Agribusiness proves lucrative for Navis by jlhd32


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									          F   E   A   T   U   R   E

KL-based private equity
company Navis Capital Partners
recently closed its sixth fund
at USD 1.2 billion. Chairman
Richard Foyston says that
Southeast Asian agribusiness-
based companies show higher
than average returns on assets
and equity, making it a lucrative
sector both for investors and
fund managers. RACHAEL PHILIP

                                          To gain good returns
                                          Richard Foyston feels
                                          companies must evolve
                                          quite a bit.

Agribusiness proves
lucrative for Navis
A       gribusiness makes up just
10% of market capital in Southeast
                                           “We avoid anything that is
                                         large-scale. We also like to invest
                                                                                    aggressive,” Mr Foyston explained.
                                                                                      Navis started with USD 70 million
Asia but food and agribusiness           in businesses that do not see too          in funds. Today, they manage USD 3
companies in the region rake up an       much government influence in the           billion in capital commitments. The
average of twice the return on assets    industry. This is another reason why       private equity firm, which has offices
and one-and-a-half times the return      we like the SME sector because             in Bangkok, Hong Kong, Singapore,
on equity.                               competition is less encumbered,” Mr        Sydney and Mumbai, caps a
  “It’s a relatively profitable          Foyston said.                              maximum of 20% of its funds for any
segment,” said Navis Capital Partners                                               one sector.
                                         Strong growth
Chairman Richard Foyston.                                                             He described Navis as “a hybrid
  The private equity firm targets          Based in Kuala Lumpur, Malaysia,         between equity ownership, private
high-potential small-and-medium-         Navis was founded in 1998. It started      equity and consultant. We try
sized (SME) companies for buyouts.       with just three people on its team. It     to be active, useful, controlling
  It believes in keeping its portfolio   now has 75 staff.                          shareholders”  .
diversified across sectors and             “We have a big team because                Since its first investment in 2000,
across countries, and invests in         we’re active in all of our portfolio       the four founding partners of Navis
most sectors except real estate,         companies. We’re controlling               have had their eyes trained on
technology-based businesses and          shareholders so if we decide we            Southeast Asia, where all have lived
what it terms as unproven business       want to make changes we can,               and worked for a number of years,
models.                                  although we’re not particularly            gaining professional experience

26                                                                                AGRIFOOD MAGAZINE – February/March 2011
from management consulting firm
The Boston Consulting Group.                Navis’ food and agriculture portfolio
Success stories
                                            Name                          Date           Country      Industry
   One of their bigger success stories
                                            Bangkok Ranch (Exit–2007)     Oct 2000       Thailand     Duck processing
to date is the acquisition of Thai
duck processing company Bangkok
                                            AgriPure (Exit–2005)          Sept 2000      India        Vegetable processing
Ranch in October 2000.
   Bangkok Ranch emerged from
                                            Dome Coffees (Exit–2008)      Dec 2003       Australia    Coffee/Casual dining
the Asian financial crisis bruised. It
was insolvent and was undergoing a
                                            Birdland                      Nov 2004       Hong Kong    Fast food
restructuring process at the turn of
the century.                                Sky Gourmet (Exit–2007)       Sept 2004      India        Airline catering
   “The company didn’t have a
financial structure that could survive      Mars Restaurant (Exit–2007)   Oct 2005       India        Casual dining/
the 1997 Asian financial crisis. We                                                                   Catering
acquired control of Bangkok Ranch
from the company’s creditor banks.          Dunkin’ Donuts                Apr 2006       Thailand     Fast food
The agribusiness sector in Thailand
is quite competitive, especially the        Wendy’s                       July 2006      Australia    Fast food
export-oriented businesses, and
Bangkok Ranch was an opportunity            Nirula’s                      Jun 2006       India        Fast food
we liked,” recalled Mr Foyston.
   Navis retained Bangkok Ranch for         Duck To/Bangkok Ranch         Aug 2007       Thailand     Duck processing
close to eight years, the norm for
equity companies. Over the years            Hui Lau Shan                  Jul 2007       Hong Kong    Fast food
the company emerged as one of
the largest duck producers in the           Golden Foods Siam             Sept 2009      Thailand     Chicken processing

  Navis @ a glance…
           Started by four founders in 1998 who each own a quarter of the

           Navis only invests in high potential SMEs with a potential to grow

           Over the years they’ve broadened their geographical scope from
           Southeast Asian countries to India, Australia, Hong Kong and

           They are not involved in the day-to-day running of the
           companies but are active and influential shareholders. For
           instance, they help find or improve the management team, help
           with resources, marketing, etc. All this is done with an idea for a
           long-term plan for change

           The partners are typically present at least once a month in the
           companies they’ve acquired

           Investor returns should come from top and bottom line
           investments and growth opportunities and not via leverage. “For
           our kind of private equity returns each company has to evolve
           quite a bit. We only invest in companies where there is basis for
           some growth and where we think we can be helpful,” said Mr                 Top and above: Bangkok Ranch has
           Foyston.                                                                   evolved into a duck processing company
                                                                                      with large upstream operations.

AGRIFOOD MAGAZINE – February/March 2011                                                                                        27
             F   E   A   T   U   R   E

 The structure of a generic private equity fund

                                                                              Limited Partners (Investors)
           Private Equity Firm                               (public pension funds, corporate pension funds, insurance companies,
            (General Partner)                                  high net-worth individuals, family ofiices, endowments, foundations,
                                                                           fund-of-funds, sovereign wealth funds, etc.)

                                                                           Ownership of the Fund
                           Management                        Private Equity Firm
                                                            (Limited Partnership)

                                                                                                             The Fund’s ownership of
     Source:                                                                                   the portfolio invesments

                                         Investment               Investment                      Investment

world outside China and is a leading                  based duck processing company               Foods and Bangkok Ranch. They’re
supplier of cooked duck to Europe.                    with large upstream operations in           both in the same fund, and have
  Bangkok Ranch then merged with                      Cherry Valley.                              essentially the same ownership,” said
Dutch company Tomassen Duck-                            Cherry Valley is the biggest duck         Mr Foyston.
To, a major player in the European                    genetics producer in the world and             With Golden Foods, which was
table duck market. The merged                         has captured a significant position in      acquired in September 2009, Navis
entity, which operated as Tomassen-                   China, selling its genetic stock.           is not planning so much to turn the
Bangkok Ranch in Europe, grew to                        Mr Foyston also noted the growth          company around but to work on
become a world leader in the duck                     of Australian beverage chain Dome           expansion.
business.                                             Coffee. Navis acquired Dome in
  Navis’ Fund V acquired the new set                  December 2003 and before it exited
up in August 2007. In April this year                 the company in 2008, Dome had
Navis added UK duck giant Cherry                      gained a strong foothold in Asia.
Valley to the combination.                            During that time Dome expanded
  “Cherry Valley was a long-time                      from about 40 stores mainly situated
supplier to Bangkok Ranch. We’ve                      in Australia, to about 80 stores in
came to know the management                           Asia and Australia.
quite well. We were aware of the                        Navis’ food and agribusiness
somewhat unusual ownership of                         portfolio features a number of
Cherry Valley.                                        acquisitions in fast food restaurants
  “It was owned by a family trust in                  such as Birdland, Dunkin Donut
the UK. We knew at some point the                     and Wendy’s. It also acquired Indian
family trust would sell the business                  Airline’s catering company Sky
so we were watching it for a long                     Gourmet, vegetable processing
time,” said Mr Foyston.                               company AgriPure and Golden
  “Bangkok Ranch has grown                            Foods Siam, a Thai chicken
into something quite big. From                        processing company.
a primarily Thailand-based                              “We’re looking at trying to take          Navis’ food and agribusiness portfolio also
50%-domestic, 50%-export duck                         advantage of cross company                  features a number of acquisitions in fast
company it’s now a Thai & European-                   opportunities between Golden                food restaurants such as Dunkin Donuts.

28                                                                                             AGRIFOOD MAGAZINE – February/March 2011
                                                                                     Mixed kettle of
                                                                                     Navis Asia Fund VI closed at USD
                                                                                     1.2 billion in September 2010. The
                                      “We only invest in companies                   previous fund, Navis V, raised USD
                                                                                     1 billion in 2007.
                                      where there is basis for some                     Capital came from a mix of
                                      growth and where we think                      existing investors as well as new
                                      we can be helpful.” – Richard                  institutions and global consultants
                                                                                     based in Asia (31% of capital
                                      Foyston, Chairman of Navis                     commitments), Europe (31%),
                                      Capital Partners.                              North America (29%) and other
                                                                                     regions including the Middle East
                                                                                        Managing partner Rodney Muse
 “We’ll be providing Golden Foods          oil sector, Malaysia does not get that    estimates some 60% of the new
with capital for growth.”                  much attention from policy makers.        fund will be focused on Southeast
                                              As economies develop the               Asia while the remainder will
Impressive returns
                                           agriculture sector becomes a smaller      be spread across markets such
   Navis targets between 20-25%            part of the economy. Nevertheless         as Australia, India and Greater
return on their money. “That’s what        the world population is growing and       China. He added that they will be
we tell our investors. For the most        food production too must increase.        consistent in their USD 50 million
part we have achieved that. For the        Mr Foyston feels it’s risky not to pay    to USD 100 million deal size.
first fund it was higher, around the       attention to food production.                Since Fund II, Navis has also
mid-30s. A lot depends on timing as           “With arable land shrinking, R&D       been offering a syariah-compliant
well. These investments last quite         in food production must grow.             parallel fund where a portion of
a long time so we don’t know what          Emphasis should be paid to genetic        its fund is reserved for halal-only
kind of returns we are getting until       improvement of crops and livestock.       investments.
it’s fully invested managed and            At the same time strong government           “We don’t invest in prohibited
divested. This could take between          regulation is important,” he said.        industries anyway. About 90%
eight and 10 years.”                          A well-regulated agriculture sector    of our investments are syariah-
   Navis generally take about three        is important to maintain quality          compliant,” said Mr Foyston.
years to invest. They hold their           control. Companies and countries             The non-compliant investments
investment for about four years and        can’t afford a food scare which           do not make it into the syariah
then divest over three years.              will impact negatively on their           portion of the fund.
   To build value, Navis’ strategy is to   reputation, he added.                        “There was a case in Asia where
generate top as well as bottom line           Agriculture is successful in           the restaurant business was
growth involving capacity building,        Thailand because of its well-             compliant but it wasn’t in Australia
expansion to new markets and               developed group of independent            because it served pork products.”
upgrading operations.                      farmers.                                     Fund VI has already made its first
   Mr Foyston uses Bangkok Ranch              “They are used as contract farmers     investment in a color cosmetics
as an example. When Navis first            for poultry companies or to grow          and skincare company called
acquired the company it only sold          specific crops. They are dependable       Alliance Cosmetic Group which has
frozen uncooked duck. Now none of          and deliver the raw material to           operations in Malaysia, Singapore,
its exports are uncooked. They are all     processing operations on time,” he        Brunei and Indonesia.
processed in some way.                     said.                                        Navis also led a consortium
   “We often bring the potential              In Malaysia and Indonesia, Mr          that bid for the Malaysian, Thai
for a portfolio company to grow            Foyston sees less of this. Instead        and Singaporean assets of French
outside its domestic market. At            large companies lead the plantation       retailer Carrefour.
the same time, we add on financial         sector.                                      Navis has also entered public
sophistication,” said Mr Foyston.             “In Malaysia there are the small       equities investing with the launch
   “Some companies may have                scale farmers in Felda but their          of the Navigator Asia Fund in 2005.
big accounts with customers that           standards of productivity are much
are not profitable. We review and          lower, their role in the food chain is
monitor our investments closely and        much smaller,” he said.                  society wants organically-grown
that way our operations are quite             Attention should be paid to           food.
labor intensive,” he said.                 another growing sector – the               He feels there should be better
   For food and agribusiness Navis         organic food industry. People are not    regulatory oversight of the industry
still has its eye on Thailand where        only eating more but with growing        including a clearer definition of
the industry is recognized as an           affluence and knowledge, they are        what entails organic food to the
important sector. Besides the palm         eating better. A certain segment of      certification process. n

AGRIFOOD MAGAZINE – February/March 2011                                                                                  29

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