Why does Crescent Capital Partners have a strategic emphasis on growing its Australian portfolio companies into Asia Pacific?
Primarily we are an Australia and New Zealand-focused buyout firm, but the style of deals we do tend to be very growth oriented. Therefore, one of the things we often look for is the opportunity to grow our business into the broader Asia market. Australia and New Zealand, when it comes to some industries, are not very big markets. So for some businesses it makes absolute sense for us to look offshore.
Fund III was a $400 million fund and Fund IV is $100 million more than that and we’re doing the same sort of deals. But what we’ve found is certainly when it comes to exit time, a large number of our exits have actually been to international trade buyers. One of the reasons they get excited about the businesses we build is that we have taken them into Asia. They really like the idea of a fully-Westernised Australian-headquartered business, which has very familiar working practices and culture and all the standards of reporting and disclosure you’d expect to see in the US or Europe, but in the right time-zone to act as a platform into Asia.
It seems like setting up in emerging countries in Asia would be difficult. How do you ensure you are entering the right markets in the right way for your portfolio companies?
It is certainly challenging. The first thing is that when we’re doing it, we’re not trying to be private equity players. What we’re trying to do is support our portfolio companies. In terms of the challenges, whilst we’ve all got backgrounds in consulting over a long period of time around Asia, we’re still not local experts in each of those markets. So the first thing we’ll do is try to work alongside some local expertise to work out the right strategy and execution. Sometimes what you find is there are some markets that you just can’t expand into. For example, medical devices is a
It is much harder than it looks to build the right networks and get access to dealflow unless you’ve been on-the-ground for quite a long time… You’re effectively starting up a brand new business and a lot of the competitive advantage we have here in Australia wouldn’t replicate immediately in a new country.
Tim Martin, partner, Crescent Capital Partners
really interesting [sector] for us. For one of our businesses we’ve looked at expanding across the region. But in probably two-thirds of the markets there is just no chance we can do it because the price points just aren’t high enough and the volume isn’t high enough for the high-end medical devices that we distribute to make those moves worthwhile.
Having built up the expertise in expanding companies into Asia over the course of four funds, do you have plans to open offices in any of these countries?
With regard to establishing our own offices overseas, never say never. At some point it may be something we look at doing. But for now, our private equity model is hands-on and intense with our portfolio companies in terms of supporting them and building out the businesses. Unless we had a full-scale team on-the-ground in each market that would enable us to do standalone investment in the region, it would be very difficult for us to properly replicate our model and portfolio support in those countries. In Australia we have an investment team of 15 who spend the lion's share of the time really working with portfolio companies and improving performance.
It is much harder than it looks to build the right networks and get access to dealflow unless you’ve been on-the-ground for quite a long time. We mostly find our own deals. We’re not really bidding into auction processes and it takes time to get that up and running in a new country. You’re effectively starting up a brand new business and a lot of the competitive advantage we have here in Australia wouldn’t replicate immediately in a new country.