In the last 18 months, Baring Asia Private Equity has realised investments totaling about $800 million and representing an average multiple of over four times, according to Jean Eric Salata, chief executive and founding partner.
Divestments included last year's IPO in Singapore of electronics and furniture retailer Courts Asia, which raised about $110 million, and the sale of confectionary company Hsu Fu Chi to Nestlé for $1.7 billion in 2011, one of China’s largest trade sales.
“The last 18 months have been the biggest period for us in realisations in our history,” Salata said.
On the investment side, during the same period, Baring closed seven deals from its Fund V in China, Japan, Korea and Southeast Asia, Salata said.
Fund V closed on $2.46 billion in 2011 while Fund IV, a $1.52 billion vehicle with a 2008 vintage, is fully invested and about half realised, he added.
The last 18 months have been the biggest period for us in realisations in our history
Jean Eric Salata
One notable transaction in 2012 involved Baring as part of a group of investors that together purchased a 24 percent holding in Korea’s Kyobo Life Insurance from Daewoo International for $1.06 billion. The firm also took a substantial “close to half” stake in Indonesian family-owned air cargo handler Cardig Aero, which Baring believes will benefit from the growth of international travel and trade.
However, a bid to take private China’s Ambow Education, an NYSE-listed entity, fell through in March. Baring withdrew its proposal when three of the company's directors and its auditor resigned at the same time, shortly after Baring put forth its offer. The firm would not comment on the Ambow deal.
Baring has also been busy building up the team internally, adding 20 investment team members across Asia and, last year, opening an Indonesia office. It now has 100 people in seven offices across Asia.
Salata highlighted the development of a 9-person in-house operational team to do the hands-on work that helps put portfolio companies on a growth trajectory, something he sees as essential to generating desired returns in Asia over the next decade.
Many businesses in the region have grown big and more complicated while competition gets tougher and economic growth slows in China and India.
“Businesses are becoming too big for an entrepreneur to manage by line of sight, where they can see everything and make all decisions and know what’s going on in their company,” Salata said.
“Many companies themselves are looking for [operational value add]. They’re interested in hearing you out. They want to meet some of the people who can help the company grow.”
A second benefit in operational deals is increased visibility into what’s going on inside the company, he added. “People working with sales teams or on shop floors pick things up at a totally different level in the organisation. It’s much more than getting a quarterly report by the founder at a board meeting.”
Baring’s experience with Courts Asia, the Singaporean portfolio company mentioned earlier, brought his firm a unique understanding of what can be accomplished through operational changes, he said.
Baring took the company private in 2007 and during the five-year holding period drove changes on several fronts, Salata said. They included closing down unprofitable stores and opening new ones in better locations; revamping incentives for compensating sales people; cutting delinquencies at the store’s inhouse customer credit operation. He said the business at time of IPO in 2012 generated S$40 million per year (€25 million; $32 million) instead of breaking even as it had done in the past.
“We've gained confidence in the conviction you can help a business become more efficient and valuable. It’s not possible to do with all investments. But to make above-market-average returns going forward, that’s what needs to be done.”