Navis: Interest in SE Asia at ‘all-time high’

The impending free trade agreements in the ASEAN region have significantly broadened private equity opportunities, according to Nicholas Bloy, co-founder of Navis Capital.

A tariff-free, integrated ASEAN Economic Community will boost returns for private equity firms investing in Southeast Asia, Nicholas Bloy said at a press briefing held by Navis Capital Partners. Currently, plans are in place in the region to create a single market for goods, services, labour and capital by 2015. 

Firms investing in cross-border businesses in particular should expect higher returns, Bloy explained. After the agreements take hold, “A business with a potential market of 20 million will suddenly have a potential market of 600 million.”

He revealed that Navis’ gross realised IRR for regional deals has been 54 percent on average, compared to a 7 percent average IRR for purely domestic businesses. 

“The awareness of Southeast Asia and the ASEAN Economic Community from outside the region is at an all-time high,” Bloy said.

India and China have traditionally attracted the highest levels of interest and investment in Asia. “But that has really changed – a lot of investors are somewhat disillusioned with certain investments in China, a lot of people are disillusioned with India in general and have not made good returns there.”

However, a number of global firms have identified the opportunity in Southeast Asia and have increased their capabilities in the region. Kohlberg Kravis Roberts, for example, recently closed the largest deal in Vietnam with its $200 million top-up investment in Masan Consumer and is about to close Asia's largest fund ever ($6 billion). It also opened a Singapore office in October, strengthening its presence in Southeast Asia. 

Competition for deals is therefore intense in Southeast Asia from both private equity and multinational corporations, pushing up valuations.

“The indirect impact [of this] will be some valuation expectations will be higher on the part of patriarchs and founders of businesses,” co-founder of Navis Rodney Muse explained.  “The challenge will be for the big buyout groups because the universe of big buyout deals is very small in Southeast Asia and the risk for them is that they will all chase a very limited number of opportunities.”

However, Bloy asserts that corporate buyers present stiffer competition than private equity counterparts. “Frankly, we get much more competition in fact from local strategics, local wealth, as we have ever had from private equity.”

“[Private equity] competition will come through [retaining] talent,” he said. For example, CVC Asia Pacific recently poached a Navis junior analyst in Southeast Asia, Bloy explained. 

Bloy said although the ASEAN single market will open up a range of opportunities, it will bring challenges and “dirty tricks” from vested interests, elevating risk for passive, minority stake investors and private equity firms with an investment banking approach.

To generate alpha in Southeast Asia, firms will need to go beyond calculating a winning deal on paper and hire local staff, set up a local office and get actively involved in the investment, something that is better done with a controlling stake, he said.