Consumer-focused private equity firm L Catterton Asia is emerging from the pandemic with a laser focus on capturing the opportunities that the region’s largest consumer markets, transformed by digitalisation and COVID-19, present.
This also means being ready to divest investments that are comparatively new in its portfolio, but may no longer fit the fund’s investment strategy, managing partner Chinta Bhagat told DealStreetAsia in an interview.
“[An asset class] that we believe is disadvantaged by the pandemic is fashion retail,” Bhagat said. “We’re also recycling capital — taking capital out of some of the older deals, and redeploying it into better deals.”
The firm is currently deploying out of its third Asia fund, which closed in 2019 at $1.45 billion.
“[Fund 3] got caught in the pandemic, when it was 50% through deployment. This is a consumer business and consumers have been trapped at home.”
The fund will now be focused on investments in China, Japan, and India, with an eye on Indonesia and Vietnam. Investments will be made in the segments of beauty & personal care, health and wellness, and food & beverages. The firm is also keen on companies in the business of pets and pet care, said Bhagat.
Against the backdrop of the pandemic, “needing to be in large homogeneous markets has become more important,” Bhagat said. “China, over time, will probably consume half our capital, and the rest will be distributed across the region.”
So far, L Catterton Asia 3 Sing LP has been deployed into about 18 investments, two-thirds of which was picked up under the “post-pandemic strategy”, he added.
This year L Catterton has invested in Japanese healthcare services provider PHC Holdings; Chinese beverage company Genki Forest; Singapore dental brand Zenyum; and Indonesian beauty tech startup Social Bella, its first investment in the Southeast Asian country. Most recently, it led a Series B funding in Chinese Amazon brand aggregator Nebula Brands.
Ultimately, the fund’s portfolio is likely to comprise about 60% growth equity, 30% buyout, and the rest allocated to earlier-stage investments, Bhagat explained, adding that, with earlier-stage investments, the key is to make a calculated assessment of a business. “We can at least make sure we get capital back. Unlike in a venture fund, we are never going to be comfortable with the write-offs. But we will be okay with not getting the 10x, and living with a 5x.”
Eye on Singapore
At the same time, L Catterton, which has its Asia headquarters in Singapore, is keeping a close eye on policy and market developments in the city-state. “We are paying keen attention to the Singapore domestic ecosystem and seeing what we can do to meaningfully participate and support everything that’s going on around here,” Bhagat said, noting the recent launch of state funds to support SPAC and pre-IPO investments.
“There are iconic companies in Singapore in the consumer space — the consumer tech ones, as well as older businesses that are family-owned. Beyond capital infusion, a house like ours — not just Catterton, but also LVMH — can partner with them, help them grow, bring them to market, etc. That’s something we’ll think about.”
To be sure, Asia is attracting increasingly large allocations of growth equity, as even global buyout funds are eyeing earlier-stage opportunities in the large- and fast-modernising economies of the region.
Among those targeting this segment are Gaw Capital’s recently-raised $332 million fund, and PAG’s $525 million Growth II LP vehicle. Baring Private Equity Asia’s eighth fund, an $8.5 billion vehicle, is expected to have a 10% allocation to growth-stage investments, while KKR is investing in the segment under its Next Generation Technology strategy. In Southeast Asia, in particular, Asia Partners’ $384 million debut fund is focused on growth equity.
L Catterton Asia has the backing of one of the world’s most top luxury groups, LVMH, which itself has a portfolio of 75 brands with a worldwide retail network of more than 5,000 stores. “When we show up at a company and try to partner with our capital, there is a difference,” Bhagat said.
L Catterton Asia was formed in 2016 when L Capital Asia, headed by former managing partner Ravi Thakran, became a part of global consumer-focused private equity firm L Catterton, which was in turn formed by the combination of PE firm Catterton, luxury goods company LVMH, and Group Arnault, the family holding company of Bernard Arnault.
Bhagat joined the fund in 2019 from Malaysian sovereign wealth fund Khazanah Nasional, where he was head of private markets for South Asia as well as the head of global healthcare portfolio at the Malaysian sovereign wealth fund. Bhagat was previously at consultants McKinsey in Singapore, including spending six years as a managing partner.
In February this year, former Sequoia Capital executive Anjana Sasidharan joined the firm to oversee growth investments across India and Southeast Asia.
More ‘global underwrites’
Fund 3 is looking to undertake more “global underwrites”, or deals where global brands, headquartered in the West, are looking to expand in Asia.
“Rarely will you have a brand that our US fund is buying, which has a strong Asia component. [German footwear brand] Birkenstock changed that. The founding family explicitly picked L Catterton as a partner over our competitors, because they wanted our help to grow in Asia. We hope we’ll do more of that — find large global brands where Asia can play a role.”
Investments from L Catterton’s previous funds include luxury bar Cé La Vie, restaurant chain Crystal Jade, and Australian swimwear brand Seafolly. Some of these assets are believed to be in the market for a sale, as DealStreetAsia reported earlier, although progress is understood to have been limited owing to the pandemic and its impact on the market and broader economy.
“COVID has not been kind. Just as we thought we were getting momentum, the second quarter [of 2021] became tougher again,” Bhagat said.
“[What] I feel very good about is we didn’t lose a company to the pandemic. We voluntarily put one of our companies, [Seafolly] through [administration] but all of them came out okay. And almost none of them needed us to put in much equity capital, which is remarkable, if you consider the stressors. We had to restructure debt terms with banks and lenders. But we didn’t need to put more than 2-3% [of the fund] to make sure that all the companies are okay.”
Editor’s note: The story has been corrected as Japanese eyewear chain Owndays is an investment under L Catterton Asia 3 Sing LP, and not previous funds as earlier stated.