Malaysia hasn’t lost its sheen as SE Asia’s mid-market PE destination

Kuala Lumpur, Malaysia. Photo by Kah Hay Chee on Unsplash

Dominated by government-linked private equity (PE) funds, Malaysia’s middle-market continues to see increased interest from private investors seeking to capitalise on a steady flow of assets.

The majority of the deals transacted in Malaysia in recent years are in the mid-market with ticket sizes ranging from $25 million to $80 million, according to a 2019 analysis by data provider Preqin and Malaysian government-linked PE firm Ekuiti Nasional Bhd (Ekuinas).

For sale: Non-core assets

Deal activity in the space has been spurred by asset divestment by Malaysian conglomerates. Last month, trading and logistics player Sime Darby disposed of its 11% stake in property developer Eastern & Oriental Bhd for 93.5 million ringgit ($22.66 million). The stake sale followed two recent divestments of other Sime Darby non-core assets over the past year — the disposal of its 30% stake in Tesco Malaysia and three Jining river ports in Shandong, China.

Similarly, plantation group FGV Holdings Bhd expressed its intention to divest its non-core and non-performing assets worth 150 million ringgit ($36.36 million) last year. The assets it is looking to dispose of include university operator Nilai Education and chocolate maker Malaysia Cocoa Manufacturing.

In a reply to a DealStreetAsia query on investment opportunities arising from non-core asset divestments, Ekuinas said it has been in conversations with several parties and it will continue to engage closely, without elaborating further.

Throw relatively lower valuations — assets are priced higher in neighbouring Indonesia — into the mix and it’s easy to see why Malaysia generates investor interest.

“Private equity (PE) firms recognise that there are a number of quality assets and targets [in Malaysia] that, with a bit of value-add and direction, will be able to perform well and generate the returns they seek. Malaysia, while not low on valuations, still allows for attractive financial investment returns, relative to markets like Indonesia where valuations are high,” said Preman Menon, Partner, Strategy and Transactions at advisory firm EY.

Healthy IPO market provides exit avenues

The local bourse sees a healthy level of activity, providing an exit avenue to investors. According to data compiled by Bloomberg, companies in Malaysia raised about $487 million through IPOs in 2020, up from $458 million a year earlier.

Last year, home improvement retailer Mr DIY raised 1.5 billion ringgit ($362 million) in Malaysia’s largest IPO in three years, generating handsome returns for PE backer Creador that secured a partial exit.

Kuala Lumpur-based Creador, which is in the market to raise up to $650 million for its fifth vehicle, is seeking to halve its stake in Malaysian credit reporting agency CTOS Holdings through an IPO scheduled for the third quarter this year.

Notable non-IPO PE exits in 2020 included Navis Capital’s sale of its controlling stake in ICT company Strateq and Ekuinas’s divestment of halal meat-based food maker Prima Baguz and desserts and beverages brand Coolblog.

Players in the game

The Malaysian private equity market has largely been dominated by government-linked funds such as Ekuinas and sovereign wealth fund Khazanah Nasional.  Government-linked agencies accounted for 21% of Malaysia’s investor pool in 2020, much higher than neighbouring Southeast Asian countries such as Indonesia (5%), Thailand (4%) and Singapore (3%), according to a Preqin presentation in September 2020.

“The government-linked funds are necessary in nascency, as their presence helps to start the ball rolling, and sends a message across to the rest of the region and the world that there is a certain level of activity in Malaysia, with plenty of opportunities to be uncovered,” Preqin vice-president Marissa Salim told DealStreetAsia.

Then, there are regional PE players with Malaysia as their home base such as Navis Capital and Creador. The two firms are seen as major investors in the country, possibly due to their expertise in the local market.

“I wouldn’t say a local PE has an advantage over a foreign PE. It’s a fairly level playing field in that regard,” EY’s Menon said.

Over the last five years, Malaysia has seen greater diversity in fund managers, said Preqin’s Marissa. Between 2015 and 2019, about 20 funds were closed by PE firms other than Navis Capital and Creador, and there are 13 such funds currently in the market.

Among regional PE players active in Malaysia’s mid-market is Singapore-based Dymon Asia Private Equity. Malaysian assets in its portfolio include edible oil repacker Yee Lee Corp, bottled water producer Spritzer, precision cleaning services provider Frontken Corp, dairy firm The Holstein Milk Company and book retailer BookXcess.

Other foreign PEs with Malaysia portfolios include Affinity Equity Partners through its ownership in Island Hospital; Southern Capital (Qualitas Healthcare, HELP International Education, Aspion and FOS Apparel Group); Mitsubishi Corp’s wholly-owned PE unit AIGF (supermarket operator Jaya Grocer); and KV Asia Capital (DXN Holdings and APIIT Education).

Expand Table

Private Equity FirmsPortfolio companiesSectorsDate of investment
Dymon Asia Private EquityYee Lee Corporation BhdEdible oil repacker2019
Spritzer BhdMineral water producer2017
Frontken Corporation bhdPrecision cleaning services2018
The Holstein Milk CompanyMilk producer2018
BookXcessBook retailer
Affinity Equity PartnersIsland HospitalHealthcare2015
Southern CapitalQualitas HealthcareHealthcare2011
HELP InternationalEducation2013
FOS Apparel GroupApparel retail chain
KV Asia CapitalDXN HoldingsHealth supplement manufacturer2017
APIITEducation2018
Kendall Court Capital PartnersGreen Packet BhdTechnology2020
Quadria CapitalLablinkChain of hospital laboratory2018
EQT HMI GroupHealthcare2020
AIGF AdvisorsJaya GrocerSupermarket chain2016
Actis GHL Systems BhdElectronic payment2017
data compiled by DealStreetAsia

Industry players believe growing competition in the private equity space will spur the growth of the local business ecosystem and add to the vibrancy of the deal market.

“We believe that [competition] will result in a more vibrant PE industry, which in turn will not only benefit companies looking for financing but also broaden deal opportunities for industry players,” Ekuinas said.

Opportunities ahead

According to estimates by the World Bank, Malaysia’s economy is likely to grow 6% in 2021 after experiencing a 5.8% contraction last year. Although lower than a previously forecast 6.7% growth rate, the 2021 projection indicates room for optimism.

Globally, too, dealmakers are enthusiastically returning to the negotiating table and raising larger vehicles, including for Asia.

“This optimism is expected to continue over the next 12 months as investors look to effectively deploy the funds,” Ekuinas said.

In Malaysia, PE players are likely to gain confidence from the notable exits seen in the recent past despite the initial shocks and disruptions caused by the COVID-19 pandemic, EY’s Menon said.

“As confidence returns, we expect there will be greater deal activity, including exits,” he added.

Expand Table

Private Equity FirmsPortfolio companiesSectorsDate of exitDeal size ($)
EkuinasPrima BaguzHalal meat-based food maker202042.61m
CoolblogDesserts and beverages kiosks202018.26m
MediExpress and PM CareThird party claim advisors2018$47.3m
TrangloPayment solutions201827.98m
APIITEducation2018176.51m
Tremendous Asia PartnersMunchy'sFood manufacturer2018262.5m
Navis CapitalStrateqICT2020130m
Alliance Cosmetics GroupCosmetic producer2018undisclosed
CreadorGHL Systems BhdElectronic payment201765.6m
MR D.I.YRetailer2020partial exit
KV AsiaTF ValuemartSupermarket chain2020undisclosed
COPE Serba DinamikOil & gas provider2018undisclosed
Dymon Asia Private EquityAdvend SystemsVending machine provider2019undisclosed
data compiled by DealStreetAsia, media reports

Consumer, education, last-mile logistics in focus

Sectors such as consumer, education, cold chains, last-mile logistics and digital services are likely to remain on PE investors’ radar, Menon said.

Ekuinas, which has traditionally been focused on oil and gas, education, retail and F&B, fast-moving consumer goods (FMCG), healthcare and services, is also seeking opportunities in digital solutions and manufacturing.

“Technology has been a key beneficiary and has done well in the past year,” it said.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.