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Vietnam Investment Funds Review of Private Equity exits Grant Thornton Vietnam January 2011 Introduction There is a perception by many in the market that Vietnam’s private equity focussed investment funds have difficulties in achieving exits from their investments. With the tightening of capital markets following the global financial crisis it is through exits that fund managers have been able continue to make new investments without raising additional capital. As a result, the level of exits that have been actually achieved by the fund managers is of significant importance to the industry. Grant Thornton Vietnam sought to bring clarity to the true level of exit activity being achieved by surveying the leading fund managers. Although participation in the survey was voluntary, the fund managers that participated provide a representative Participating Fund Managers Fund Manager Dragon Capital Indochina Capital Mekong Capital Prudential Vietnam VinaCapital BankInvest AIM Capital Management Summary First year established 1995 1999 2002 2002 2003 2007 2009 Active investment funds 8 8 3 3 6 2 2 Funds managed (USD millions) 1,000 545 150 1,300 1,730 250 18 sample of the leading managers, most with a well established track record. The survey was conducted in December 2010, and includes data up to 30 November 2010. Questions covered investments made, exits achieved, method of exits and the length of time that investments were held. For the purposes of the survey, a “private equity” transaction has been defined as an investment in the equity of a company in Vietnam, which is not listed or in the process of listing, and where a minority ownership position exists. This will often include minority protection for investors and board positions, however this will depend on each individual investment. Survey results show that the participating fund managers have invested more than USD1.8 billion in private equity investments in Vietnam since 2003, in almost 200 companies. 2007 saw the largest number of investments made, both in value and in number, with a substantial decrease seen in the following years. During 2003 - 2010, the period covered by the survey, 150 full and partial exits have been achieved by participating fund managers in Vietnam. The average holding period was approximately three years for each full and partial exit achieved. The average holding period has been trending upwards over the survey period, with exits in 2010 taking, on average, between four and five years. Stock exchange listings have continued to be the predominant method used by fund managers for exiting from their investments, accounting for over 60% of all exits. Page 1 Vietnam Investment Funds – Review of private equity exits Value and number of private equity Investments The value of private equity investments made by the survey participants between 2003 and 2010 exceeded USD1.8 billion, accounting for almost 200 individual investments. The peak year for investments was in 2007, where more than USD750 million was placed into private equity investments, 2.5 times the value than in any other year in the survey period. Following the 2007 Total value vs. number of PE investments 800 700 600 500 400 300 200 100 0 60 50 40 Total value ofPE 30 investments made 20 ($millions) 10 No. ofPE 0 investments made peak, we have seen a dramatic drop-off in the value and volume in private equity investments made. This is a reflection of the constraints in the capital markets in 2003 & 2004 2005 2006 2007 2008 2009 2010 prior YTD raising funds following the global financial crisis and domestic market issues that arose in Vietnam following the global slowdown. With recoveries in global markets and the continued strong domestic growth in Vietnam, fund managers Value and number of PE investments made Year No. of investments 2003 & prior 31 Total value of investments ($millions) 281 have been actively promoting their new investment funds to global investors. They appear poised to have fresh capital to underpin an upswing in private equity investments in the near term. 2004 14 71 2005 30 207 2006 35 220 2007 55 752 2008 16 197 2009 8 60 2010 (Nov) 8 71 Exits Fund managers have achieved an equal spread between the number of full and partial exits since 2003. 2007 was the largest year for exits, with USD292 million in value and 40 exits achieved. The number of exits, when compared with the number of investments made, show that there is a build up of private equity investments that are still seeking an exit opportunity, and particularly those requiring a full exit, in Vietnam. Value and number of PE exits Total value of Private equity investments made in 2007, the peak year, are only now being readied for exits by many fund managers. The survey shows an average holding period of approximately three years. Current trends show this is moving towards an average holding period of four to five years. Therefore we would expect that 2011 and 2012 will result in larger values and volumes of exits by fund managers. Total value vs. number of PE exits Year 2003 & prior 2004 2005 2006 2007 2008 2009 2010 (Nov) No. of full exits achieved 1 1 7 5 18 13 18 12 No. of partial exits achieved 0 4 4 7 22 14 16 9 exits achieved ($millions) 3 47 47 135 292 230 242 150 350 300 250 200 150 100 50 0 2003 & 2004 2005 prior 25 20 15 10 5 0 2006 2007 2008 2009 2010 YTD Total value of exits achieved ($millions) No. of full exits achieved No. of partial exits achieved Page 2 Vietnam Investment Funds – Review of private equity exits Exit methods Stock exchange listings are certainly the most favoured method of achieving an exit for fund managers in Vietnam. They account for almost twice the number of exits compared to all other methods since 2003. Each of the other methods of achieving exists have generally remained relatively insignificant, other than for a few spikes in 2005 and 2006. In 2010 we saw an increase in the number of secondary sales (sales to other fund managers). Especially as new entrants sought to take a cautious Exit methods 100% 80% 60% 40% 20% 0% Listing Trade Sale Secondary Sale Sell back to Sponsors Wind down / liquidation Other path and invest in targets that had already been vetted and invested in by experienced fund managers. We also saw trade sales drop off completely in 2010. This presents fund managers with a challenge, as trade buyers traditionally make up a large portion of buyers for private equity exits in a global context. Listings will likely continue to be the preferred exit method for private equity investments in Vietnam. This is due to the relatively lower barriers to list and the less onerous compliance requirements for listed companies in Vietnam. 2003 2004 2005 2006 2007 2008 2009 2010 YTD Length of time invested for each exit Average length of time invested Survey data shows that the average length of time that the investment funds remain invested in a company prior to an exit (full or partial) has been trending upwards in Vietnam. The 2010 data indicates an average holding period of around four to five years. Over the full survey period the average length of time that investments have been held is three years. The data suggests that the length of time an investment is held is not significantly different between partial and full exits. It is often argued that investments take time to mature in Vietnam, supporting the relatively equal number of partial to full exits recorded. Partial exits, in 80 70 60 50 40 30 20 10 0 2003 & 2004 2005 2006 2007 2008 2009 2010 prior YTD Averagelength oftime invested (months) for eachpartial exit Averagelength oftime invested (months) for eachfull exit this context, appear to be used to free up investment capital whilst the investment is still maturing. Based upon the large number of investments made in 2007, the next two years should result in a large number of investment exits by the fund managers. Average length of time invested Average length of time invested (months) for each partial exit 2003 & prior 0 Average length of time invested (months) for each full exit 73.0 2004 28.4 2.0 2005 7.5 47.9 2006 36.9 51.8 2007 38.1 33.6 2008 26.6 45.7 2009 44.4 37.8 2010 (Nov) 52.3 65.5 Page 3 Vietnam Investment Funds – Review of private equity exits Case studies – successful exits from participating fund managers Mekong Enterprise Fund invested in Saigon Gas in November 2005, the first consumer-focused investment by Mekong. At the time, one of the attractions was that Saigon Gas’ business model, LPG distribution and branding, was a model which had an extensive track record of M&A and industry consolidation in most Asian countries. Typically the industry begins highly fragmented, but eventually through M&A 2-3 leaders consolidate the industry and enjoy the scale advantages of doing so. Mekong achieved a gross return multiple of 2.0x and a gross IRR of 25.9% on the investment Mekong Enterprise Fund II invested in Golden Gate in April 2008, at a time that the company operated around five restaurants under the Ashima brand. Mekong Capital worked closely with the company to align around a five-year vision, develop a plan for achieving that vision, and implement the plan. Within two years, Golden Gate had scaled up to around 30 restaurants under the Ashima and Kichi Kichi brands, while maintaining attractive net profit margins. Golden Gate hired a local advisory firm, TNK Capital, to find potential buyers for a secondary transaction for a minority stake. The deal was completed in October 2010, resulting in a gross return of 3.7x and gross IRR of 72.7%. Vinamilk is the country’s flagship corporate and its leading dairy-products manufacturer. Dragon Capital was involved very early in the equitisation process, having advised on the roadmap for privatisation and listing when the company was still an SOE. Dragon was the first foreign investor in the company, and joined the Vinamilk Board after the IPO. It has been an active Board member since. Recently, Dragon Capital decided to make a partial exit from Vinamilk via an open auction to foreign investors. The exit tranche was about 1% of the company and 12% of its stake. The $19m deal resulted in an exit multiple of 5.1x and an IRR of 39% over six years. In March 2010, Dragon Capital sold its VP Bank stake at a 30% premium to its carrying value. Dragon Capital acquired 10% of VP Bank as a strategic investment in 1996. A partial exit occurred in 2007 when bank valuations soared, and VP Bank shares hit 10x book. The balance of Dragon Capital’s stake was sold in March 2010 at a valuation of approximately 2.5x book. In total, the investment achieved a 2.7x multiple and an IRR of 21%. VP Bank is typical of an investment where Dragon Capital applied hands-on intervention to preserve shareholder value. In July 2006, VinaCapital purchased a 17.5% stake in the Hilton Hanoi, a five-star, 271-room hotel located across from the Hanoi Opera House in the centre of Vietnam’s capital city. Together with a 52.5% stake owned by VinaLand Limited, the two VinaCapital-managed funds held a controlling 70 percent stake in the hotel. The sale of the equity stake resulted in an IRR of 26% over the three years the stake was held. ... - tailieumienphi.vn
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