While Southeast Asia is attracting more and more attention from global investors, exits are often a challenge for regional private equity firms.
Malaysia-based private equity firm Creador founder and CEO Brahmal Vasudevan said an exit is a universal problem if people are paying “ridiculous valuations”, citing examples of Uber and WeWork.
“I think there has to be a shift towards an economic model, which delivers profit. When you build good businesses with strong propositions, market leadership, earnings etc, you will always have good exit options… The problem starts when you have businesses that are built on hype and when the substance is not there, and you’re counting on the next person to put in capital,” he said at DealStreetAsia’s Asia PE-VC Summit 2019 held in Singapore.
In a fireside chat, Vasudevan said Southeast Asia is a very complex market due to high fragmentation and lack of good growth-stage businesses. To tackle these challenges, Creador has local teams across the region and takes a proactive approach when it comes to deal sourcing, according to the former managing partner of India-based ChrysCapital.
“We have always had a much more local approach to things here – we have a local team in Indonesia, Malaysia, India, Manila (the Philippines) and Vietnam. I hate to say this because the entrepreneurs will disagree – there are very, very, very few high-quality entrepreneurs to back.”
He went on to add, “You look at the number of high-quality deal flow in the region that can absorb $20 million every year, it’s only a handful [of them]. It is tough, but it’s not impossible. I think one has to be patient, realistic about deal sizes. I think we found the sweet spot which is doing things between $20 million and $50 million and then working with the companies to help build them up.”
We had earlier reported that Creador has hit the final close of its fourth regional fund at $565 million, exceeding its hard cap of $550 million. Launched in early 2018, Fund IV is the largest vehicle raised by the firm since its founding in 2011. An industry source told us that close to half of Fund IV has been deployed.
Creador is also looking to list one of its Malaysian portfolio companies – home improvement retailer Mr. D.I.Y — on Bursa Malaysia to raise as much as 1.5 billion ringgit ($360 million) by the end of this year. It invested over 500 million ringgit ($120 million) in the company for an 18 per cent stake in 2016 and plans to offload about a 2.75 per cent stake in the IPO.