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A Private Equity patch | Advantage Research

India, China need a Cinderella

The Private equity circles are obviously focussed a lot on Asia, probably because the cheaper , well priced deals are right now available with local start-ups. However, it does not look like any of them want to showcase any start-ups in their portfolio. The retail lifestyle area continues to look interesting with Arvind Singhal and Technopak team making a lot of copy in the last few weeks ( Arvind also writes for WSJ India now, explaining the retail revolution and its detailed dalliances with management practices, market development and continuing challenges with investment and the evergreen issues of the extent of FDI investment

In 1998, when South East shores sank under the weight of exiting FDI in Thailand, Indonesia and Malaysia,, a virtual generation changed its views on the role of the Dollar investments and the way ahead in partnering with them. However, larger PE investments still find their way into Asia. Named investors are not the details we are after but we want to focus on some of these deals. VCCircle ( recently also carrying Livemint’s PE pages with it) in India and the Dealbook in NYTimes both seem to look at mid tier deals in Asia outside India and China as a possible way ahead. While Education seems promising and some startups have been funded in the sector after the exit of Educomp, it still seems more lively out here in our newly defined Retail Lifestyle segment.

Last month, European buyout fund CVC Capital Partners spent over $770 million to form a joint venture with retailer Matahari Putra Prima to own 80 percent of its department store unit, making it the biggest recent foreign private equity investment in the country.

That deal pushed Indonesia into third place globally in terms of the size of private equity deals so far in 2010, with a 10.7 percent share. By contrast, in 2009 Indonesia only had a 0.1 percent share and its $98.6 million worth of deals trailed deals worth over $1 bln in both China and India.

The above segment is from a current VCCircle round-up. While KKR, Temasek and Blackrock are also around and deal blocks could suddenly be at a different ‘plain’ with the planned deals, some exits also show health in private equity segments and the vast funds available to the sector that do not go to infrastructure can come to more retail lifestyle segments, which did suffer an early choking hazard in 2007 because of the regulations and the non-existent profitability.

The expansion and PE exit in Korea points to a silver lining. Korea also getting ready to leverage its surplus ( as posted in an earlier analysis) makes for interesting fodder for those looking to reap the run of a turning dollar  for this new decade.

Asia-focused private equity firm Unitas Capital is looking to sell South Korean convenience store chain Buy the Way, according to the Financial Times. The firm has appointed Deutsche Bank to lead the sale process for the retailer, in a deal that could fetch up to $500m.

Since Unitas acquired the company in 2006 for $200m, Buy the Way has expanded the number of outlets from 980 to 1,400, placing it in the top five of South Korean convenience store retail chains.

The sale could offer global retailers an opportunity to break in to the South Korean convenience sector, which reported an 8.3 per cent rise in sales in the year to August, or  give a rival business the opportunity to expand its market presence. Buy the Way reportedly made revenues of KRW500bn ($430m) and earnings of KRW30bn ($25.8m).

Unitas is a $4bn strong investor, and yes it has a confectionary investment too.  A bright silver lining for investments in retail lifestyle is that they are sweetly led by investments in advertising and marketing unlike tougher corporate relationship segments that need decades of relationship building. With a surfeit of sports properties and possible market development in Asia ( with less than 20% of market capacity capabilised and even lower branded footprints) has also led to PepsiCo incl YUM foods and P&G to set sights on a $1 million each in India/Asia.  The upcoming budgets however are going to put it in Education and Healthcare.


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