing DirectorsiGULER GUFF & COMPANY LLC
Jie Gong Executive DirectorMORGAN sTANLEY ALTERNATiVE iNVEsTMENT PARTNERs
suyi Kim senior PrincipalCPP iNVEsTMENT BOARD
Judy Ye Director and Head EMALTERNATiVEs AsiA Managing Partner YiMEi CAPiTAL
Jacky Yi Jing Director sMALLViLLE CAPiTAL
Peng Zhao Head of China PARTNERs GROUP
Eric i. Chan Managing Director Private Equity GroupJP MORGAN AssET MANAGEMENT
Keynotes
Limited Partners
Senior Industry Professionals
ExHiBiTORs iNVEsTMENT PROMOTiON PARTNER
LEGAL sPONsOR
TM
Number 14 | Volume 24 | April 19 2011 | avcj.com 3
editor’s [email protected]
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ASIAN VENTURE CAPITAL JOURNAL
PRIVATE EQUITY ASIA
M&A ASIA
2003 wAs probAbly one of the gloomiest years in recent memory for people in Asia. It was in that year that we launched our first annual AVCJ Private Equity & Venture Capital Awards at the suggestion of Walden’s Lip Bu Tan, who rightly proposed injecting some fun into the what was otherwise a gloomy industry. In November of that year, we launched the Awards at an exclusive dinner during the AVCJ Forum in Hong Kong. Back then, we had three categories and a lot of fanfare – everybody, winners, losers, delegates, had a great time.
We have never looked back since.Over the years, the Awards successfully
recognized excellence in private equity and venture capital in Asia. Of course, there were a few award recipients that have not stood the test of time, but by and large, most of the winners have consistently upgraded industry standards and have lived up to expectations of these highly sought after recognition.
Last year, we’ve expanded our Awards to include a regional one for the Indian private equity and venture capital industry. This year, we are pleased to announce the launch of our inaugural AVCJ Private Equity and Venture Capital Awards China.
Like its predecessors, AVCJ’s China Awards will recognize the growth and importance of private equity and venture capital activity across China. The Awards seek to acknowledge the contributions of domestic and foreign firms that are raising the bar for the industry, as well as the professionals that continue to drive private equity and venture capital forward.
For this year’s AVCJ China Awards, there are nine different categories (see chart). The awards are open to venture capital and private equity professionals, and firms investing, fundraising and operating in China.
Judging Except for VC and PE Professional of the Year, awards will be independently judged by a panel of private equity and venture capital industry
professionals, and will also take into consideration league tables provided by AVCJ and entries from AVCJ readers and other industry professionals.
The judging panel will be selected by the editors of AVCJ, and great care is taken in
selecting a jury comprising the right balance of specialist knowledge, experience and objectivity. Confidentiality is key to the judging process, with judges discussing the entries, but voting independently and confidentially.
For VC Professional of the Year and PE Professional of the Year, finalists will be chosen by the panel of judges and posted on the avcj.com website for public vote tallying, which will be taken into account in addition to the judges’ opinions. In the case of any discrepancy or dispute, the opinion of the judging panel prevails.
nominationsTo make sure your choice gets included in this year’s AVCJ China Awards, please email your nomination(s) to [email protected], stating clearly category, name and reason for your endorsement. Please include your contact details, should we require further information. Entries will close on May 11.
CategoriesDeal of the Year• Venture Capital• Private Equity
Professional of the Year• Venture Capital• Private Equity
Firm of the Year
Fundraising of the Year• USD-denominated• RMB-denominated
Exit of the Year
AVCJ Achievement Award
Announcing the AVCJ Private Equity & Venture Capital Awards China
Awards 2011China
avcj.com | April 19 2011 | Volume 24 | Number 144
Asia Pacific
NewQuest acquires BoaML assetsA newly launched fund managed by NewQuest Capital Partners, backed by a consortium consisting of Paul Capital, HarbourVest Partners, LGT Capital Partners and Axiom Asia, has acquired “substantially all” of Bank of America Merrill Lynch’s (BoaML) non-real estate private equity portfolio in Asia. The portfolio specifically consists of more than 20 growth-equity and buyout assets primarily in Chinese and Indian companies.
BNY Mellon appoints new Asia Pacific Chairman BNY Mellon, the global asset manager and investment services provider – which includes private equity and hedge fund investments – has appointed Stephen Lackey as Chairman of its Asia Pacific operations, based in Hong Kong. He replaces Christopher Sturdy, who held the role since early 2008 and departs to take on a position at the firm’s global client management group in New York.
Renaissance Capital appoints Trainor Asia ChairmanEmerging markets-focused Renaissance Capital has named Sheldon Trainor as Chairman of its Asian operations, based in Hong Kong. He is charged with bolstering the investment bank’s strategy in the region via a focus on the natural resources sector. He most recently joins from PacBridge Capital Partners, which he founded in 2009, and previously headed Merrill Lynch Asia’s investment banking business. For 11 years prior, he was at Morgan Stanley.
Greater China
Prudential, Fosun ready to invest with new vehiclePrudential Financial and China’s Fosun Group have launched the $600 million PRC-focused PE fund - the Pramerica-Fosun China Opportunity Fund - first announced in January, with the two parties officially signing a JV agreement enabling the vehicle to begin investing. Its investments will target industries and asset classes that are both public and private companies based within and outside China, the parties announced.
Former D.E.Shaw attorney joins Ropes & Gray
Marcia Ellis has joined legal firm Ropes & Gray as a Partner based in Hong Kong. Prior to the appointment, she worked with D. E. Shaw, where she assisted the hedge fund giant with making, restructuring and exiting investments throughout Asia. She has previously worked at Morrison & Foerster, where she advised clients on debt financing, private equity transactions and complex mergers and acquisitions.
Nature Elements Capital raises energy fundNature Elements Capital, a Cleantech-focused PE firm in Beijing, reportedly plans to raise capital up to RMB250 million ($38.2 million) for a fund that will focus on clean energy projects across Asia. The fund is said to be receiving support from the Chinese government. Nature Elements was founded in 2009 by the Chongqing city
government and the former head of renewable energy at Hong Kong utility company CLP Holdings.
DST reportedly to open in Hong KongDST Advisors, the VC investor headed by Yuri Milner, is said to be in the process of setting up shop in Hong Kong, Reuters reported. DST has invested in major digital companies Facebook and Zygna, and last month participated in a Series C investment round into China’s 360Buy. According to Reuters, DST Advisors will open the office at International Finance Centre 2 in June.
FountainVest, Spring Capital buy into jewelry distributorChina-focused PE firms FountainVest Partners and Spring Capital Asia have bought a 28.27% stake in China-based Enzo Jewelry for $41.38 million, coming as Enzo’s owner, LJ International, considers spinning Enzo off via a future IPO. The capital buys the firms newly issued Enzo shares as well as $9.98 million worth of existing shares from LJ International, a listed global jewelry marketing and distribution firm.
CVC partially exits Hung HingCVC, via investment holding company Asia Packaging Company, has reportedly sold a 29.9% stake in Hong Kong-listed Hung Hing Printing Group to Rengo Co., a paper and packaging materials manufacturer listed on the Tokyo Stock Exchange, for HK$1.43 billion. Asia Packaging Company continues to hold a 7.6% stake in Hung Hing.
COFCO launches PE fund in ChinaFood importer and exporter COFCO has formed its COFCO Agricultural Industry Fund Management Co. with an initial corpus of up to $305 million. The fund will be managed by four shareholders: COFCO Trust Co., France’s Louis Dreyfus, Japanese firm Ant Capital Partners and China Jianyin Investment.
Digital travel portal gets $50m from Sequoia, DCMTuniu.com, a China-based digital travel service, has raised $50 million in a Series C venture capital financing round from firms including Sequoia
Blackstone RMB fund approved for QFLP, reports first close The Blackstone Group’s maiden RMB, growth equity-focused fund, the Shanghai Blackstone Equity Investment Partnership, has reportedly been approved for the Qualified Foreign Limited Partner (QFLP) program by the Shanghai authorities, allowing Blackstone to now convert foreign currency into renminbi with a custodian bank to make investments without applying for SAFE approval.
Blackstone additionally recorded a first close on the vehicle, confirming that the fund has set a target size of RMB5 billion ($765 million). It has received commitments from Chinese government entities, state-owned enterprises and large domestic corporations. The total amount raised has not been disclosed.
news
Number 14 | Volume 24 | April 19 2011 | avcj.com 5
Capital, DCM and Highland Capital, as well as Japanese e-commerce major Rakuten Group. Founded in October 2006, the company received its first capital injection two years ago from Gobi Partners, and has since leveraged its position via new developments.
Harbin CEO makes privatization bidTianfu Yang, CEO of Harbin Electric, a manufacturer of electric motors, has reportedly made a bid to privatize the company. This comes months after Yang, partnered with Baring Private Equity Asia, made a joint $752 million bid. That process ended in November after questions of Baring’s financial obligation to the deal came to light.
India
D.E. Shaw invests in media PIPE D.E. Shaw is reportedly nearing a 14.16 % stake acquisition in listed media channel operator New Delhi Television Ltd. for INR70 crore ($158.4 million). While the assets manager declined to comment, local media indicated that the firm will buy the stake from Merrill Lynch Capital Markets and Nomura Capital, which reportedly owns 7.9% and 6.2% stakes in the asset, respectively.
IL&FS fully exits warehouse operator to Warburg PincusThe Leverage India Fund (LIF), a managed by IL&FS, has exited its five-year asset Continental Warehousing Corporation to Warburg Pincus for $100 million. IL&FS has fully divested from Continental Warehousing, with the aggregated sale generating an IRR of 27.8% on its initial INR343 million ($7.6 million) investment, an IL&FS source told AVCJ. IL&FS made its initial commitment in April 2006 and partially exited its stake in 2009.
Japan
Cyberagent, Globis invest in web start-up Internet start-up Kayac Inc. has attracted investments from three firms – online advertising agency and venture capital fund operator CyberAgent, venture capital firm Globis Capital Partners, and online clothing store operator Start Today. The group, all existing investors,
will add an undisclosed additional stake to take their collective holdings to control 10% of the privately held company. Financial details were not disclosed.
Macquarie Goodman Japan abandons J-REP planMacquarie Goodman Japan, a JV fund held by Macquarie Bank and the Goodman Group, the logistic and property investor partially owned by China Investment Corporation, has scrapped plans to take the remaining shares of J-REP that it doesn’t own. MGJ, which already holds a 51.75% stake in J-REP, initially made a tender offering bid at a valuation of JPY2.1 billion ($25 million).
PE supports cloud computing firmNTT Investment Partners, the investment arm of Japanese teleco NTT Group, will invest JPY113 million ($1.35 million) into Midokura, a cloud-specialized software company. Also in the deal are listed data centre Bit-isle and 1st Holding, a listed software marker that is also a portfolio
company of Japanese private equity firm Advantage Partners. A number of angel investors also participated in this round of financing.
Korea
SBI Holdings launch Korean government-backed PE firmThe South Korean PE entity of Japanese financial group SBI Holdings has been appointed as one of the fund managers of a new KRW10 billion ($92 million) Japan/Korea fund, to be operated in conjunction with the South Korea government-owned Korea Finance Corporation (KFC). It will focus on parts and materials targets, and the Korean government will also be among the fund’s LPs.
Southeast Asia
Malaysian gambling operator may accept bidsMalaysian entrepreneur Vincent Tan is reportedly considering selling a 49% stake in the unlisted gaming unit of Berjaya Sports Toto Bhd (B Toto), linked to the gambling industry. This asset is said to have a full value of approximately $1 billion. Providence Equity Partner and The Carlyle Group, as well as Citigroup, have reportedly voiced interest in the sale, though none confirmed the news.
Singapore VC firms support JustCommoditySingaporean commodity trading software firm JustCommodity Software Solutions received an S$5.6 million ($4.5 million) investment from a consortium led by Extream Ventures, a VC firm also based in Singapore focused on early-stage investments. Other investors in the financing round include venture firms OWW Capital Partners and Infocomm Investments, the latter which is the equity investment arm of Singapore’s Infocomm Development Authority.
$30m Mongolian PE fund makes debut Silk Road Management, a Mongolia- and Central Asia-focused investment firm, has raised $30 million for its debut Mongolia Human Capital Fund, surpassing Silk Road’s $25 million original target.
Family offices and HNIs in Asia, the Middle East, Kazakhstan and Russia contributed the capital. The fund will target financial services, media, IT, healthcare, education and professional services businesses – a deviation from the majority of investors who target the region’s rich natural resources. “We are committed to bringing capital to early-stage, dynamically growing Mongolian companies and, at the same time, providing international investors with access to high-growth sectors in Mongolia beyond mining and resources,” Managing Partner Alisher Ali said.
news
Correction: Last week, AVCJ published a piece (KKR’s Yageo offer reflects Taiwan’s strength) reporting that KKR had completed an investment deal with Yageo, when, in fact, the firm had announced a tender offer that still requires shareholder and regulatory approval before it can be completed.
avcj.com | April 19 2011 | Volume 24 | Number 146
coVer [email protected]
Co-inVestMents, speCifiCAlly the deals where LPs join in on a specific investment with the GPs whose funds they invest in, are purportedly one area that benefited from the 2008 crisis and the subsequent shift in the GP/LP balance of power. In the West at least, the post-crisis dearth of leverage led to LPs stepping up as capital providers for deals, but on their terms, as co-investors. And Asia Pacific might seem a suitable venue for LPs seeking to use their GPs’ expertise to gain exposure to a less well covered region. Yet feedback indicates that co-investments are by no means as prevalent, and LPs by no means as effective in sourcing them, as is commonly believed – for very good reasons.
Easy to come by? LPs have a straightforward case for seeking co-investments, where they can get them. Doug Coulter, Head of Private Equity, Asia Pacific, with LGT Capital Partners, sees these from his firm’s point of view as, “a way to increase our exposure
to GPs we like, and give our investors access to interesting investment opportunities at lower fees and with lower risk as compared to doing direct deals.” This tends to support the contention of another fund formation professional that LPs seek co-investments not least as a way of offsetting the effects of being cut back, as many are in the more popular funds.
For GPs, the attraction is less clear-cut. According to Pak-Seng Lai, Managing Director and Head of Asia at Auda International, “the rationale is that GPs may not be able to take
up the full allocation of some larger deals, due to lack of capital or diversification constraints. So they tend to share these deals with their LPs.” Yet GPs’ responses to co-investment are, at best, variable. “In general, they are open to offer co-investments to their major LPs, provided that these LPs could response fast when a deal is offered to them,” Lai avers.
Andrew Liu, Managing Partner and CEO at Unitas Capital, says that GPs tend to be “positive” towards granting co-investment rights, but this is not a universally held view. One leading co-investor LP, perhaps influenced by personal experience, reports that, “if GPs need additional capital or LP bring some value (e.g. Industry or market knowledge, or network), GPs are willing to provide. Overall, GPs seem to welcome capable LP co-investors.” Other figures in the field, however, feel that co-investment rights are increasingly harder to come by for LPs, especially in Asia, where quality funds are highly sought after, and LPs have less negotiating
leverage. Although co-investment rights are very important to some LPs, “sponsors with any kind of leverage resisted with all their effort, in a polite way,” as a noted fund professional remarks.
The weakest link?GP concern over co-investment deals may stem from selfish economic motivations, but it also has one other very practical aspect. According to one unnamed GP, at least some of the LPs who try to engage in co-investment may simply not be very good at it. The fears for a GP in such instances
is that an LP granted co-investment rights and actually admitted into the deal process then becomes “the weakest link.”
Partly to avoid this risk, when a co-investment happens, it is normally not done through the broader limited partnership agreement at all. Rather, an ad hoc fund vehicle is incorporated specifically for the co-investment deal.This makes it easier to manage the carry calculations and other economics of the deal: more importantly, perhaps, from the GP’s perspective, it makes it easier to deal with issues of precedence among LPs. In each deal where co-investment crops up, GPs will generally want to put their strategic investors first as well as any LP with a significant angle to contribute, such as a local LP who may have been crucial to sourcing the deal. Blanket overall commitments to co-investment options hence lend to be shunned. As fund professionals attest, there is no one standard approach, and structures tend to be dictated deal by deal.
The GPs, meanwhile, might reasonably reflect that it is better to partner with a major direct investment entity than to bid against them on the same deal – especially when most co-investments concern large-scale opportunities that would require a consortium bid anyway. Also, LPs may make better co-investment partners than GPs, for purely competitive reasons. Lai sees this as a better option for many GPs “as compared to sharing the deals with other private equity funds, which will claim these deals as their ‘track records,’ especially if they become successful.” And, as he points out, “Certain LPs (especially industrial families and corporations) may bring strategic value to the co-investments.”
Diligence is another important motivator for LPs who would like to take a major share of the opportunity but lack the time or the resources to diligence it properly. As Lai points out, “there is an assumption that GPs will practice extra caution for deals involving their LPs – they would risk damaging the GP/LP relationship if the deals turn bad.” This tends to be very much down to the particular co-investment LP, though. As one says, “it
Co-investments: Are GPs and LPs on the same page?Private equity funds investing together with their limited partners have been on the rise recently with no signs of slowing down but what are the economics and the implications for the relationship?
“Co-investment rights are increasingly harder to come by for LPs, especially in Asia, where quality funds are highly sought after, and LPs have less negotiating leverage.”
Number 14 | Volume 24 | April 19 2011 | avcj.com 7
is fair to say that the deals where we had a chance to do more due diligence produce better results.”
Where and how to co-invest Practical receptivity towards co-investments, where it can be found, tends to come only at the deal level, not at fund level. Although a few funds, especially newer and less popular vehicles, may be ready to offer co-investment rights to their LPs, as feedback from fund formation circles confirms, the more sought-after firms will generally give at best token promises on co-investment rights at the fund level. As another fund formation counsel notes, LPs may then receive co-investment rights in their side letters, to the extent these are allowed by the limited partnership agreement. Sometimes these may be are weak ‘indications of interest’ in co-investments; in other cases, these are
enforceable rights – either priority rights or rights to participate pro rata with any other LPs in co-investments.
Coulter puts the case for a GP to grant these rights. “Our preference is to source deals from the small or mid-market, local country funds, many of whom we have known or invested with for many years. In cases where we are an important LP, GPs are normally quite receptive as they know that attractive co-investment opportunities can be a differentiator when the time comes for us to look at the next fund.” Interestingly, such funds are just the ones often cited as some of the best performers in Asian private equity.
The type of LP that seeks co-investment rights is fairly obvious, at least in larger major
funds. “Who is starting major direct investment programs in their own right? They’re most likely to want to do co-investments,” asserts one fund formation authority. This tends to be the larger pension funds and funds of funds. Individual HNW investors, smaller family offices and other less powerful institutions tend to be far less active in the co-investment space. To confuse matters, some co-investment LPs may also do deals as direct investors, partnering with GPs on a peer basis, rather than as co-investors with funds they invest in.
And even then, some of the most ostensibly qualified LPs in Asia have been late or limited co-investors. The Government of Singapore Investment Corporation (GIC), for example, only did its first European co-investment deal in December 2009, partnering with EQT Partners on the EUR2.3 billion ($3.4 billion) secondary
buyout of German media group Springer Science+Business Media from Cinven and Candover Partners, with GIC picking up 18% of the deal. As at end 2009, GIC had completed 11 co-investments overall.
Fees on co-investments?Perhaps the most obvious driver for LPs to seek co-investments, Lai confirms, is that “as LPs typically do not have the resources to do a deal independently, so they prefer to tag-along GPs and leverage their due diligence resources.” The prominent direct investment and co-investment LP confirms that co-investments lower the overall cost/ difficult to source deals directly in areas where the fund does not have meaningful
sourcing capability. And from the GP side, Andrew Liu of Unitas remarks that, “LPs generally see co-investments as a way to improve their returns, as most co-investment opportunities for LPs are on a reduced or no fee/carry basis.”
That said, the economics on a co-investment deal may not be that attractive. The question of whether an LP has to pay fees or carry on a co-investment deal remains open, and renegotiated case by case. In some instances, the LP may find it is paying the same management fees and share of carry that it would have to in a normal deal.
Needless to say, it makes little sense for an LP to participate in such deals without at least some experience and capability in managing or supporting an investee company. In such cases, LPs may undertake co-investments to gain exposure or knowledge in a sector or region they do not currently have in their own portfolio. And, as leading co-investment specialists attest, they will often pick funds with a particular sector or domain knowledge to invest with, to learn from that GP as well as to gain the benefits of a particular niche investment. LPs may also seek to do co-investments to get closer to their GPs. As Lai says, “by working on co-investments, LPs get to build the relationship and learn more about the GP’s investment process.”
An LP’s co-investments also are an opportunity to field-test the assumptions that made it commit to the GP in the first place. As Coulter points out, “we have a very high level of conviction in these managers and expect that general deal flow will be of a high-quality nature. We then have the opportunity to cherry-pick the very best opportunities, while ensuring our interests are aligned with the GP.”
Overall, co-investments are likely to increase as the Asian industry matures, as in so many other specialized areas of the asset class. But they are just as likely to remain an arena for the respectful battle of wills between GP and LP, and a proving ground for the true capabilities of both.
coVer [email protected]
Top 10 co-investment deal in Asia date Value (us$m.) stake (%) investee Country investor(s)
Mar-07 1,572 100 Yellow Pages Group New Zealand Unitas Capital Teachers' Private CapitalMay-06 380 100 Super A-Mart Australia GIC; Ironbridge Capital Macquarie Funds ; Partners Group Oct-08 302 100 MYOB Ltd. Australia Archer Capital; HarbourVest Partners Sep-07 300 7 Kyobo Life Insurance Co., Ltd. South Korea AXA Private Equity; Corsair Capital; KAMCOSep-06 293 63 Asahi Tec Corp. Japan Allianz Capital; Annex; Bank of America; Chuo Mitsui; Credit Suisse;
GE Equity; MetLife; Mitsui; RHJ International; WachoviaJun-10 281 10 Tangshan Jidong Cement Co., Ltd. China (PRC) Axiom Asia; GIC; New Horizon Capital; Siguler Guff & CoSep-09 255 15 Aricent Technologies India Canada Pension Plan Investment Board; Kohlberg Kravis Roberts & CoMay-01 136 80 Service Corporation International
Australia Pty Ltd. (SCIA)Australia BancBoston Capital; Industry Funds Management;
Macquarie Direct Investment; MGB Growth FundSep-09 123 61 Monash IVF Pty Ltd. Australia AXA Private Equity; Horizon Health; Ironbridge Capital;
Pantheon CapitalNov-06 102 3 Emaar MGF Land Pvt. Ltd. India Citi Venture Capital; Evolvence Capital; Jacob BallasSource: AVCJ Research
“By working on co-investments, LPs get to build the relationship and learn more about the GP’s investment process.” – Pak Seng Lai
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Number 14 | Volume 24 | April 19 2011 | avcj.com 9
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hot on the heels of AVCJ’s reCent China M&A overview, in which higher highs were cited as likely in the country’s ongoing quest to secure future natural resources supplies to keep its development trajectory on track, Minmetals Resources put forward a $6.5 billion (C$6.3 billion) unsolicited takeover offer for Canadian-Australian copper mining company Equinox Minerals on April 3, the largest ever by a Mainland Chinese mining company to this point.
MMR’s parent is China Minmetals, a state-owned enterprise (SOE). It is also the country’s largest metals trader with a reputation for being aggressively ambitious; two years ago it acquired the lion’s share of Oz Minerals’ assets, a base metals miner Down Under, for $1.7 billion.
The current copper focus is easily understood given that China comprises 40% of current global demand for the red metal. And while the latter’s market price has slipped somewhat of late, overall demand projections are not expected to follow suit: quite the reverse.
A key PRC acquisition priorityThat’s because there is a pronounced shortage of long mining life quality copper assets on offer at present, and likewise few new projects of scale being developed. Moreover, generally high copper prices and the long lead time needed
to bring these onstream exacerbate this market situation.
According to London Metals Exchange data, copper prices have risen 120% over the past two years.
From this assets standpoint, Equinox Minerals is a compelling target, mainly because of its Lumwana copper/uranium mine in Zambia – Africa’s third biggest – plus its interest in the Jabal Sayid copper project in Saudi Arabia, which is due to start producing in 2012.
“Equinox has long been viewed as an attractive takeover target due to its large-scale and long life copper asset in Zambia,” Andrew Driscoll, regional head of resources with CLSA in Hong Kong, told AVCJ. “Copper, iron ore and coal assets sit atop China’s shopping list for offshore resource investments.
“(More broadly), ongoing M&A activity in the mining sector reflects both strong balance sheets
and the limited investment opportunities for acquirers, and recognition that in some cases it’s cheaper to buy than build.”
The triggerThe trigger that put Equinox in play was its own hostile C$4.7 billion bid for Vancouver-based Lundin Mining in February, which involved saddling itself with considerable debt (a reported C$3.2 billion bridge loan). Equinox’s investor base wasn’t solidly behind this move, which caused its share price to sink to the point where it presented a windfall
opportunity that MMR couldn’t resist, hence it’s announced hostile bid of C$7 per share – a 23% premium to the target’s closing share price on April 1.
On April 7, Equinox flatly rejected the MMR bid, calling it ‘opportunistic’. In the view of company president & CEO Craig Williams, the Chinese bid was aimed at ‘frustrating’ Equinox’s bid to buy Lundin Mining. He said that the MMR offer amounted to only a 9% premium, far below other offers in current mining takeover bids.
Equinox chairman Peter Tomsett added in a statement:
“The lowball price announced by MMR significantly understates our value and disregards the potential of this company, especially in the light of the continuing strength in copper prices.”
A Canadian market source, however, commented wryly that in terms of fair valuation, Lundin has come out publicly calling Equinox ‘hypocrites’ because of their offering a lower premium for Lundin than MMR offered for Equinox.
“If Equinox says Minmetals has offered it a bad deal, then it offered Lundin an even worse deal.”
But back to basics, Equinox is now in play, hoisted on its own petard so to speak. And the nature of its assets is likely appealing to other global miners; so other bids are a distinct possibility.
The limiter, however, may prove to be the perception of MMR’s deep pockets. Although their market value is only about $2.5 billion, there is much more firepower than this suggests behind them in the form of Chinese bank credit and institutional investor support in the PRC.
“Having a powerful state-owned enterprise as a major shareholder provides a significant potential funding advantage for Minmetals Resources,” as CLSA’s Driscoll notes.
China’s natural resources M&A on the ups
“Copper, iron ore and coal assets sit atop China’s shopping list for offshore resource investments.” – Andrew Driscoll
China comprises 40% of current global demand for copper
avcj.com | April 19 2011 | Volume 24 | Number 1410
the lAtest AsiA pACifiC priVAte equity Fund Terms Survey from independent fund of funds group Squadron Capital highlights a few shortcomings in regional funds’ adherence to the Institutional Limited Partners Association (ILPA) principles, increasingly accepted as the global T&C industry standard. But it also identifies many areas where Asia Pacific funds match or even exceed lLPA guidelines, and other key areas where the principles themselves may fall short. And in today’s tough fundraising environment, which even in 2011 “has been severely affected across the region,” as John Fadely, Partner with Weil, Gotshal & Manges, affirms, even fashionable Asian vehicles need to look to the most attractive LP-friendly terms.
For David Pierce, CEO of Squadron (itself an ILPA member), perhaps the most significant finding is “the dog that didn’t bark”: how far regional funds already follow best practice. Apparently, there is no emerging-markets quality discount in Asian fund T&C. Furthermore, this is a homegrown development. “Many of the funds weren’t aware there was such a thing as ILPA until recently,” he tells AVCJ. “It wasn’t driven by ILPA so much as what IIs had in mind for some time.”
Fees and fund infrastructureIn fundraising as in telecoms, Asia seems to be skipping straight to the latest infrastructure, unfettered by legacy issues. “Clearly they’re leapfrogging the knowledge base that was
developed elsewhere, allowing them to move quickly to international best practice,” notes Pierce.
According to the Survey, fund management fees in Asia are slightly above global averages, but purely by tighter focus on the 2% norm: even fewer funds charge fees above 2%, and most of those are under $250 million. And Asian funds are far better (at 70%) than the global average (less than 40%) in granting management fee offsets,
where the GP’s transaction and other fees are offset against the overall management fee.
Partly, this stems from “the relative preponderance of growth capital or lack of buyouts” in Asia, as Squadron MD Wen Tan points out. And as David Patrick Eich, Partner at Kirkland & Ellis International, adds, in Asia, “GPs are more amenable to a 100% fee offset partly because they generally do not expect significant fees from portfolio companies.”
Structural factorsStructurally, this is not the only area where Asia Pacific private equity is more LP-friendly than Western norms. As Pierce observes, “the issue in US and EU PE has been very large funds that have the same terms compared to when they were much smaller. That isn’t such a huge problem in Asia, if it’s a problem at all.” However, he continues, with Asian fund sizes escalating, “it will become an issue here.”
Structural features of the Asian industry also manifest in less positive ways; as in the bias towards PIPEs. Here, the market seems actively polarized, with “a trend to either restrict PIPE investing or actually opening it up,” notes Pierce. “There seems to be a bit of a barbell.”
Team instability has also long been a concern in Asia. “It’s a function of the rapid growth of the industry, the opportunities for spinouts as well as probably some less than best practice in terms of alignment of interest and structuring of partnerships,” concedes Pierce. Here, the ILPA principles stress the importance of key-man clauses, but give little guidance in structuring them. Independently, wiser LPs “are pushing for a ‘second tier’ or in some cases even a ‘third tier’
key person clause,” notes Eich. But, Pierce warns,“it’s possible to have a key person clause that is effectively meaningless” – or unenforceable.
LP interest and the balance of powerLPs ostensibly were empowered by the 2008 crisis, but in Asia, other considerations may apply. “It’s going to be an extraordinarily interesting year in terms of fundraising, because of the crisis and the issues
around portfolio construction for institutional investors globally,” Pierce believes. But the much-vaunted increase of LP power, he adds, is “a matter of supply and demand, and there is so much demand out there for Asia at the moment.”
However, as Fadely confirms, the preponderance of development finance institutions and SWFs, which “account for a disproportionate part of Asian fundraising,” creates greater momentum towards best practice, as these are often early closers, and carry great institutional weight. And Tan reports the “beginnings” in Asia of so-called sweetheart deals, where LPs receive preferential treatment for being early, large or anchor investors. Interestingly, he notes, “close to half the funds which are doing that are India-focused.”
Anecdotally, Pierce sees some well-placed GPs pushing for, and getting, higher carry and other preferential terms. But the movement towards convergence around global best practice is clear and inexorable, and almost all GPs are more investor-aware than they were prior to 2008. “Even the best and most sought-after funds have increased their attention towards the distribution of their product,” Pierce reports. “You see a huge boom in the placement industry here, which is partly due to the demand factor, and partly due to some problems in their home markets. That general raising of the game in terms of marketing and selling funds is coming out across the board.”
Overall, though, Fadely concludes that: “Those with outstanding records are still able to set the terms.”
Asia Pacific fund terms to fore in tough times
David Pierce, CEO of Squadron
“Many of the funds weren’t aware there was such a thing as ILPA until recently.” – David Pierce
Number 14 | Volume 24 | April 19 2011 | avcj.com 11
VietnAM’s stAtus As A rising stAr in Asia’s private equity landscape was validated this week when KKR brokered the largest-ever PE deal in the market, acquiring a 10% stake in Masan Consumer Corporation for $159 million.
The deal values Masan Consumer Corporation, formerly Masan Food, and a subsidiary of domestic private-sector powerhouse Masan Group, at $1.6 billion. The capital injection brings the amount Masan Consumer has raised through private equity to $500 million, garnered over the past two years.
As part of the agreement with KKR, Masan Group will dilute its holding in the company from 86.6% to 78%, issuing 14 million ordinary shares to KKR.
Masan Consumer is touted as Vietnam’s leading fish, soya and chili sauce producer, and the second-largest maker of branded instant noodles. Its year-end revenue in 2010 reached $272 million, up from $96 million
in 2008, and the company further reported a rise in net profit to $60 million, up from $19 million the same period. With KKR’s backing, Masan Consumer looks to expand its FMCG offerings.
The deal marks KKR’s first investment in Vietnam, and fourth in Southeast Asia, after
Avago Technologies, MMI Holdings and Unisteel Technology, all invested out of Singapore. “KKR is bullish on Vietnam. It is a large country with a young and growing population. In the past decade, there has been considerable economic progress, structural reforms, and a notable increase in living standards,” a KKR spokesman told AVCJ. “Demographic and social trends favor the rise of domestic consumption. These include: population growth, labor
force growth, urbanization, rising wages, rising disposable incomes.”
According to AVCJ data, the amount of funds raised for Vietnam between 2009 and 2010 rose
by more than 1,653%, from $9.2 million to $161 million. Fundraising in Vietnam reached its peak in 2007, when $1.4 billion was raised, but the boost from 2009 to 2010 exhibits the renewed interest in the market as the global economy heals.
If past example is anything to go by, KKR may have correctly placed its bets. In November, Mekong Capital exited its stake in Masan Food for gross return multiples of 2x and a gross IRR of 61% on the shares sold over an 18-month period.
“Masan Consumer is well-positioned to benefit from the favorable domestic trends of rising wealth, urbanization, and a young population,” KKR’s spokesman added.
Masan Consumer’s parent, Masan Group, is one of the largest listed private sector groups in the country. Aside from Masan Consumer, the holding group also owns financial service brand Techcombank and Masan Resources, which is involved resources and materials. In January, Mount Kellett Capital Management invested $100 million for a 20% stake in Masan Resources, which owns the Nui Phao mine in Northern Vietnam.
Chinese group-purChAsing website Lashou.com received $110 million in a Series C financing round, bringing its total funding raised by VC to $166 million – the most capital any group-purchasing company in China has received, Lashou claims, coming as competition heats up in the category.
Milestone Capital led the round, which also included Richemont’s affiliates Reinet Fund SCA FIS, Remgro Limited and previous investors GSR Ventures, Norwest Venture Partners and Tenaya Capital. The website has seen two previous funding rounds that collectively shore up $166 million. In December, Lashou raised $50 million from Tenaya, Norwest, GSR and Rebate Network.
According to Lashou’s founder and CEO Bo Wu, the capital will be used to expand its call centers, logistics offerings and its Lashou Experience Shops. “The group-purchasing market of China has huge potential,” Wu said. “Because Lashou.com has a very healthy business model, we are attracting the attention of many well-known investment institutions both in China and abroad.”
Lashou’s push for capital and differentiation come as group-buying players try to out-compete for netizens’ disposable dollars. An investment of this magnitude for Lashou may be enough to stave off further competition, at least for a little while.
According to the China e-Business Research Center, total Mainland internet sales reached RMB4.5 trillion ($684 billion) in 2010. This represents a 22% increase from 2009, coupled with an increase in shoppers from 2009 to 2010 (from 121 million to 158 million). How much of this can actually be funneled to group-buying sites is so far unknown, but Groupon sets the bar. Last year, Groupon turned down a $6 billion acquisition offer by Google, and is reportedly looking to IPO later this year, targeting as much as $25 billion.
In March, Groupon launched in China under the name GaoPeng.com. GaoPeng was
founded by a consortium of high-profile backers, consisting of Groupon and private equity funds the Tencent Collaboration Fund and Yunfeng Capital. Both funds are newly established, and one is backed by digital giant Tencent and the other by Jack Ma, a co-founder of Alibaba.com.
GaoPeng’s launch came after Groupon itself offered to buy a 49% stake in Lashou, valuing the company at $500 million in November 2010. Lashou turned down the offer, hoping of building a higher valuation for its. The current deal values the company at $1.1 billion.
“As the Series A lead investor of Lashou.com, we
are excited by the company’s continued market traction and success,” said Richard Lim, Managing Director of GSR Ventures. “The management has managed to emerge as the clear leader in a crowded market by focusing on providing value to both consumers and merchants.”
deals oF the [email protected]
KKR inks largest-ever PE deal in Vietnam
Lashou ups ante for group-buying niche
Masan a market leader in its sauce-making niche
Lashou shores up cash to prepare for a more crowded group-buying arena
avcj.com | April 19 2011 | Volume 24 | Number 1412
To join Asia’s private equity elite in 2011, please contact Darryl Mag on +852 3411 4919 or [email protected]
Calendar of Events 2011
Global perspective,
local opportunities
avcj.com
AVCJ Private Equity & Venture Forum – JapanSeptember, Tokyo
AVCJ Private Equity & Venture Forum – China26-27 May, Beijing
AVCJ Private Equity & Venture Forum – Singapore21-22 July, Singapore
AVCJ Private Equity & Venture Forum – USA12 July, New York
AVCJ Forum 20117-10 November, Hong Kong
AVCJ Private Equity & Venture Forum – India1-2 December, Mumbai
AVCJ Outlook – Taiwan 201111 May, Taipei
Infrastructure Finance & Development Asia – India25-26 August, New Delhi
AVCJ Private Equity & Venture Forum – Australia & New Zealand2-4 March, Sydney
Melbourne International Venture Capital Conference8 March, Melbourne