Roy Kuan, Asia managing partner of CVC Capital Partners who, together with Francis Leung, managing partner of Greater China, and Sigit Prasetya, managing partner of Southeast Asia, is responsible for the firm’s Asian business that manages funds of $6.8 billion. Kuan has held senior roles in the private equity business during the past 17 years, first at Citi and then from 1999 at CVC Capital Partners, which has $50 billion in assets under management.
What is your investment strategy?
We target high quality businesses with solid management teams in place. That means we are more value-driven than growth-oriented, but I’d emphasise that we’re also operating-driven. Beyond the injection of capital, a key area we can influence is by supporting a company’s operating plan. We gain board representation proportionate to our stakes in companies, and take on an active monitoring role rather than get directly involved in daily activities. But, a core premise is that we should have control, so we are not subject to future surprises.
Do you have a consistent holding period and a clearly defined total return objective?
Our normal holding period is three-to-five years, after which we exit through a stock exchange listing or trade sale. We aim for a total return of approximately three times our initial investment; and we’ve achieved those goals in almost all of our exits.
And is the composition of your funds similar?
Each fund has about 20 investments, although there isn’t a specifically defined limit on either the number of holdings or the size of individual stakes, which range from $80 million to $400 million. A typical 10-year fund invests for the first half of its life, and then exits during the second half.
How do you identify individual investment opportunities?
Each company we invest in will have earnings before interest and taxation (Ebit) of $30 million or more. Building and maintaining close personal contacts is essential. We have strong relationships and have established partner- ships with family groups, regional conglomerates and local firms. It’s a reciprocal process and forms a major part of the process for our approach to deals. Pre-transaction due diligence, conducted with our advisers, usually takes about two months.
So, have your three Asian funds been successful?
We have been investing in the region since 1999 and were instrumental in the development of the private equity markets in the region. Our investments have made attractive returns through a combination of IPOs and trade sales at attractive multiples. Our significant challenges with Nine Entertainment, an Australian media company, notwithstanding, we continue to make compelling investments in Greater China, demonstrate significant growth in our Southeast Asia portfolio and deliver solid returns to our investors that have significantly outperformed the MSCI Index
Are there unique features to private equity investment in Asia?
The Asian private equity market includes buyouts, joint-ventures and growth or significant minority investments. An additional opportunity is the country diversity within the region and the variety of companies we can examine. Having strong local expertise on the ground is a tremendous advantage – and, in fact, it’s essential. Diversification is a key part of our strategy, and the fund is about 35% each invested in Greater China and Southeast Asia, with the balance in the rest of the region. It doesn’t invest in India, and we are not yet in Indo-China. Our sector exposure is also very broad, and there are a few areas we don’t invest in – notably property and oil and gas.
Can you highlight a couple of specific transactions?
There are many investments that I could point to, but let’s take two examples: one that we’ve exited and another that is still active. First, in 2008, shortly before the financial crisis, we jointly acquired Magnum, Malaysia’s largest lottery operator. Leveraging our experience with the UK gaming firm William Hill, we helped create significant productivity gains by enhancing outlets and introducing new games. We sold our holding in 2011 back to a Malaysian firm and made a healthy investment return. Second, we recently executed the biggest LBO in Hong Kong, backing a management buy-out of Hong Kong Broadband Network with an enterprise value of $650 million. Almost all the major international and regional banks were involved with the financing of the deal that contained long-term bank loans making up about 50% of the total transaction size. In early January, a refinancing bond issue was successfully placed.
Private equity firms sometimes have a predatory reputation, due to their opaque nature. Do you think that’s fair?
No, not at all. Indeed, I’d stress that we are always enthusiastic to work with management at companies to help their businesses and improve their productivity. We are also keen to act alongside banks to provide financing and transact M&A deals. Rather than a threat, we should be viewed as a potential partner.
KUAN’S TOP THEMES
- Buy diversification
- Cooperation with banks and CFOs at partner companies is key practice, not confrontation
- Funds are on-target for healthy growth