avcj |asia private equity and venture capital intelligence ......the australian private equity and...
TRANSCRIPT
Asia’s Private Equity News Source avcj.com October 15 2013 Volume 26 Number 39
Focus Deal oF the Week
Asia’s liquid lenders Banks find their comfort zone financing offshore leveraged buyouts Page 6
Openings overseas India makes it easier to do IPOs abroad Page 13
Outsourcing again Apax adds GlobalLogic to tech portoflio Page 14
Q3 analysis: Fundraising, investment and exits
Page 10
Deal oF the Week
analysis
Innovation Works’ Chris Evdemon on getting into Chinese incubation
Page 15
Matrix backs hotel booking site Stayzilla
Page 14
Cast your vote in the 2013 AVCJ Asia Awards
Page 3
Carlyle, CIC, CITIC Capital, CPPIB, Fosun, GIC, Goldman, IFM, KKR, Matrix, MBK, Oaktree, RRJ, Sequoia, Sierra, StepStone, Tiger Global
Page 4
eDitor’s VieWpoint
neWs
proFile
A private equity fund focussed on lifestyle consumption in emerging Asia
L Capital Asia 2 LP
held a first close at its hardcap of
US$950,000,000
August 2013
C: 100 M: 90.83 Y: 30.89 K: 26.87 C: 0 M: 0 Y: 0 K: 100
Number 39 | Volume 26 | October 15 2013 | avcj.com 3
eDitor’s [email protected]
Voting for the 2013 AVCJ PriVAte Equity & Venture Capital Awards opens on October 16. The region’s private equity community has until October 29 to pay tribute to the leading fundraises, investments, exits, individuals and firms of the past 12 months.
Votes are cast via the AVCJ Awards website (www.avcjforum.com/awards), which also includes full details of the process, rules and past winners. No more than 10 votes will be accepted from the employees of a single firm. The public has a 50% say in the final outcome, with a judging panel of industry experts and the AVCJ Editorial Board each accounting for 25%.
Based in part on recommendations submitted by the private equity community, the AVCJ Editorial Board drew up nominee shortlists in consultation with the judging panel.
The nominees in each category are as follows:
FUNDRAISING OF THE YEAR• FountainVestChinaGrowthFundII(FountainVestPartners)
• KKRAsianFundII(KKR)• LCapitalAsiaII(LCapitalAsia)• MBKPartnersIII(MBKPartners)• SouthernCapitalFundIII(SouthernCapitalGroup)
VENTURE CAPITAL DEAL OF THE YEAR• 360Buy(KingdomHolding/OntarioTeachers’PensionPlan/TigerGlobal)
• AppAnnie(BVCapital/SequoiaCapital/InfinityFundManagement/IDGCapitalPartners/GreycroftPartners)
• FlipkartOnlineServices(Naspers/TigerGlobal/AccelPartners/IconiqCapital)
• Tujia(CDHInvestments/QimingVenturePartners/GGVCapital/LightspeedChina/Ctrip/HomeAway)
• YouXinPai(LegendCapital/BertelsmannAsia/DCM/TencentCollaborationFund)
PRIVATE EQUITY DEAL OF THE YEAR• INGLifeInsuranceKorea(MBKPartners)• InghamsEnterprises(TPGCapital)• LoenEntertainment(AffinityEquityPartners)• PanasonicHealthcare(KKR)
• S.F.ExpressGroup(CITICCapital/BoyuCapital/OrizaHoldings/ChinaMerchantsGroup/ChinaDevelopmentBank)
EXIT OF THE YEAR• BankTabunganPensiunanNasional(NorthstarGroup/TPGCapital)
• ChinaPacificInsurance(TheCarlyleGroup)• IntelligenceHoldings(KKR)• Komeda’sCoffee(AdvantagePartners)• MatahariDepartmentStore(CVCCapitalPartners)
VENTURE CAPITAL PROFESSIONAL OF THE YEAR• EdwardTian(CBCCapital)• RichardLiu(MorningsideTechnologies)• RaviAdusumalli(SAIFIndia)• LeiJun(ShunweiCapitalPartners)• DavidWei(VisionKnightCapital)
PRIVATE EQUITY PROFESSIONAL OF THE YEAR• JiaoZhen(CDHInvestments)• SigitPrasetya(CVCCapitalPartners)• JosephBae(KKR)• MichaelB.Kim(MBKPartners)• RichardOng(RRJCapital)
FIRM OF THE YEAR • BaringPrivateEquityAsia• CDHInvestments• KKR• MBKPartners• QuadrantPrivateEquity
Winners in the above categories – plus the recipients of the Operational Value Add Award and the AVCJ Special Achievement Award – will be announced at an invitation-only gala dinner in Hong Kong on November 11, preceding the AVCJ Forum, which runs from November 12-14.
A roundup of the evening will appear in that week’s issue of the Asian Venture Capital Journal, released on November 13, and there will be in-depth coverage of all the winners in the December 3 issue of the magazine.
Tim BurroughsManaging EditorAsian Venture Capital Journal
Voting opens for the AVCJ Awards
Managing Editor Tim Burroughs (852) 3411 4909
Staff Writers Andrew Woodman (852) 3411 4852 Mirzaan Jamwal (852) 3411 4821
Winnie Liu (852) 3411 4907
Creative Director Dicky Tang Designers
Catherine Chau, Edith Leung, Mansfield Hor, Tony Chow
Senior Research Manager Helen Lee
Research Manager Alfred Lam
Research Associates Herbert Yum, Isas Chu, Jason Chong, Kaho Mak
Circulation Manager Sally Yip
Circulation Administrator Prudence Lau
Manager, Delegate Sales Pauline Chen
Director, Business Development Darryl Mag
Manager, Business Development Anil Nathani, Samuel Lau
Sales Coordinator Debbie Koo
Conference Managers Jonathon Cohen, Sarah Doyle,
Zachary Reff Conference Administrator
Amelie Poon Conference Coordinator
Fiona Keung, Jovial Chung
Publishing Director Allen Lee
Managing Director Jonathon Whiteley
The Publisher reserves all rights herein. Reproduction in whole or in part is permitted only with the written consent of
AVCJ Group Limited. ISSN 1817-1648 Copyright © 2013
incisive Media Unit 1401 Devon House, Taikoo Place
979 King’s Road, Quarry Bay,Hong Kong
T. (852) 3411-4900F. (852) 3411-4999E. [email protected]
URL. avcj.com
Beijing representative officeNo.1-2-(2)-B-A554, 1st Building,
No.66 Nanshatan,Chaoyang District, Beijing,People’s Republic of China
T. (86) 10 5869 6203F. (86) 10 5869 6205 E. [email protected]
avcj.com | October 15 2013 | Volume 26 | Number 394
GLOBAL
StepStone completes Greenpark dealStepStone Group has merged with secondaries specialist Greenpark Capital. The transaction has been confirmed, but a spokesperson declined to give more information on how it was structured, citing confidentiality requirements. Greenpark’s existing activities will now be conducted under the name StepStone International.
Sovereign assets pass $5t, Asia sees fastest growthAsia-based sovereign funds have seen their assets under management increase 19% since 2012, faster than any other region. Sovereign funds globally had an estimated collective AUM of $5.38 trillion as of October this year, up from $4.62 trillion in 2012, according to Preqin.
AUSTRALASIA
OzForex shares jump on debut following $416m IPOOzForex Group - an Australian online foreign exchange services provider backed by The Carlyle Group, Accel Partners and Macquarie Group - saw its shares jump nearly 30% on its first day of trading following a A$440 million ($416 million) IPO. The offerings- Australia’s largest of the year - represented a full exit for the PE investors.
Australia’s IFM consolidates private markets platformIndustry Funds Management (IFM) has merged its private equity and private assets groups into one team, creating a new investment platform to be headed by current head of the private assets division, Phillip Bower. The group will incorporate IFM’s fund investments, co-investments, direct investments, and long term assets operations.
Matrix, Valara invest $150m in XeroNew Zealand-based online accounting software company Xero has raised NZ$180 million ($150 million) from existing backers Matrix Capital Management and Valara Ventures. Matrix and Valara - which is backed by Peter Thiel, an early investor in PayPal and Facebook - previously committed NZ$60 million to the company in November last year.
CPA rejects $2.6b takeover bid from CPPIB, DexusThe Commonwealth Property Office Fund (CPA) has rejected a A$2.7 billion ($2.6 billion) takeover bid from the Canada Pension Plan Investment Board (CPPIB) and Dexus Property Group (DXS) to acquire the trust’s Australian office portfolio. Commonwealth Managed Investments said the proposal didn’t provide a compelling value proposition to unitholders.
AVCAL names Yasser El-Ansary as CEOThe Australian Private Equity and Venture Capital Association (AVCAL) has chosen Yasser El-Ansary as its new CEO, effective from November 20. The appointment follows last month’s resignation of Katherine Woodthorpe after seven years in the
role. El-Ansary is currently a senior executive at the Institute of Chartered Accountants Australia.
GREATER CHINA
Alibaba will not pursue Hong Kong listingAlibaba Group has decided not to pursue a Hong Kong IPO after efforts to persuade the exchange to accommodate a shareholding structure that allows management to retain control of the business met with a lukewarm response. It is unclear where the listing – which could reach $15 billion – will now take place, although a US bourse is widely expected.
CITIC Capital, Crestview buy StackpoleCITIC Capital Partners has teamed up with New York-based Crestview Partners to buy Stackpole International, a North American machinery supplier, from Sterling Group and Current Capital. The transaction value was not disclosed but it is reportedly $512 million including debt.
CIC, RRJ back SIIC Environment Singapore-listed Chinese water treatment firm SIIC Environment will raise a total of S$260.2 million ($209 million) by selling new shares to investors including China Investment Corporation (CIC), RRJ Capital and CCBI International. SIIC, a subsidiary of Hong Kong-listed Shanghai Industrial Holdings, is selling 3.1 billion ordinary shares at S$0.085 apiece.
Goldman raises $315m in Geely Auto sell downGoldman Sachs Principal Investment Area, an investment unit of Goldman Sachs, sold-down its entire stake in Hong Kong-listed Geely Automobile Holdings, raising up to HK$2.44 billion ($315 million). This follows partial exit last year worth $254 million. Goldman held 8.05% of Geely as of June.
Fosun invests in Goldpoly New EnergyFosun Group has invested in Goldpoly New Energy Holdings, a Hong Kong-listed Chinese solar power station operator, by subscribing to a $50 million convertible bonds offering. China Orient Asset Management and US-based York Capital were also among investors.
MBK closes third buyout fund at $2.7b hard capMBK Partners has closed its third fund at the hard cap of $2.7 billion after just over one year in the market. The North Asia-focused GP, which was founded by Michael B. Kim, former president of Carlyle Asia Partners, set an initial target of around $2.25 billion for the fund.
MBK Partners III reached a first close of $1.25 billion last November, buoyed by re-ups from the likes of Ontario Teachers’ Pension Plan and Canada Pension Plan Investment Board. Other LPs include Illinois Teachers’ Retirement System and Korea’s National Pension Service (NPS). The Seoul-based GP raised $1.6 billion for its second fund in 2009. Its debut vehicle, which raised $1.56
billion three years earlier, was at the time Asia’s largest-ever first time fund.
Investment from the new vehicle is already well underway, with MBK responsible for three buyouts so far this year: Japanese coffee shop chain Komeda; Korean clothing retailer NEPA; and a $1.65 billion carve-out of ING’s Korea life insurance business.
neWs
Number 39 | Volume 26 | October 15 2013 | avcj.com 5
Sierra Ventures leads Series C round for Social TouchChinese social marketing services provider Social Touch has raised $10 million in Series C funding from a group of investors led by Sierra Ventures. Legend Capital and GGV Capital, which backed the company in its previous two rounds, also participated.
Shopping search portal B5M raises $16m roundClearVue Partners has led a $16 million Series B round of investment in Chinese shopping portal B5M. The round also included Oak Investment Partners, the lead investor from an earlier $7.1 million Series A round, as well as existing investors and several new angel investors.
NORTH ASIA
Mitsubishi sets up energy-focused fund-of-fundsJapan’s Mitsubishi Corp. has led the launch of a $300 million US energy-focused private equity fund-of-funds. Energy Opportunity Fund is expected to reach its target by September next year. The fund will invest in North American funds focusing on the broader energy sector, including shale gas, shale oil, refinement, transport, storage and power generation.
VC-backed Eneres in $25m Japan IPOEneres, a venture capital-backed energy resources management firm, saw its stock more than double to JPY717 on its first day of trading in Tokyo following a JPY2.5 billion ($25 million) IPO. The firm - which counts JAFCO and Daiwa Corporate Investment (DCI) among its backers - sold 8.9 million shares priced at JPY280 apiece.
SOUTH ASIA
Indian regulator revives REITs planThe Securities and Exchange Board of India (SEBI) has issued draft guidelines to set up real estate investment trusts (REITs) in the country, which could help provide liquidity to existing investors and attract more foreign capital. According to the draft guidelines, only companies with assets worth at least INR10 billion ($162.8 million) can list as a REIT, provided they sell at least INR2.5
billion worth of stock in the IPO, with a minimum public float of 25%.
India’s Flipkart raises additional $160mOnline retailer Flipkart has raised an additional $160 million in Series E funding from new investors Sofina, Morgan Stanley Investment Management, Dragoneer Investment Group and Vulcan Capital, along with participation from existing investor Tiger Global.It brings the total raised in the Series E to $360 million.
KKR to invest $150 million Gland PharmaKKR is reported to be in the process of buying around 30% of Gland Pharma, an active pharmaceutical ingredients and injectable drugs manufacturer, for $150 million. Established in 1978, Gland makes active pharmaceutical ingredients and injectable formulations
for segments including osteoarthritis, anti-coagulants, gynecology, and ophthalmology.
Sequoia commits $4m to India’s Idea DeviceData center automation company Idea Device has raised $4 million in Series A funding from Sequoia Capital. The company develops products in the enterprise IT automation space to reduce operational errors and manual processes in data centers. It has offices in Mumbai and Singapore with a development center in Bangalore.
SOUTHEAST ASIA
GIC Private to anchor IFC Global Infrastructure FundSingapore sovereign wealth fund GIC Private has become an anchor investor in IFC Global Infrastructure Fund - a vehicle administered by the fund management arm of International Finance Corporation (IFC), IFC Asset Management Company (AMC) - which reached a final close of $1.2 billion. The vehicle received $200 million from IFC as well as commitments from nine other sovereign and pension fund investors.
CIC agrees debt-for-equity swap with Bumi ResourcesChina Investment Corporation (CIC) has agreed a debt-for-equity swap worth $1.3 billion with embattled Indonesian miner Bumi Resources. CIC will receive a 42% shareholding in Bumi Resources Minerals plus 19% interests in three other subsidiaries. It will also be issued new shares in Bumi Resources worth $150 million.
Oaktree agrees tanker deal with Singapore’s Navig8Oaktree Capital Management and Singaporean shipping management firm Navig8 have agreed to form a shipping joint venture, Navig8 Chemical Tankers. The joint venture has already placed an initial order of six 37,000 deadweight tonnage chemical tankers, plus a series of fixed price optional vessels, for delivery in 2015.
DCP leads $20m Series B for Amaranth MedicalDCP Management led a $20 million Series B round for Amaranth Medical, a medical device manufacturer. Existing investors Bio*One Capital, Charter Life Sciences and Phillip Capital, as well as new entrant Venstar Capital, also participated.
KKR invests $200m in Weststar AviationKKR has completed its first investment in Malaysia, paying approximately MYR642 million ($200 million) for a substantial minority stake in Weststar Aviation Services (WAS). It is also the first investment from KKR Asian Fund II, a $6 billion vehicle that reached a final close in July. The deal represents a proxy to the growth in Southeast Asia’s oil and gas sector. WAS provides
helicopter transportation services to the likes of Petronas Carigali, Exxonmobil, Total, Talisman, Schlumberger, Shell and Conoco Philips.
The company was founded in 2003, with a fleet comprising a single helicopter, to supply general aviation charter services. Five years later it entered the oil and gas space, securing a five-year contract to provide offshore transport services for Carigali Hess. Now WAS operates eight helicopters and three private jets.
WAS is one of eight divisions of Weststar Group, a diversified regional operator with businesses covering automotives, aviation, construction, and defense and engineering.
neWs
avcj.com | October 15 2013 | Volume 26 | Number 396
coVer [email protected]
the first flurry of PriVAte equity-backed take-privates involving US-listed Chinese companies closed in the autumn of 2011. There were four deals: Chemspec International, China Fire & Security, Funtalk China and Harbin Electric. In each case, a chairman who had grown disenchanted with low valuations on US bourses sought an equity partner and a debt provider for a privatization.
The debt portion, where there was one, tended to be small and conservatively priced. Standard Chartered provided $70 million for Chemspec while Bank of America, HSBC and Citi put up $60 million for China Fire & Security. Harbin Electric was the outlier, with China Development Bank (CDB) providing $400 million.
Fast forward to the next batch of leveraged buyouts (LBOs) that began closing in early 2013 and the picture is markedly different. 7Days Group received a $120 million facility from Nomura plus Taiwan lenders Cathay United Bank, Chinatrust Commercial Bank, Ta Chong Bank and Taipei Fubon Commercial Bank. For Feihe International it was a $50 million term loan from Cathay United and Wing Lung Bank.
“If you can form a Taiwanese consortium that is best – they are willing to hold more debt,” says Zhen Ji, an executive director at CITIC Capital Partners, which has participated in two take-privates. “However, their total balance sheets aren’t that big; if it’s more than $250 million then it becomes difficult.”
Foreign bankers describe the Taiwanese lenders as, by turns, “lunatics” and “deal chasers.” This is in part a function of their domestic financing market, which is fragmented and competitive, and generally willing to tolerate higher leverage multiples, lower pricing and looser covenant packages than would normally be found elsewhere in the region. South Korea is described in similar terms.
Ample liquidityYet the developments also point to a broader trend. Once an area in which banks were reluctant to dabble due to foreign exchange controls and the lack of security in providing offshore financing against onshore assets, China take-privates are now sought after by a larger variety of lenders. And the interest is
filtering down into India, the other major Asian jurisdiction in which a soft scattering of buyouts has encroached upon the growth capital hegemony – and offshore holdcos are required to make deals work.
“There is a lot more liquidity finding its way to Asia because it is chasing yield,” says Lyndon Hsu, head of Asia Pacific leveraged and acquisition finance at HSBC. “In respect of LBOs, there are two more relevant phenomena. First, regional and domestic banks have stepped up to fill the gaps left by a lot of departing Western banks.
Second, sponsors have recently been able to access the US capital markets because of the significant increase in inflows to the term loan B and high yield markets.”
While the jump in term loan B for dividend recap purposes remains largely the preserve of the more mature Australian market, there is interest in the mechanism in emerging Asia. Focus Media, the Chinese advertising company taken private earlier this year by a PE consortium for $3.7 billion, including $1.5 billion in debt, recently launched a $500 million recap.
In this context, greater comfort with lending to offshore holdco structures is seen as a positive development for Chinese private equity. Even if the rationale behind the take-privates is easing – US public market valuations have gone up – buyouts in general are expected to see gradual growth, driven by broader economic issues.
“There is increasing familiarity with the structure for these financings,” says Douglas Freeman, a partner at Fried Frank. “The leverage finance market is a positive development for M&A in Asia. It helps get higher deal valuations, which means your scope of target expands and it makes the market here more robust.”
Asia Pacific ex-Japan syndicated loan volume reached a record $279.4 billion in the first nine months of 2013, up 26.8% year-on-year, according to Thomson Reuters LPC. Hong Kong
saw a 75% bump to $58.1 billion due to Chinese offshore borrowing, with e-commerce giant Alibaba Group raising $8 billion in the third quarter. Emerging Asia LBOs are a dot on this landscape. As it stands, only 10 take-privates of US-listed Chinese companies have closed in the last two years and few of those saw the arrangers do a full syndication into the market.
Terms also remain conservative. While the increased willingness to finance these transactions is evidenced in rising gearing levels, they are nothing like what is seen in a US LBO.
Leverage tends to be 3-4x versus 6x in the US and the equity portion of a deal is around 50%, well above the US average of 30-35%. The consensus on pricing is around 450 basis points, although for 7Days it is said to have fallen below 400 basis points because the leverage was unusually low – apparently about 1.5x.
There are some concerns that the current keenness may overspill, leading to terms that understate the higher risks compared to transactions in jurisdictions where lenders get security at operating company level and protection via effective creditor laws. Banks that lend to an offshore holdco stand behind onshore creditors when it comes to swapping debt for equity and past experience has shown even that can be meaningless.
“If it all falls apart, as an equity owner you have no direct access to the property and in a Chinese context you may discover that the assets have been sold or moved before you can do anything as an offshore equity holder,” says Michael DeSombre, a partner at Sullivan & Cromwell. “When times are good I think people ignore some of the downside risk.”
The difference between most of the current generation of China take-privates and, for example, the Chinese property developers who defaulted on payments to offshore lenders circa 2008 is visible cash flow. While real estate deals
Familiar territory?Once regarded warily by banks due to the lack of security in providing offshore financing against onshore assets, Asia buyouts that rely on offshore holdco structures are increasingly sought after
“In these LBOs you rarely have significant collateral. You are taking comfort from ongoing concern value of the business” – Rupert Manduke-Curtis
Number 39 | Volume 26 | October 15 2013 | avcj.com 7
may generate cash from rental income, they are essentially fixed-asset plays where the lender takes on collateral. Focus Media, on the other hand, generates significant operating revenue.
“In these LBOs you rarely have significant collateral. You are taking comfort from ongoing concern value of the business,” says Rupert Manduke-Curtis, head of origination for non-Japan Asia at Mizuho Corporate Bank. “You are also looking at a much more significant equity buffer. This means you could burn 60% of the value of the business and be confident that the 40% of debt left will be amply covered should you need to sell to a third party to recover your loan.”
There is also greater sophistication of what is required and how to get the best out of the structure. Private equity investors and acquisition financiers exercise greater discipline in using current distributable reserves onshore as a proxy for the amount of debt that is available offshore.
This is typically supplemented several other agreements: dividend maximization covenants, ensuring that dividends flowing from a Chinese company’s onshore subsidiaries to the offshore holdco to service the debt don’t fall below a certain level; cash flow covenants requiring the cash brought offshore is in excess of the amount needed for each debt-servicing period; and cash sweeps to ensure any offshore cash in excess of the amount required in a debt-servicing period is used to pre-pay debt.
With the benefit of hindsight, these constructs have seen modifications, such as pre-agreed caps on cash sweeps and dividend maximization based on performance expectations and the introduction of forward-looking debt-servicing periods to accommodate the protracted process by which cash can be taken offshore.
Know your productIf there is one factor above all that instills confidence in lenders, though, it is repetition and necessity. Enough deals have now been done through offshore holdcos – corporate financing as well as LBOs – to convince the market that the model works and banks’ credit committees are becoming accustomed to it. In this sense, India is still a few steps behind.
“India-based transactions are fundamentally the same as China in financing structure but China has a longer track record of closing offshore financed deals,” says HSBC’s Hsu. “India is now starting to get a few on board.”
The immediate obstacle for Indian offshore LBOs is economic. Dividends flowing offshore to a Chinese holdco are subject to a 5-10% tax. Mizuho’s Manduke-Curtis puts the cost at 12-13%, including fees and offshore margin; for Indian holdcos the dividend tax alone is 17-22%.
This isn’t necessarily a problem for a high-growth business, but the few Indian buyouts completed in the last year have another characteristic in common that might facilitate financing: developed market revenue streams.
There have been deals involving two business process outsourcing (BPO) businesses – Partners Group and CSS Corp. and Baring Private Equity Asia and Hexaware Technologies – as well as KKR’s acquisition of a majority stake in Alliance Tire Group. Each company’s clients are primarily based in the US and Europe.
The quality of the revenue is an important consideration here – stable, recurring revenue from multinational companies is always attractive – but there is also the potential for taking security over certain operating subsidiaries based outside India, essentially removing part of the holdco risk.
Indeed, in the case of Alliance, in which KKR bought at approximately 80% stake for $450-500 million in April, there was no senior debt at all. A $300 million equity contribution was topped off with a mezzanine financing tranche out of the US. Asia-based senior lenders who looked at the deal say they were uncomfortable with the leverage and structure. The global nature of Alliance’s business may have offered ways of satisfying the mezzanine lenders’ risk profile.
There are similarities with SPi Global, a Philippines-based BPO company acquired by CVC Capital Partners in January. Much of SPi’s revenue derives from call center services for corporate clients in the US and Europe, which opened up the possibility of lending on US territory.
“With some recent Asian-headquartered deals, it was possible push debt into a US-based borrower – borrowers gain direct access to US dollar revenue flows to service debt and there’s also a natural foreign exchange hedge so therefore no currency or swap structures required,” explains HSBC’s Hsu.
Even with these workarounds, offshore holdcos are essentially imperfect security lending structures and the flexibility of the terms attached will vary depending on the strength of the asset and the lender’s perception of risk. It comes down to how far private equity firms can push in negotiations and as long as there remains ample liquidity, banks that want a piece of the action may be obliged to give ground.
There are, after all, longer-term considerations at stake: being one of a the lead financiers on a high-profile deal is good for brand building.
“There is an element of franchise in these deals but there are also growth companies,” adds an Asia-based banker, who asked not to be named. “There will be a lot of future financing opportunities – maybe exit fees, IPO mandates. Banks want to form early relationships with these companies.”
coVer [email protected]
China banks: learn as you lend China Development Bank (CDB), a policy
lender, was the first Chinese bank to figure prominently in offshore acquisition finance, extending generous sums at lower interest rates.
In the world of private equity-backed take-privates, it provided substantial loans in support of the likes of Harbin Electric, Fushi Copperweld and Zhongpin, but since then has restricted itself to financing state-owned enterprises overseas. According to industry participants, CDB began to scale back following the departure of its Hong Kong branch head, which in turn sparked rumors that senior officials felt the bank had strayed beyond its remit.
Whatever the reasoning, are China’s commercial banks going to assume CDB’s mantle? Rupert Manduke-Curtis, head of origination for non-Japan Asia at Mizuho Corporate Bank says no. “Chinese banks do not look like an immediate competitive threat given their relative absence in completed sponsor-led holdco deals and certainly not ones of scale with meaningful leverage and I would count anything over 2-2.5x as meaningful.”
There is plenty of anecdotal evidence detailing Chinese banks’ comparative slowness in processing transactions. One PE manager tells AVCJ that his firm started out using ICBC International on a deal but switched to a Japanese bank before ICBC had trouble getting approval at headquarter-level. It is also said that some lenders lack sophistication: according to one source, CDB’s loan document with Zhongpin was 30 pages long; the document used by the banking syndicate behind Focus Media ran to 300 pages.
While Chinese banks might be learning on the job, this doesn’t mean they can’t succeed at the highest level. Indeed, their commercial futures may in part depend on it.
“Once interest rates open up, Chinese banks’ domestic spread will no longer be protected by the government,” says Zhen Ji, an executive director at CITIC Capital Partners. “They will have to look more for the intermediary, fee-driven income and so acquisition finance will become more important. These high-profile deals are a positive for the long-term development of onshore loans.”
avcjforum.com
12-14 November 2013 Four Seasons Hotel, Hong Kong
26th AnnuAl
Registration: Pauline Chen T: +852 3411 4936 E: [email protected]
Contact us
Steve ByromHead of Private EquityFuturE Fund
Pak-Seng LaiManaging director & Head of AsiaAudA
Wim BorgdoffManaging PartnerAlPInvESt PArtnErS
Thomas KubrExecutive ChairmanCAPItAl dynAMICS
Nicole Musiccovice PresidentOntArIO tEACHErS’ PEnSIOn PlAn
Jeremy CollerExecutive Chairman & CIOCOllEr CAPItAl
Jay ParkManaging directorBlACKrOCK PrIvAtE EquIty PArtnErS
D. Brooks ZugSenior Managing director & FounderHArBOurvESt PArtnErS, llC
Fritz BeckerCEO & Managing directorHArAld quAndt HOldIng gMBH
Jim Pittmanvice President, Private EquityPSP InvEStMEntS
Sherry LinManaging PartnerMOuSSE PArtnErS
and many more…
Keynote speakers
Senior LP speakers already confirmed include:
Christopher FlowersFounderJC FlOWErS & CO
Dwight PolerManaging directorBAIn CAPItAl
Steve KoltesCo-Founder & Managing PartnerCvC CAPItAl PArtnErS
Plus global economist Byron Weinvice ChairmanBlACKStOnE AdvISOry PArtnErS lP
Thomas H LeePresidentlEE EquIty PArtnErS
Marshall W. ParkeManaging PartnerlExIngtOn PArtnErS
RegiSTeR NoW to assure your place at the largest and most influential gathering of top Asian focused private equity and venture capital industry professionals in the world today.
REGISTER NOW at
avcjforum.com
avcjforum.com
12-14 November 2013 Four Seasons Hotel, Hong Kong
26th AnnuAl
Registration: Pauline Chen T: +852 3411 4936 E: [email protected]
Contact us
Steve ByromHead of Private EquityFuturE Fund
Pak-Seng LaiManaging director & Head of AsiaAudA
Wim BorgdoffManaging PartnerAlPInvESt PArtnErS
Thomas KubrExecutive ChairmanCAPItAl dynAMICS
Nicole Musiccovice PresidentOntArIO tEACHErS’ PEnSIOn PlAn
Jeremy CollerExecutive Chairman & CIOCOllEr CAPItAl
Jay ParkManaging directorBlACKrOCK PrIvAtE EquIty PArtnErS
D. Brooks ZugSenior Managing director & FounderHArBOurvESt PArtnErS, llC
Fritz BeckerCEO & Managing directorHArAld quAndt HOldIng gMBH
Jim Pittmanvice President, Private EquityPSP InvEStMEntS
Sherry LinManaging PartnerMOuSSE PArtnErS
and many more…
Keynote speakers
Senior LP speakers already confirmed include:
Christopher FlowersFounderJC FlOWErS & CO
Dwight PolerManaging directorBAIn CAPItAl
Steve KoltesCo-Founder & Managing PartnerCvC CAPItAl PArtnErS
Plus global economist Byron Weinvice ChairmanBlACKStOnE AdvISOry PArtnErS lP
Thomas H LeePresidentlEE EquIty PArtnErS
Marshall W. ParkeManaging PartnerlExIngtOn PArtnErS
RegiSTeR NoW to assure your place at the largest and most influential gathering of top Asian focused private equity and venture capital industry professionals in the world today.
REGISTER NOW at
avcjforum.com
avcjforum.com
register now at avcjforum.com
Sponsorship: Darryl Mag T: +852 3411 4919 E: [email protected]
Contact us
official broadcast partner
Communications partner
Asia series sponsor
Co-sponsors
Lead sponsors
SOLICITORS AND INTERNATIONAL LAWYERS
Legal sponsors Knowledge partner
VC summit legal sponsor LP summit sponsor
Pe leaders’ summit sponsors
exhibitors eSg Workshop Sponsor
VC summit sponsors
Awards sponsors
avcj.com | October 15 2013 | Volume 26 | Number 3910
1) Yet more evidence of bifurcation in fundraisingIt is difficult to think of a quarter in which the division between the “haves” and “have nots” of Asian private equity has been so starkly illustrated. “Bifurcation” is fast-becoming the most overused term in fundraising circles and between July and September we there was further evidence to reinforce the phenomenon.
First, the headline numbers: Asia-focused funds raised $11.1 billion in the third quarter of 2013, according to provisional data from AVCJ Research. The figure, which includes funds reaching a partial or final close, represents a marked improvement on the $5.2 billion posted for the previous three months but it is still the fourth-lowest quarterly total in four years.
China continues to go backwards, with $1.9 billion raised between July and September, down 46% on the previous quarter, but this was offset by Hong Kong, Singapore and South Korea. Four pan-regional funds underpinned these markets’ performance: KKR Asian Fund II added $3 billion to reach a final close of $6 billion; Affinity Equity Partners received another $1 billion towards its $3.5 billion target; L Capital Asia reached the hard cap for its institutional tranche of $950 million, with the GP contribution still to come; and MBK Partners completed fundraising for its third North Asia-focused vehicle, adding $1.45 billion to reach the hard cap of $2.7 billion.
Each of these has been a comparatively rapid fundraise – KKR was in the market longest, taking approximately 14 months to raise the largest private equity pool ever seen in the region, while L Capital Asia began marketing less than nine months before announcing a first close. Collectively they account for 57% of the capital accumulated during the third quarter, and more than 90% of the cumulative total for Hong Kong, Singapore and South Korea.
Now for how the other half lives. Of the 13 largest funds to reach a final close in the third quarter, not including renminbi vehicles, five came in under target.
They include KV Asia Capital Fund I, which launched in December 2010 and set an initial target of around $500 million. This was subsequently cut by half and a final close came in August at $263 million. Ancora Fund II entered the market in April 2011, seeking $300 million but the process was drawn out by unforeseen
team turnover and the fund ended up closing in September with commitments of $128 million. It is worth noting that these GPs succeeded in raising funds; many have not.
In other areas there is evidence of compromise. Advantage Partners reached a final close of JPY20 billion ($200 million) on its bridge fund in August. The vehicle, which has a two-year investment period, is intended to allow the GP to rebuild its track record after a difficult fourth fund. Advantage expects to return to market with a full-size fund in the next 12-18 months.
Australia’s Ironbridge Capital has opted for a
similar strategy. LPs told AVCJ that the PE firm is creating a new vehicle to absorb the remaining assets from its first two funds, giving existing LPs the option of rolling over their equity or exiting. Another fund, with a target of A$250 million ($233 million), will be raised to make fresh investments.
The move is essentially an acknowledgment that it would be difficult for Ironbridge to raise a full-size primary vehicle due to underperformance of its first fund and the generally challenging fundraising environment. Needs must in difficult times.
Haves and have notsThird quarter analysis: Fundraising fortunes become ever more polarized; Korea continues to be the stand-out buyout market, while India shows growth from a very low base; China IPOs are on the comeback trail
Asia fundraising by jurisdiction
Source: AVCJ Research *Excluding real estate & global funds with a focus on Asia
3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013
US$
mill
ion
25,000
20,000
15,000
10,000
5,000
0
OtherSouth Korea
India SingaporeJapanAustralia Hong Kong
ChinaNo. of funds
200
150
100
50
Fund
s
Leading private equity deals, 3Q 2013investee Country Value (us$m) Date investors
Panasonic Healthcare Japan 1,660.4 Sep-13 KKR
ING Life Insurance Korea South Korea 1,539.4 Aug-13 MBK Partners
S.F. Express China 1,308.3 Aug-13 China Merchants Group; China Development Bank; CITIC Capital Partners; Boyu Capital; Oriza Holdings
Tourism Asset Holdings Australia 733.8 Sep-13 Abu Dhabi Investment Authority
Qingdao Haier China 552.5 Sep-13 KKR
Flipkart Online Services India 360.0 Jul-13 Naspers; Tiger Global; Accel Partners; Morgan Stanley; Sofina; Iconiq Capital; Dragoneer Investment; Vulcan Capital
Hexaware Technologies India 255.2 Aug-13 Baring Private Equity Asia
Loen Entertainment South Korea 236.4 Jul-13 Affinity Equity Partners
POSCO Specialty Steel South Korea 222.3 Aug-13 IMM Private Equity; Mirae Asset Private Equity
Logen Logistics South Korea 137.8 Jul-13 Baring Private Equity Asia Group
Source: AVCJ Research Note: Does not include private equity infrastructure deals
Number 39 | Volume 26 | October 15 2013 | avcj.com 11
2) Korea leads the way in Asia buyoutsSouth Korea was one of the investment success stories of 2012, racking up $7.3 billion in deals, more than twice the previous year’s total. Alongside Australia, it was one of only two major Asia markets to post year-on-year growth.
Nine months into 2013 and South Korea has seen $6.9 billion in private equity investment – the country may not top its 2012 performance but it remains a beacon of strength in a region of comparative weakness. South Korea accounted for 16% of region-wide deal value in the first three quarters – and 21% in the third quarter alone – compared to 11% for 2012 as a whole.
The country’s share of Asia buyouts is even more pronounced: 42% for the first three quarters, up from 13.5 % in 2012. Of the 15 largest private equity investments between July and September, three were Korean buyouts, and each of these was of a slightly different nature, indicating the breadth of control opportunities.
MBK Partners agreed to pay about $1.5 billion for a 90% stake in ING local life insurance business as the Dutch group continued to divest its Asian assets as part of the conditions tied to its post-global financial crisis bailout. Affinity Equity
Partners, meanwhile, completed a carve-out from a local corporate, paying mobile carrier SK Telecom $236 million for a majority stake in Loen Entertainment, which owns MelOn, the Korean equivalent of iTunes. Finally, Baring Private Equity Asia (BPEA) completed a secondary buyout of courier firm Logen for $138 million.
Of the major markets, only Korea and Japan saw an uptick in deal flow quarter-on-quarter – and KKR’s $1.7 billion acquisition of a majority position in Panasonic Healthcare made up all but about $150 million of the Japan total.
Interestingly, while India saw private equity investment drop by more than half to $1.4 billion in the third quarter, buyouts remained robust. After posting $367 million for April-June, the country managed $360 million for July-September. This level of activity hasn’t been seen since mid 2012 and buyout deal flow has never been anything but patchy since private equity arrived in India.
It is the first time deal flow has surpassed $300 million in successive quarters, a tiny sum when put alongside the size of India’s economy or PE investment in other large markets in Asia, but significant as a longer-term private equity
trend. The market will deepen but for now it remains shallow, with BPEA’s purchase of a stake in Hexaware Technologies – a 41.5% holding for $255 million with a tender offer for a majority position to follow – dominating the rankings.
3) Seeds of optimism for China IPOsVery little has been heard from the China Securities Regulatory Commission (CSRC) regarding the resumption of domestic IPOs and fund managers are increasingly jittery: even once the hiatus ends, it will take several years to negotiate the queue to list, the listing process itself and then the lock-up period, forcing investors to wait longer for returns. On the bright side, there finally appears to be traction for Chinese IPOs on other bourses.
At $6.1 billion, total proceeds from trade sales accounted for the vast majority of exit activity in the third quarter but the continued, gradual resurgence in private equity-backed IPOs indicates liquidity to come. AVCJ Research has records of 21 offerings generating cumulative proceeds of $3.5 billion, up from 16 offerings and $3.3 billion the previous quarter.
Chinese companies accounted for five of the 10 largest PE-backed offerings, up from three in the second quarter. Four of these were Hong Kong listings – plus EQT Partners-invested and Hong Kong-based Japan Home Centre, which has mainland expansion aspirations (under the Living Plus brand) – and only two were cornerstone investments intended to give momentum to IPOs at a time when retail investor sentiment is uncertain.
There is a sense that the mood is slowly turning and the Hong Kong pipeline is lengthening as a result. In early October, Chinese mobile game developer Forgame, whose backers include TA Associates, Qiming Venture Partners and Ignition Capital Partners, raised $206 million in its IPO and the stock jumped 32% on its first day of trading. Another mobile game developer, IDG Capital Partners and Temasek Holdings-invested I Got Games, is also working its way through the listing process.
Meanwhile, semiconductor manufacturer Montage Technology Group became only the second Chinese company to list in the US this year, raising $71 million in its IPO and opening up an exit channel for AsiaVest Partners and Intel Capital. Like LightInTheBox before it, Montage was unable to price its offering at the top of the range, but the fact it got away is encouraging.
Travel website Qunar – which is controlled by Baidu but counts GSR Ventures and GGV Capital as minority investors – and SAIF Partners, DCM and Warburg Pincus-backed 58.com have already filed for US IPOs, seeking to capitalize on the turning tide.
Private equity exits in Asia
Source: AVCJ Research
25,000
20,000
15,000
10,000
5,000
0
150
130
110
90
US$
mill
ion
Exits
Total exits
3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013
Share buyback Trade sale
Public market sale Seconadry buyout
No. of IPOs
Private equity-backed IPOs
Source: AVCJ Research
15,000
12,000
9,000
6,000
3,000
0
80
70
60
50
40
30
20
10
US$
mill
ion
IPO
s
Funds raised (US$ million)
3Q2011 4Q2011 1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013
ExprEssion of intErEst (“Eoi”)forEign partnEr sElEction for a nEw
sub-saharan privatE Equity fund
Please send Expression of Interest letters by October 28th deadline, 2013 by email to:[email protected],
Tel: +234-703-470-4697
today, sub-saharan africa represents the last and perhaps one of the world’s most attractive emerging market private equity frontier regions.
our client is the investment banking arm of one of sub-saharan africa’s largest, oldest and most prestigious diversified publicly traded financial service institutions. in 2012,it reported audited assets in excess of $20bn,earnings of approximately $500m+, and a return on average shareholders’ funds of 18.8%.
over the past decade (2003-2013), our client has operated a small-cap private equity and principal investing business but now intends to raise a separate, significant and sizeable new private equity fund (the “new africa fund”). the new africa fund will focus on larger investments in sub-saharan africa thereby capitalizing on the many attractive and diverse private equity opportunities in this high growth region.
Expressions of interest [“Eoi”] are now sought from highly successful and proven existing private Equity firms operating internationally (prior emerging market pE experience is essential) to partner with our client in the new africa fund. upon submission of an Eoi as a co-fund manager, your firm, if pre-qualified, will receive a formal request for proposal (“rfp”) due for submission by december 2nd, 2013. Final partner selection is expected to occur by March, 2014.
the international pE partner selected should expect to fully co-manage all aspects of the new africa fund with our client including: 1) providing a leadership role with our client in international fund raising and support on africa wide fund raising efforts, 2) developing the new africa fund’s investment strategy and sector/country focus, 3) the lp engagement process (preparing 3rd party presentation materials, road show, etc) and 4) negotiations and achieving financial closing(s) for the new africa fund.
your expression of interest letter must include the following to avoid disqualification:1. full registered name of your current fund2. Key person contact details (email, phone & physical address)3. total fund assets under Management [auM]4. name and address to where to send the formal rfp (contact name, fund name, e-mail and physical address only)5. your fund’s website address
only successfully selected responses to this Eoi will be notified by e-mail to your designated contact by not later than october 31st, 2013.
Summary Indicative Timetable:• Expression of Interest submission deadline: October
28th, 2013• Successful EOI responses notified, October 31st, 2013• RFP & Term sheet circulated Nov. 1st, 2013• Management presentation& one-on-one meetings,
november 14th & 15th, 2013• RFP submission deadline, Dec. 2nd, 2013
• Successful RFP submissions notified Dec. 10th, 2013• One-on-One pre-negotiations/Term Sheet review
dec. 12th – 15th, 2013• One-on-One negotiations commence January
20th, 2014• Conclude negotiations & partner selection
March 31st, 2014
Number 39 | Volume 26 | October 15 2013 | avcj.com 13
When VC-bACkeD inDiAn trAVel site MakeMyTrip listed on the NASDAQ in 2010, it had raised $80.5 billion in an offering that valued the company at a 26% premium to the biggest online travel agencies at the time. Yet its shares still surged 80% on the first day of trading.
The IPO raised expectations that more Indian company listings abroad would follow, but none did. MakeMyTrip’s parent company was Mauritius-domiciled and so exempt from the rule that stops India incorporated companies from going public overseas without prior or simultaneous listing on a domestic bourse. To get around this requirement India companies would have to restructure offshore – a process that takes a lot of time, money and management.
“If we had done the offshore structuring there would have been taxation issues and this dissuaded us from using that route,” says Ramkumar Krishnamachari, CFO at Just Dial, which listed domestically in May.
Specifically, the promoter would have to pay a 20% tax because a share transfer is treated as a sale under the Indian Income Tax Act. It is one of several obstacles in moving an unlisted company from India to a jurisdiction outside.
In this context, the Ministry of Finance’s announcement last month of a two-year pilot scheme under which approved companies can raise capital overseas without listing in India should cheer private equity and venture capital investors looking for alternative exit routes.
The pull of NASDAQKrishnamachari says Just Dial would have opted for NASDAQ given the choice because internet businesses are better understood by foreign investors. The US has Yelp, LinkedIn and Groupon; India has no comparable for a search company like Just Dial. This better understanding translates into a more nuanced appreciation of growth prospects, which can lead to higher valuations.
An overseas listing can also be a way of raising capital for firms that are not yet profitable. In the absence of a track record of income generation, a company must go through an onerous procedure to win approval for a domestic IPO.
“A lot of our assets are in the internet arena and therefore NASDAQ would be a very relevant market to list on,” says Sanjeev Aggarwal, co-founder and senior managing director at Helion
Venture Partners. “We have some cleantech assets – for example, Azure Power – which in all probability find better reception in global public markets, so this is a vehicle we will use a lot.”
The Ministry of Finance and Reserve Bank of India have yet to issue notifications to implement changes to the existing rules, but some criteria for listing approvals have been announced.
One of these conditions is that the capital raised abroad may be used to retire outstanding overseas debt or for operations abroad including acquisitions. Otherwise, it must be remitted back to India within 15 days. While this helps boost foreign funding into Indian companies and offer liquidity options that may not be available at home, clarification is required on whether the scheme can only be used for these reasons.
“Whether this results in a flurry of overseas listings depends on the manner in which the regulations are crafted, especially the use of proceeds,” says Sidharth Bhasin, a partner at
Shearman & Sterling. “If it’s too restrictive, then companies may not go for it unless they have an immediate use for the funds overseas, such as an acquisition.”
However, others are of the view that unless the authorities come out with more detailed regulations a company has flexibility to use the proceeds for other purposes before bringing them back in. “The reason to bring it back is likely related to the purpose of this pilot scheme – to bring foreign investment into India,” says Sandip Bhagat, partner at S&R Associates.
For foreign investors, the question is do they have to bring the money into India and then take it out again. “I believe that this will restrict the ability of the company to keep the proceeds in currencies other than rupees,” says Ravi Adusumalli, managing partner at SAIF Partners.
The guidelines are also silent on the form in which an unlisted company list overseas and
whether a rupee equity share can be directly listed. Barring a specific exemption by the RBI, it assumed that the current system of “sponsored” Global Depository Receipts and American Depository Receipts would remain. Under these regulations, if an Indian company is giving an exit to one shareholder, it would need to extend it on a proportionate basis to all shareholders.
According to Bhagat, a foreign investor looking at exit options should be asking whether an attempt to sell rupee shares through this mechanism would oblige the company to offer the same terms to everybody. If so, does the foreign investor get scaled back and are there minimum pricing regulations?
Still more questionsOther conditions require firms to file a copy of their financial statements with domestic regulators, comply with Securities and Exchange Board of India (SEBI) disclosure requirements in
addition to that of the primary exchange prior to the listing abroad, and also comply with India’s foreign direct investment policy.
Bhagat would like further clarity on the SEBI disclosures. “In addition to restating financials under Indian GAAP accounting rules, there are other requirements such as information about the promoter and promoter group, group companies and details on litigation, which may not be required by the overseas regulators or from a marketing perspective” he says. The regulators need to specifically identify the requirements they see as essential.
As they wait for these points to be cleared up, entrepreneurs and investors are considering the scheme’s possibilities. “Is it a game changer? The answer is probably no, as without it you can still achieve the same outcome just with a lot more work,” says Helion’s Aggarwal. “Does it make it easier? The answer is yes.”
The road less takenIndia is launching a pilot scheme that will allow certain companies to list overseas without first going public domestically. VC investors see the positives but they want further clarification on the rules
ExprEssion of intErEst (“Eoi”)forEign partnEr sElEction for a nEw
sub-saharan privatE Equity fund
Please send Expression of Interest letters by October 28th deadline, 2013 by email to:[email protected],
Tel: +234-703-470-4697
today, sub-saharan africa represents the last and perhaps one of the world’s most attractive emerging market private equity frontier regions.
our client is the investment banking arm of one of sub-saharan africa’s largest, oldest and most prestigious diversified publicly traded financial service institutions. in 2012,it reported audited assets in excess of $20bn,earnings of approximately $500m+, and a return on average shareholders’ funds of 18.8%.
over the past decade (2003-2013), our client has operated a small-cap private equity and principal investing business but now intends to raise a separate, significant and sizeable new private equity fund (the “new africa fund”). the new africa fund will focus on larger investments in sub-saharan africa thereby capitalizing on the many attractive and diverse private equity opportunities in this high growth region.
Expressions of interest [“Eoi”] are now sought from highly successful and proven existing private Equity firms operating internationally (prior emerging market pE experience is essential) to partner with our client in the new africa fund. upon submission of an Eoi as a co-fund manager, your firm, if pre-qualified, will receive a formal request for proposal (“rfp”) due for submission by december 2nd, 2013. Final partner selection is expected to occur by March, 2014.
the international pE partner selected should expect to fully co-manage all aspects of the new africa fund with our client including: 1) providing a leadership role with our client in international fund raising and support on africa wide fund raising efforts, 2) developing the new africa fund’s investment strategy and sector/country focus, 3) the lp engagement process (preparing 3rd party presentation materials, road show, etc) and 4) negotiations and achieving financial closing(s) for the new africa fund.
your expression of interest letter must include the following to avoid disqualification:1. full registered name of your current fund2. Key person contact details (email, phone & physical address)3. total fund assets under Management [auM]4. name and address to where to send the formal rfp (contact name, fund name, e-mail and physical address only)5. your fund’s website address
only successfully selected responses to this Eoi will be notified by e-mail to your designated contact by not later than october 31st, 2013.
Summary Indicative Timetable:• Expression of Interest submission deadline: October
28th, 2013• Successful EOI responses notified, October 31st, 2013• RFP & Term sheet circulated Nov. 1st, 2013• Management presentation& one-on-one meetings,
november 14th & 15th, 2013• RFP submission deadline, Dec. 2nd, 2013
• Successful RFP submissions notified Dec. 10th, 2013• One-on-One pre-negotiations/Term Sheet review
dec. 12th – 15th, 2013• One-on-One negotiations commence January
20th, 2014• Conclude negotiations & partner selection
March 31st, 2014
India PE-backed offshore IPOs2005 2006 2007 2008 2009 2010 2011 2012 2013
BSE 2 3 1 12 2 3 1
NASDAQ 1
NSE 5 1 3 3 1 12 2 3 1
NYSE 1 1
Source: AVCJ Research
avcj.com | October 15 2013 | Volume 26 | Number 3914
the trAVel e-CommerCe mArket in India is booming but the technology which has made it possible is also leaving many behind. This is particularly visible is the hotel booking segment, where transactions frequently break down because establishments don’t have sufficient infrastructure to process them. This means there is little room in the market for budget hotels – that cannot afford costly IT systems – and the travelers they cater to.
Stayzilla.com is looking to change that. The start-up, which focuses on internet booking at the lower end of the market, recently received a first institutional round of investment led by Matrix Partners India, which acquired a significant majority stake in the company for undisclosed amount. The transaction follows the $500,000 the business raised from Indian Angel Network in March last year.
Previously known as Inasra.com, Stayzilla
differs from competitors such as Makemytrip.com and Yatra.com as it operates only in tier two and tier three cities. By building up a network of one- and two-star hotels outside the top destinations, the company claims to have tapped into as much as 70-80% of India’s personal and business travel market.
“If you take out a top eight cities and the top two vacation destinations many hotels are still not online” explains Tarun Davda, vice president
at Matrix. “Similar to Ctrip in China, Stayzilla has figured out an innovative way to stimulate demand for these hotels and make sure that demand is met.”
Stayzilla maintains an online inventory through its call centre, taking booking requests and then checking availability directly with hotels. This has allowed the website to build an extensive
network of more than 6,000 budget hotels.“It is challenging and it takes time to build the
network,” says Davda. “But that is where there is
an opportunity to become a huge differentiator – by working out a way to work with these hotels it creates a barrier to competitors.”
With this latest investment Stayzilla hopes to increase this network to 15,000 hotels. One way the company hopes to achieve this is by exploring online inventory management solutions, whereby hotels without IT infrastructure but in possession o f an internet connection could handle bookings in the cloud.
This is Matrix’s first investment in the travel and tourism sector where growth is primarily driven by the country’s emerging middle class. However, Davda explains it is not just about leisure travel – a large proportion of inter-city travel between lower tier cities involves education, business and even religion.
“The religious travel segment in India is huge,” he adds. “There are certain temples in India’s tier two and three destinations that have upwards of 20-30 million visitors every year, so the hotels in these cities are always in demand. Stayzilla is in a good position to further capitalize on this demand.”
“inCluDing globAllogiC, APAx funDs would have invested about $1.5 billion of equity in the outsourcing space in a number of transactions around the world,” says Shashank Singh, partner at Apax Partners and head of their India office. “Technology spend globally by companies and governments is in the order of $1 trillion while operations spend is another $1.5 trillion, so it is a huge market.”
Within the outsourcing sector, sub-segments have been penetrated to different extents. The sector isn’t growing at the 30% rates it was in the 1990s, but Singh claims there are areas within a handful of industries where long-term growth of 15-20% is achievable. Apax already has exposure to the relatively penetrated IT offshoring segment through a stake in iGate, which acquired Patni Computer Systems for $1.2 billion in 2011.
Several new horizon industries have seen less investment and faster growth, but they essentially serve a similar type of need. Outsourced product development (OPD) and research and development (R&D) is one of them, and GlobalLogic (GL) is part of this.
The firm focuses on software product design and development as well as quality assurance, product support and consulting services. Clients include Coca Cola, Oracle and Microsoft and others across digital media, electronics, healthcare retail and financial services.
Headquartered in the US, GL operates engineering centers in India, Argentina, China, Ukraine, and the US, while its design studios are located in San Francisco, New York, and London.
Apax will acquire a majority stake in GL, buying out existing investors WestBridge Capital, New Atlantic Ventures, New Enterprise Associates (NEA), Goldman Sachs and Sequoia Capital. New Atlantic was the sole investor in GL’s Series A round, with WestBridge and NEA coming in on the Series B in 2006. Sequoia invested in 2008 and Goldman made a pre-IPO commitment two years later.
While the financial terms of the transaction
were not disclosed, sources say the deal is worth $420 million.
“The hired engineering component of outsourcing has over time spread from software and telecom to other industries such as industrial automation, automotive and aerospace,” Singh says. “The one common theme is that the engineering component in most of the goods
and services these industries produce is increasing and there continues to be a shortage of quality engineers.”
In the OPD segment there is no clear market leader, with the likes of GL, Symphony Teleca, Persistent Systems and Russia-based Epam all roughly the same size. So with GL, Apax saw an opportunity to create that
market leader over the next few years.The GP has helped iGate penetrate into Apax
portfolio companies for IT work. GlobalLogic is expected to do the same in the OPD and R&D services space.
Deal oF the [email protected] / [email protected]
Matrix makes a booking with Stayzilla
Apax adds to global outsourcing exposure
Underserved: Lower-tier hotels
GlobalLogic: OPD specialist
Number 39 | Volume 26 | October 15 2013 | avcj.com 15
“ChinA is like A huge sPonge, soAking in all the knowhow it can get from abroad,” says Chris Evdemon, a partner with Beijing-based Innovation Works. “As a foreigner, you always have to find a way to reinvent yourself, find something new that you can bring to the table.”
Evdemon has been in Asia for nearly a decade, spending much of that time adapting to a rapidly evolving landscape. Even his arrival in 2004 was something of a reinvention. Aged 30, Evdemon had decided to live his home city of Athens and enroll on the MBA course at INSEAD in Singapore. Prior to that, his successes and failures as an entrepreneur had been limited to home soil.
A mechanical engineering graduate, Evdemon spent his early years in the family’s shipping industry business while at the same time attempting to launch his own start-up. Success came in 2000 when he acquired the license to run the European Computer Driving License (ECDL), an international computer skills accreditation program, out of Greece.
“It went very well but after working hard for a number of years, I realized it was not the best use of my most productive years,” Evdemon says. “Even then Greece was in a bad situation and the market was too small. Asia, on the other hand, was the next big region of growth.”
Emerging angelHis only previous experience of Asia had been a 10-day break to Japan. Evdemon describes this first year at INSEAD, and the connections he made there, as the template for his future success. However, it was Dublin-based ECDL that created an opportunity in the region when the licensors invited him to head up Asia.
As Asia CEO of newly-established International Computer Driving License (ICDL), Evdemon spent two years based in Singapore but traveling throughout the region in search of local partners. He then left to focus on angel investments.
Evdemon’s angel activities date back to his MBA year. He has made 17 angel investments to date and exited four of them, and is most proud of is Singapore-based PropertyGuru, now a leading local real estate portal. However, most of the early deals involved China, including Beijing-based ECitySky, an avatar-based social gaming company acquired by YY in 2012, and Ethos Technologies, a Chinese software development
outsourcing firm sold to Symbio the same year. After two-and-a-half years In Singapore,
Evdemon decided to move to Beijing. “I had to move to where things were happening,” he explains. “From my frequent trips to China, I got the sense that the country was seeing explosive growth in the tech industry.”
Evdemon spent the first six months in China building his network, spending his mornings in meetings and his afternoons studying Chinese.
The angel investments continued and he eventually became a venture partner at Eastern Bell Venture Capital and a founder member of the China Business Angel Network.
In 2009, he came onto the radar of ex-Google China head Kai-fu Lee, who was looking to set up his own incubator, Innovation Works. “I basically cold-emailed him,” recalls Evdemon. “But he had heard about me from the founder of one of my angel investments and to my great amazement he replied within five minutes of my email.”
By this point, Evdemon had already developed some of thoughts of his own about bringing an incubator model, similar to Silicon
Valley’s Y Combinator, into China. “I thought this type of accelerator-incubator program was very much needed in the Chinese early-stage ecosystem,” he says. “At that time it was nothing like today; there was a complete lack of quality people, mentors, capital and M&A activity.”
Seeding start-upsEvdemon first joined Innovation Works, which operates an incubation plus investment model, as investment and business development manager. Soon after, he was asked to manage the firm’s incubation program, which had an intake of 28 start-ups in its first year. Of these, 11 went on to receive further capital. The following year, in late 2011, Innovation Works reached a $180 million final close on its debut fund.
One of Evdemon’s first investments with Innovation Works was Wandoujia.com – translated as Wonder Pod – a cloud- based Android app market set up in 2010 to take advantage of the absence of Google from the domestic China market.
“This was a big part of our strategic vision in 2010, when we found out Google was leaving the market and saw this left a gap for catering to the Android ecosystem,” says Evdemon. “There were only 5-10 million devices in the market then, so it was a contrarian bet, but we knew Android was going to skyrocket in China.”
Innovation works has since gone from strength to strength, closing its second fund at $275 million last year. The firm is now looking for opportunities beyond China, with the launch of Innovation Works North America, a $10 million reserved pool of capital in Fund I that will be invested in Silicon Valley.
“The world in terms of technology is becoming smaller,” says Evdemon, “but China is still a very difficult place for American companies to operate because the competition is basically killing them.”
While the US has plenty of talent interested in coming to Chine, few have any clue about how to do so and who to work with. These are the companies Innovation Works is targeting and for Evdemon it could mean another move. “I can envision myself going to the US. On average, I spend two months in Silicon Valley every year, over four or five trips, while spending most of my time in China. I can see myself inverting that.”
Revolution and evolutionA cold email to Innovation Works founder Kai-fu Lee landed angel investor Chris Evdemon a full-time role at the Beijing-based incubator. Now he is looking to follow the firm into Silicon Valley
“China is still a very difficult place for American companies to operate because the competition is basically killing them”
GLOBAL PERSPECTIVE, LOCAL OPPORTUNITY
India 2013 Private Equity & Venture Forum
avcjindia.com
5-6 December • Taj Lands End, Mumbai
R e g i s t e r b y e - m a i l : re g i s t e r @ a v c j . c o m
Why attending India’s largest and most prestigious private equity event?
Hear what the leading funds have done to remain successful in the face of policy uncertainty and currency volatility
Find out how India compare to other Asian markets in terms of returns and length of investment
Listen to leading investors discuss why private debt funds have emerged as an increasingly popular structure
Discover what GPs have done to secure commitments from LPs in what is a crowded and difficult fundraising environment
Uncover what routes provide the best opportunity for exits
Identify how GPs can most effectively deploy their large stores of dry powder Over 250 participants from 15 countries and 143 companies
Attended by India’s leading GPs and LPs
60 speakers from leading regional and global industry firms
Early registered LPs include: Adveq
Al Homaizi Group
Capital Dynamics
Coller Capital
Commonfund Capital
Inter Ikea
JPMorgan
PineBridge Investments
Religare Health Insurance Company Limited
W.K. Kellogg Foundation
Wilshire Private Markets
…and many more!
Nominations are now open.
Tell us who you think deserves recognition at avcjindia.com/nominations
14th Annual
Markus Ableitinger Managing Director & Co-head of
Investment Management Asia CAPITAL DYNAMICS
Karthik Athreya Director CLEARWATER CAPITAL
PARTNERS
Arjun Bawa Vice President- Private Funds
Group PINEBRIDgE INvESTMENTS
Mintoo Bhandari Senior Partner, APOLLO gLOBAL
MANAgEMENT, and Managing Partner, AION CAPITAL PARTNERS
Ananta Barua Executive Director SECuRITIES AND ExChANgE BOARD
Of INDIA (SEBI)
Regulatory Update
Senior Industry Professionals
Sidharth Bhasin Partner ShEARMAN & STERLINg
Deepak Bhawnani Chief Executive Officer and
Managing Director ALEA CONSuLTINg
hiro Mizuno Partner COLLER CAPITAL
vikram hosangady Head - Transaction Services &
Private Equity KPMg INDIA PRIvATE LIMITED
Savio S. gomes Executive Director AL hOMAIzI gROuP
harsha Bhogle Cricket Commentator
Archana hingorani Chief Executive Officer and
Managing Director IL&fS INvESTMENT MANAgERS
gulpreet Kohli Managing Director ChRYSCAPITAL INvESTMENT
ADvISORS PvT LTD
Chris Loh Partner AxIOM ASIA PRIvATE CAPITAL
Suresh goyal Chief Executive Officer and
Managing Director SBI MACquARIE INfRASTRuCTuRE
MANAgEMENT PRIvATE LIMITED
Padmanabh (Paddy) Sinha Managing Partner TATA OPPORTuNITIES fuND
Ravi venkatesan Former Chairman, MICROSOfT
INDIA; Founder and Chairperson, SOCIAL vENTuRE PARTNERS, INDIA
Pravan Malhotra Clean Technology Investments,
South Asia INTERNATIONAL fINANCE
CORPORATION (IfC)
M.K. Sinha Managing Partner and
Chief Executive Officer IDfC ALTERNATIvES LIMITED
Ashishkumar Chauhan Managing Director and Chief Executive Officer
BOMBAY STOCK ExChANgE
Praneet garg Director ASIA ALTERNATIvES
Toshiyuki Kumura Co-Head of Private Equity
Investments TOKIO MARINE ASSET
MANAgEMENT CO., LTD.
Mohit Ralhan Managing Partner INDuS BALAjI
Sunil Mishra Partner ADAMS STREET PARTNERS
jai S. Pathak Partner gIBSON DuNN
Shankar Narayanan Managing Director ThE CARLYLE gROuP
B.v. Krishnan Managing Director KKR CAPITAL MARKETS INDIA
PvT. LTD.
harsh Pais Partner TRILEgAL
Karan Singh Partner TRILEgAL
vivek gupta Partner
BMR ADvISORS
Sandeep Naik Managing Director & Head of
India Office gENERAL ATLANTIC
Brijesh jeevarathnam Managing Director COMMONfuND CAPITAL
viswanathan Parameswar Vice President ADvEq
Pavninder Singh Managing Director BAIN CAPITAL ADvISORS
(INDIA) PvT LTD
Kartik Srivatsa Founder and
Managing Partner ASPADA CAPITAL ADvISORS
Amol jain Managing Director TPg CAPITAL INDIA PRIvATE
LIMITED
Register now:
BUY ONE, GET ONE
FREE! (until October 18th
only) Contact Pauline at
[email protected] or call
+852 3411 4936