Diversification Play Corporate VC Evolves Alongside Technology Returns-Hungry Lps Develop an Appetite for Asia Real Assets Investment Page 6 Page 11

Asia’s Private Equity News Source avcj.com October 29 2013 Volume 26 Number 41

Editor’s Viewpoint Malaysia’s private equity star is rising - and it’s a largely, but now wholly, government-driven story Page 3

News Actis, Ant Capital, CDH, Future Fund, Hony, IDG, INCJ, Jungle Ventures, KKR, LotusPool, Macquarie, OPIC, Pacific Equity Partners, Peepul, Polaris, Quadrant, Sequoia, Tata Capital, Vision Knight Page 4

Industry Q&A Intel Capital President Arvind Sodhani on how Diversification play corporate VC evolves alongside technology Returns-hungry LPs develop an appetite for Asia real assets investment Page 6 Page 11

Deal of the Week Deal of the Week

Affinity for farming Sweet exit for J-Star Buyout firm in $123m China dairy deal Page 10 Japanese GP secures Tokachi trade sale Page 10 AVCJ Indian Private Equity & Venture Capital Awards 2013 Nominations close on October 31

the AVcJ indian Private equity & Venture capital Awards 2013 recognises and honours firms and professionals who have raised the bar for the industry during the past year.

Tell us who you think deserves recognition. Submissions for nomination close on october 31. Simply visit www.avcjindia.com/nominations and fill out the form. For enquiries, please contact [email protected]

Recognising excellence India Award categories in indian PRivate equity Firm of the year Private equity Professional of the year exit of the year Private equity deal of the year Venture capital deal of the year india Fundraising of the year

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AssociAte your brAnd with excellence: If you would like to be associated with recognising and Nominate rewarding excellence in the Indian private equity industry, your award sponsorship opportunities are available. top choices Please contact samuel lau on +852 3411 4963 or Now! [email protected] AVCJ Indian Private Equity & Venture Editor’s Viewpoint Capital Awards 2013 [email protected]

Managing Editor Tim Burroughs (852) 3411 4909 Staff Writers Nominations close on October 31 Andrew Woodman (852) 3411 4852 Mirzaan Jamwal (852) 3411 4821 Malaysia rising Winnie Liu (852) 3411 4907 Creative Director Dicky Tang Designers the AVcJ indian Private equity & Catherine Chau, Edith Leung, It’s been a few years since Southeast Malaysia is also fast becoming a destination Mansfield Hor, Tony Chow Asia, spurred by rising interest in Indonesia, for private equity fundraisers thanks to Senior Research Manager Venture capital Awards 2013 emerged as the hottest region for LPs seeking government-linked entities. Helen Lee private equity exposure. While the frenzy has The Employment Provident Fund, probably Research Manager Alfred Lam recognises and honours firms and eased recently, the region remains an attractive Malaysia’s biggest LP, announced earlier this year Research Associates location, especially for smaller funds. And a that it will increase its allocation to private equity Herbert Yum, Isas Chu, professionals who have raised the bar sizeable portion of these small to mid-size players (which it has been doing for a couple of years). Jason Chong, Kaho Mak have adopted a more balanced pan-ASEAN There is still plenty of room for improvement as Circulation Manager approach instead of focusing on a single country. allocations are less than 1% of the EPF’s $162 Sally Yip for the industry during the past year. Circulation Administrator It is no surprise that Singapore is the leading billion assets under management. Prudence Lau recipient of private equity capital, while Indonesia In addition KWAP, the country’s $28 billion Manager, Delegate Sales remains popular but has yet to generate retirement savings fund, may seek more private Pauline Chen investment flow commensurate with the level equity investments. Director, Business Development Tell us who you think deserves recognition. of attention. The Philippines and Vietnam, never Of course, Malaysian private equity isn’t Darryl Mag subject to great expectations in terms of deal only government-driven. Navis has been Manager, Business Development Submissions for nomination close on october 31. Simply visit volume, have been reasonably sparse. headquartered in Kuala Lumpur since it was set Anil Nathani, Samuel Lau Malaysia, remains underpenetrated by private up in 1998. CIMB’s PE team is also a force in the Sales Coordinator www.avcjindia.com/nominations and fill out the form. equity – although there is reason to believe this market along with a number of other principal Debbie Koo may soon change. Having visited Kuala Lumpur investment arms of local banks. Creador Capital, Conference Managers very recently, it feels to me that the Malaysian which invests the bulk of its capital in Southeast Jonathon Cohen, Sarah Doyle, Zachary Reff For enquiries, please contact [email protected] government, through various linked entities, will Asia, also calls Kuala Lumpur home. Conference Administrator play a critical role in this paradigm shift. With recent reports suggesting company Amelie Poon Conference Coordinator Ekuinas since its inception has been the driver owners are increasingly open to the prospect of Fiona Keung, Jovial Chung of private equity deals within Malaysia either selling stakes to PE investors, the perfect storm Publishing Director directly or via its outsourcing programs. Endowed may be nearing. Malaysia has the potential to Allen Lee with government money, the group has amassed become a significant private equity destination Managing Director Recognising excellence a portfolio of 12 direct deals with another seven – in a Southeast Asian context – for GPs and LPs Jonathon Whiteley India Award categories in indian PRivate equity from its outsourced GPs, including the likes of alike. Navis Capital Partners and CIMB. Firm of the year In terms of venture capital, MAVCAP, another government-linked manager and the country’s Private equity Professional of the year largest VC firm, has been active in funding local Incisive Media entrepreneurs. The 12-year-old firm is said to Allen Lee Unit 1401 Devon House, Taikoo Place exit of the year have made more than 140 investments. Like Publishing Director 979 King’s Road, Quarry Bay, Hong Kong Private equity deal of the year Ekuinas, MAVCAP also outsources to local GPs. Asian Venture Capital Journal T. (852) 3411-4900 F. (852) 3411-4999 E. [email protected] Venture capital deal of the year Southeast Asia PE investment by country URL. avcj.com india Fundraising of the year Beijing Representative Office 10,000 No.1-2-(2)-B-A554, 1st Building, No.66 Nanshatan, Chaoyang District, Beijing, 8,000 People’s Republic of China T. (86) 10 5869 6203 Sponsored by F. (86) 10 5869 6205 6,000 E. [email protected]

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US$ million The Publisher reserves all rights herein. Reproduction in whole or 2,000 in part is permitted only with the written consent of AVCJ Group Limited. ISSN 1817-1648 Copyright © 2013 0 AssociAte your brAnd with excellence: 2008 2009 2010 2011 2012 2013YTD If you would like to be associated with recognising and Nominate Indonesia Philippines Thailand Malaysia Singapore Vietnam rewarding excellence in the Indian private equity industry, your Source: AVCJ Research award sponsorship opportunities are available. top choices Please contact samuel lau on +852 3411 4963 or Now! [email protected] Number 41 | Volume 26 | October 29 2013 | avcj.com 3 News

Hony, Suning take control to list on the Australian bourse with a view to ASIA PACIFIC raising A$15 million ($14.43 million) through an of China’s PPTV IPO. Startive Ventures owns 42% of Freelancer. Intel Capital unveils seven Hony Capital and home appliance retailer Suning Commerce - also one of the PE firm’s portfolio new Asia investments companies - will buy a controlling interest in GREATER CHINA Intel Capital has invested in seven Asia-based Chinese online TV provider PPTV for $420 million. companies as part of a batch of 16 global The deal, which values PPTV at approximately China’s Sungy Mobile commitments totaling $65 million. The Asian $568 million, creates an exit opportunity for the firms are: Singapore’s CloudFX, Japan’s Cloudian targets $80m US IPO and Fileforce, CSDN from China, Taiwan’s Lintes Sungy Mobile, a Chinese app developer backed Technologies, and India’s Perpetuuiti TechnoSoft by IDG Capital Partners, Jafco, WI Harper and Services and Savaari Car Rentals. China Broadband Capital (CBC), is targeting a $80 million IPO and a listing on the New York Stock PennSERS commits $50m to Exchange. The company, which focuses on apps, widgets and functions for Android smart phones, Asia Alternatives claims to be one of the top three publishers Pennsylvania State Employees’ Retirement globally on Google Play. System (PennSERS) has committed a further $50 million to Penn Asia Investors, a separate account Ex-CDH executive arrested managed by Asia Alternatives that focuses on opportunistic investments in funds across the company’s existing VC backers. in China region. Last year the pension system put $33 According to a regulatory filing, Suning will Gongquan Wang, founder of CDH Venture million into the vehicle. pay $250 million to buy a 44% stake in PPTV, Capital, has been formally arrested by Chinese becoming the largest shareholder. Two Hony- authorities following his detention last month on OPIC seeks emerging operated vehicles - Exalt Spring and Virtue charges of assembling a crowd to disturb public Faith Holdings - will put in the remaining $170 order. Wang left CDH two years ago. markets GPs million. The private equity firm’s ownership The US government-backed Overseas Private stake was not disclosed. Several venture capital VC-backed Chinese lottery Investment Corporation (OPIC) has made a call firms are expected to sell their shares during for proposals from GPs operating in emerging the transaction. Softbank China Venture Capital, site files for $150m US IPO markets, including Asia. OPIC is looking to Bluerun Venture, Draper Fisher Jurvetson VC-backed Chinese sports lottery provider 500. provide $35-150 million in capital to each between them own 22.86% of PPTV. Softbank com has made an initial filing to raise around selected fund, representing up to 33% of the Corporation and PPTV’s management team hold $150 million through an IPO on the New York fund corpus. 35% and 42.14%, respectively. Stock Exchange. Vision Knight Capital invested in Suning is keen to build its online business. $20 million of exchangeable notes that entitle it Wei Sun, Suning’s vice chairman, said on the to an equity stake in 500.com upon completion AUSTRALASIA company’s Sina Weibo: “It is a key step for Suning of the IPO. There will also be a concurrent private to transform itself to fully operate online.” PPTV is placement of shares to Sequoia Capital, which Quadrant to buy APN’s the largest online TV service in China with more also invested $20 million. share of advertising JV than 340 million users, according to its website. It offers sports, entertainment, news and other HAECO buys Timco from Quadrant Private Equity is set to buy joint venture video content. partner APN News & Media’s interest outdoor Owl Creek for $389m advertising venture APN Outdoor for A$69 Hong Kong Aircraft Engineering (HAECO), a million ($66.5 million). APN Outdoor has been run PEP-backed Veda listed aircraft maintenance provider controlled as a joint venture between APN and Quadrant Advantage targets IPO by Swire Pacific, has agreed to buy US-based since May last year when the PE firm bought a Timco Aviation Services for $388.8 million from controlling stake for A$174.2 million back. Australian credit-checking firm Veda Advantage, hedge fund operator Owl Creek Asset Managers. a portfolio company of Pacific Equity Partners, Timco is one of the largest independent aircraft Australia’s Future Fund hopes to raise as much as A$340 million maintenance, repair and overhaul providers in ($326 million) through an IPO in December. the US. hikes PE allocation Cornerstone investors have reportedly already Australia’s Future Fund increased its private been recruited for the offering, which is expected CDH invests $3m in Chinese equity allocation from 6.3% to 7.2% over the 12 to value Veda at A$1 billion. months to September 2013 as overall assets grew personal finance app Wacai to A$91.7 billion ($88.5 billion). The sovereign VC-backed Freelancer CDH Investments has committed $3 million fund now has A$6.6 billion deployed in the asset in the latest round of funding for Hangzhou class, exceeding the real estate allocation, which targets small-cap IPO Wacai Science, a Chinese personal finance fell from 6.4% to 5.6%. Online jobs marketplace Freelancer.com has filed management mobile app developer. Last month,

4 avcj.com | October 29 2013 | Volume 26 | Number 41 News

IDG Capital Partners invested in a Series A round KKR invests $89m in Apollo debut fund. The vehicle, which has a target of for Wacai, representing the debut investment $125 million, will invest in small and medium- from the IDG CreditEase Financial Innovation Hospitals’ parent sized enterprises (SMEs) in South India and Fund. KKR has made an INR5.5 billion ($89.74 million) emerging states with low PE penetration. investment in PCR Investments, the holding Chinese game developer company of India’s Apollo Hospitals group. The Actis invests $48m in GP will subscribe to the convertible debentures Boyaa plans $133m HK IPO issued by PCR with an option to convert these Indian pharma company Boyaa Interactive, a Chinese developer of online debentures into equity shares of listed Apollo Actis has invested $48 million for a significant board and card games backed by Sequoia Hospitals after five years. minority stake in Symbiotec Pharmalab, an active Capital, intends to raise as much as HK1.03 billion The promoters also will have the right to buy pharmaceutical ingredients (API) manufacturer. ($133 million) through an IPO in Hong Kong. It is back these instruments at the end of two years. According to the PE firm, Symbiotec is India’s the third game developer to pursue a listing in At the end of September, PCR held an 18.42% leading steroid-hormone active ingredient the city this year. stake in Apollo Hospitals. If KKR chooses to producer and the second-largest player in Asia. convert the debentures it will end up with a 4-5% NORTH ASIA stake. The Chennai-headquartered Apollo group SEBI issues guidelines for includes over 8,420 beds across 51 hospitals, SMEs to list without IPO Ant Capital exits cream The Securities and Exchange Board of India (SEBI) has issued guidelines allowing small and puff maker Beard Papa medium-sized enterprises to list without an IPO, Ant Capital is exiting its 100% stake in Muginoho offering new fundraising and exit options for Holdings, the company behind Japanese cream start-ups. Only “informed investors,” such as angel puff brand Beard Papa, to instant food giant investors and PE and VC firms will have access to Nagatanien for JPY9.44 billion ($96 million). the Institutional Trading platform. The minimum Muginoho was acquired by Ant Capital in 2006 amount for trading will be INR1 million ($16,300). for an undisclosed amount via its Ant Catalyzer No.3 fund, a JPY20 billion vehicle that reached a Tata Capital buys stakes in final close in 2006. 1,503 pharmacies, 92 primary care and diagnostic Tata Sky, Mitra Biotech Polaris-backed apparel clinics, and 100 telemedicine units. Tata Capital’s offshore Tata Opportunities Fund KKR made the investment with its affiliates (TOF) has acquired a 5% stake in direct-to-home firm files for bankruptcy and select investors. “This partnership has TV provider Tata Sky. Tata Sky is a joint venture Fusen-Usagi Corporation, a children’s apparel been initiated through our alternative credit between Tata Group and News Corp-owned supplier backed by Polaris Capital Group, has filed business in India, and will look to pave the way Star TV, which holds a 20% stake. Separately, Tata for bankruptcy at Osaka Regional Court with JPY3 for a much broader engagement between us as Capital Innovations Fund invested an undisclosed billion ($30 million) in debt. Polaris paid around partners,” Sanjay Nayar, CEO for KKR India, said in amount in cancer care specialist Mitra Biotech. JPY2 billion for a 67% stake in the company in a statement. 2006. Earlier this month Apollo founder Prathap Peepul Capital leads Series Reddy said talks with KKR were for about 3-4% of E round for Komli Media Macquarie to form infra JV Apollo, which should work out around 7% of PCR for approximately around $100 million. Apollo Digital advertising technology platform Komli with Japan’s Maeda will use the funds to repay promoters’ debt and Media has raised $30 million from new investor Macquarie Capital will form a joint venture with build more hospitals. Peepul Capital. Existing investors Norwest Japanese engineering firm Maeda Corp. to invest Venture Partners, Nexus Venture Partners, Helion in infrastructure and renewable energy projects. Venture Partners and Draper Fisher Jurvetson also The venture - to be launched by the end of the Samata in March last year, provides mobile participated in the round. year - will initially focus on Japanese solar power payment solutions using card readers for smart projects in response to the country’s growing phones. demand for clean energy in the wake of the SOUTHEAST ASIA Fukushima nuclear disaster. SOUTH ASIA Malaysian financial INCJ invests $8m in mobile comparison site gets $2m LotusPool targets $125m payment start-up Jungle Ventures has led a $2 million round of Government-backed Innovation Network India fund, IFC to invest Series A funding for iMoney, a Malaysia-based Corporation of Japan (INCJ) has invested JPY800 LotusPool Capital, a private equity firm set up financial comparison start-up. Other investors million ($8 million) in mobile payments processor by executives from Actis and ePlanet Capital, include IMJ Fenox, Fenox Venture Capital, Coiney. The Tokyo-based start-up, which was has received a $15 million commitment from Redbright Partners, 500 Startups and Vogel launched by ex-PayPal Japan employee Naoka International Finance Corporation (IFC) for its Ventures, as well as Germany’s Econa.

Number 41 | Volume 26 | October 29 2013 | avcj.com 5 Cover Story [email protected] Need returns, will travel Interest in Asian real assets has surged as investors look to higher growth emerging markets for income and upside. Opportunities run from real estate to infrastructure, and in some cases offer a bit of both

Last year Germany’s financial A total of 17 Asia-focused real-estate funds political or regulatory risk, according to Vijay sector pensions provider decided to leave the were launched in the first half of 2013, seeking Pattabhiraman, managing director and chief eurozone. BVV, the country’s second-largest $5.9 billion between them, Preqin data show. investment officer for infrastructure at J.P. Morgan pension fund with assets of EUR23 billion ($31.7 Infrastructure vehicles have received $3.1 billion Asset Management Global Real Assets. “A strategy billion), identified global real estate opportunities so far this year across eight funds. could have a 20-year outlook but investments as a strategy that could deliver the desired Historically, real estate has attracted would normally not be held for 15-20 years in returns. It made its move in April, acquiring a more of the funds allotted to real assets than these markets,” he adds. Melbourne office tower from The Blackstone infrastructure – largely because the latter However, there is a need for more equity Group for A$70 million ($66 million). is regarded as an emerging asset class and for real assets. Most infrastructure projects Traditionally conservative German pension therefore falls under the opportunistic part of a in the region are funded by local currency funds are among those being forced to diversify foreign asset manager’s portfolio. “If you look at and domestic banks and in some countries, to meet their return targets. According AMP investors who have gone into it, it’s tended to be including India, these banks have reached their Capital’s latest institutional investor research sovereign wealth funds, development finance exposure limits to the sector. Secondly, inflation report, more capital is expected to move out of institutions and pension funds, who would be is an issue in many parts of Asia and there has the public markets and into alternatives, with the single biggest investor,” Gross continues. been a tightening in terms of interest rates and real estate, private equity and infrastructure the availability of money. In China and India real most popular assets. In addition, the current low Emerging opportunities estate developers are finding it hard to raise yield environment is driving LPs, big and small, to Current yield or income, stable long-term returns, money from traditional banks. shift allocation away from Europe and the US to lack of correlation with traditional asset classes, GPs have used the opportunity to invest emerging markets and Asia. inflation linkage and diversification are all reasons in companies via hybrid structures such as At the other end of the spectrum, the MGPA for investing in real assets and the choice is mezzanine with warrants, preferred equity, Asien Spezialfonds real estate vehicle offers driven by regulation and the life cycle of the and convertible debt. “It’s given us an ability to smaller German institutional investors exposure investor fund. Those with asset liability matching generate equity-type returns with debt downside to markets such as Japan, Australia, Hong Kong, considerations, such as insurance companies and protection because you’re more senior in the Singapore and Malaysia for a $20-25 million pension funds, need cash flow for distributions. capital structure,” said Grant Kelley, CEO at Apollo minimum subscription. In both cases, the strategies are similar – Closed-end private real estate funds in the market by geographic focus buying assets that either have an existing yield or can create a decent yield very quickly with 300 minimal risk. This core strategy is expected to generate a 5-8% yield and a 10-12% IRR, whereas a 17-20% IRR and 1.8x equity multiple is typical of 200 an opportunistic play. “Post the 2008 financial crisis institutional investors have been very focussed on real estate 100 core markets across Asia Pacific offering attractive income returns,” says Tim Nation, AMP Capital’s head of real estate capital. “The emphasis has 0 been on sustainable income returns rather than North America Europe Asia Rest of World capital returns.” No. of funds raising Aggregate target capital (US$ billion) Investors are also expected to move to Source: Preqin infrastructure for better risk-adjusted returns. “Over time, smaller investors who haven’t got exposure will start to put capital into Asian infrastructure,” Others are more willing to take significant Global Real Estate Asia Pacific, speaking at the says Steve Gross, senior managing director, positions in more opportunistic plays, employing AVCJ Real Assets forum in Singapore last month. Macquarie Infrastructure and Real Assets (MIRA). private equity-like strategies to grow their capital “It’s less a question of asset and more about entry “It will become more of a mainstream investment base. point in the capital structure.” than in the past, where traditionally it’s been the Unlike developed markets, it is difficult to take Apollo targets opportunistic gains of 15-25% wheelhouse of the larger investors who already a 10-20 year exposure in emerging Asian markets in the region, predominantly targeting mass have a significant infrastructure portfolio.” on any one particular investment because of market projects in mainland China. According

6 avcj.com | October 29 2013 | Volume 26 | Number 41 Cover Story [email protected]

to Kelley, the strategy has evolved to focus on due to its strong relative macroeconomic outpaces expansion of the infrastructure required retail and residential segments that five years ago fundamentals and some of the highest yielding to execute them. would have been considered second-tier but are core real estate in the world. “Unlike just about According to KPMG, there are more than increasingly good investment destinations. every other core market globally, Australian yields 10,000 players in China’s express delivery “[However], in real estate the smartest have not had the same level of yield compression industry, and the eight largest are dominant. strategy is to chase rental yield before you chase and are still throwing off attractive income A consortium including CITIC Capital Holdings capital value,” he added. That means buying returns,” says AMP’s Nation. and state-owned China Merchants Group based on income at about 200-400 basis points He expects that as core real estate starts bought an up to 25% stake in one of the eight above the risk-free rate. becoming difficult to access or less attractive – S.F. Express. Macquarie Everbright Greater China Infrastructure Fund, meanwhile, is one of numerous investors to pursue a more specialist Unlisted infrastructure fundraising by primary geographic focus approach, putting $44.3 million in Hengyang 15 Petrochemical Logistics. There are also opportunities to combine infrastructure with real estate. With airports, for 10 example, investors can enjoy steady traffic-based returns while simultaneously leveraging the expansion plans of S.F. Express or other logistics 5 providers by leasing them space. “Every airport has roughly 30-60% government regulated revenues that come from 0 landing and what we call the ‘airside’ charges,” North America Europe Asia Rest of World Andrew Yee, global head of infrastructure at No. of funds raised Aggregate capital raised (US$ billion) Standard Chartered Bank’s principal finance Source: Preqin Note: For the period January-September, 2013 division, said at the AVCJ Real Assets event. “But then, the upside comes from the real estate. This could be duty-free retail, adjoining properties for Markets such as Australia, Japan, Singapore from a pricing point of view, this is likely to push logistics centers and offices or the car park.” and Hong Kong are more conducive to core investors up the risk curve, potentially towards The Philippines plans to constructs airports strategies, and the last few years have seen a rise private equity-style real estate investing. through public-private partnerships and Japan in intra-regional institutional investment from wants to privatise a series of national airports. China, South Korea and Malaysia. The logistics angle Other blended opportunities could arise The Asia Pacific commercial property markets On the infrastructure side, “now could be a from building new alignment, according to are expected to reach $120 billion in deal volume good time in the economic cycle to consider Pattabhiraman. “Especially in new build projects this year, according to Jones Lang LaSalle. investments in GDP-related infrastructure as there are situations where you can build a road That would put 2013 on par with 2007 as the economies recover and global growth increases,” in a place where there were none before, set up strongest year ever by transaction volumes. The adds John Julian, senior manager at AMP Capital’s power, water systems and other infrastructure growth was predominantly led by Japan, China infrastructure preferred strategies unit. These and then that land looks very different in terms of and Australia which, together account for 69% of include assets such as airports, seaports, toll valuation,” he says. transactions. roads, rail and logistics. Once the infrastructure is developed, the land Asian-Pacific investors accounted for most of Logistics in China has emerged as a particular starts to become more valuable, there is more the deals across the region, investing $56.2 billion target. “There is unsatisfied demand for good development on the land such as apartments during the first half of the year, while European managers in that space,” says MIRA’s Gross. “We’re and offices which then increase utilization of the buyers acquired $1.4 billion worth of properties. seeing a lot of LPs interested in that and in infrastructure, and the process builds a virtuous Investment in Japan was up 50% year on Chinese retail shopping malls.” cycle. year to $20.8 billion in the first six months. The China’s fragmented logistics industry has The drive for diversification means investors rebound has seen investors take on risk by long been a source of frustration for suppliers are looking to invest across Asia to mitigate risk. buying property in smaller towns. For example, and distributors looking to reach deeper into Local currency risk, for example, is difficult to in Fukuoka, Japan’s seventh-largest city, buyers the country’s hinterlands. This has created hedge. While the Indian rupee fell to record lows of old office buildings have included Morgan investment opportunities ranging from this year, the renminbi has gone up 10.4% against Stanley and Goldman Sachs. warehousing to refrigerated food transportation. the US dollar. A regional portfolio reduces the hit Australia’s core office, retail and industrial The Carlyle Group is collaborating with real- from a single economy. sectors have also held investor interest because estate investment manager Townsend Group and While large LPs with sizeable teams can do there is insufficient supply to meet demand. warehouse developer and operator Shanghai single country funds because they have enough Those who have set up shop in the country Yupei Group, to invest a total of $400 million in 17 money to put a few hundred million into each this year include Ontario Municipal Employees warehouses in China that will be leased to firms economy and get a quasi-pan Asian kind of Retirement System’s Borealis infrastructure unit, including retailers and e-commerce companies. exposure, the smaller investors are likely to invest Morgan Stanley Infrastructure Partners and Meeting the needs of the burgeoning in regional funds. GPs like Macquarie, known for Canada’s OPSEU Pension Trust. e-commerce industry has become a sizeable its single country funds, are now looking to offer The country has seen global capital inflows challenge on its own as the growth in orders far that diversification as well.

Number 41 | Volume 26 | October 29 2013 | avcj.com 7 26th AnnuAl

12-14 November 2013 Four Seasons Hotel, Hong Kong RegiSTeR NoW to assure your place at the largest and most influential gathering of top Asian focused private equity and venture capital industry professionals in the world today.

Keynote speakers Steve Koltes Dwight Poler REGISTER Co-Founder & Managing director Managing Partner bAin CAPitAl NOW at CVC CAPitAl PArtnErS Christopher Flowers Plus global economist avcjforum.com Founder Byron Wien JC FloWErS & Co Vice Chairman blACKStonE AdViSory PArtnErS lP

Senior LP speakers already confirmed include: Pak-Seng Lai Jay Park Managing director & Managing director Head of Asia blACKroCK PriVAtE AudA Equity PArtnErS Thomas Kubr Jeremy Coller Executive Chairman Executive Chairman & Cio CAPitAl dynAMiCS CollEr CAPitAl

Steve Byrom Fritz Becker Head of Private Equity CEo & Managing director FuturE Fund HArAld quAndt Holding gMbH D. Brooks Zug Marshall W. Parke Senior Managing director Managing Partner & Founder lExington PArtnErS HArbourVESt PArtnErS, llC Sherry Lin Nicole Musicco Managing Partner Vice President MouSSE PArtnErS ontArio tEACHErS’ PEnSion PlAn Jim Pittman Vice President, Private Equity PSP inVEStMEntS and many more…

Lead sponsors Asia series sponsor

Keynote speakers Co-sponsors Steve Koltes Dwight Poler REGISTER Co-Founder & Managing director Managing Partner bAin CAPitAl NOW at CVC CAPitAl PArtnErS Christopher Flowers Plus global economist avcjforum.com Founder Byron Wien JC FloWErS & Co Vice Chairman blACKStonE AdViSory PArtnErS lP Legal sponsors Knowledge partner VC summit sponsors Senior LP speakers already confirmed include:

SOLICITORS AND INTERNATIONAL LAWYERS Pak-Seng Lai Jay Park Managing director & Managing director Head of Asia blACKroCK PriVAtE AudA Equity PArtnErS VC summit legal sponsor LP summit sponsors Awards sponsors Thomas Kubr Jeremy Coller Executive Chairman Executive Chairman & Cio CAPitAl dynAMiCS CollEr CAPitAl

Steve Byrom Fritz Becker Pe leaders’ summit sponsors Head of Private Equity CEo & Managing director FuturE Fund HArAld quAndt Holding gMbH D. Brooks Zug Marshall W. Parke Senior Managing director Managing Partner & Founder lExington PArtnErS HArbourVESt PArtnErS, llC Sherry Lin Nicole Musicco Managing Partner Vice President MouSSE PArtnErS ontArio tEACHErS’ exhibitors eSg Workshop official broadcast Communications PEnSion PlAn Sponsor partner partner Jim Pittman Vice President, Private Equity PSP inVEStMEntS and many more…

Contact us Contact us Registration: [email protected] Sponsorship: Darryl Mag Discount Code: AVCJ_HK_PRINT_20% avcjforum.com T: +852 3411 4919 E: [email protected] avcjforum.com deal of the week [email protected] / [email protected] Affinity bets again on the protein theory

Having bought new zealand poultry corporations, like in the US and Europe.” previously backed by CLSA Capital Partners. producer Tegel Foods and Australian deli meats The investment will be structured as a joint By contrast, Sunlon has somewhat unusual specialist Primo Smallgoods, Affinity Equity venture, with Beijing Capital Agribusiness Group state-owned origins. “The business has been Partners’ third pan-regional fund is already heavily – also known as Sunlon – holding the majority around since 1949,” the source explains. “When invested in the Asian “protein theory.” Both share. Sunlon is a food conglomerate, created in the Communists came to power in Beijing companies are looking to distribute in emerging 2009 when the Beijing government decided to the country was coming out of civil war and markets, capitalizing on growing consolidate assets stretching the leaders decided they needed a supply of demand for premium produce. from livestock to an interest in fresh milk for the government. The company The 12th and final Starbucks’ local operation. still delivers milk to the leadership, although investment from the fund Sunlon’s dairy farming obviously this is a very small portion of what it completes the circle. Affinity business will be spun out into now does.” has paid $123 million for a 40% the joint venture. It currently As a result of this legacy and ownership stake in Beijing’s largest dairy owns 32 farms with 46,000 head structure, Sunlon claims to have the leading provider as the group looks to of cattle and accounts for 60% domestic cow breeding center. Modern Dairy expand, addressing the milk Dairy: Growth industry of Beijing’s milk supply. The imported the cows that form the basis of its demand-supply imbalance and plan is to increase the heard to herd, or bred them locally using semen from US the fact that consumers are willing to pay out for 100,000 cows over the next five years. and Australian and New Zealand cows. Sunlon, safer and better quality products. As it stands, Sunlon is China’s third-largest however, has been cross-breeding within its own “Small farms run by families produce dairy farmer, after Hong Kong-listed China herd for 60 years and the milk yield per cow is 86% of China’s milk,” says a source close to Modern Dairy and Huishan Dairy. The former said to be close to international standards. the transaction. “How can people like that to has seen significant expansion in the last five Affinity sees significant growth potential in introduce the equipment and hygiene standards years – its herd has grown more than sevenfold the business over the next 10 years, the source required? The government has to encourage the to approximately 180,000 cows – with support adds, noting that China’s milk consumption is still development of a group of very large firms run as from KKR and CDH Investments. The latter was less than one fifth that of the US. J-Star makes sweet exit from Tokachi

Gifts are a big part of Japanese more as seasonal gifts and the practice is not the bottom line. This involved a degree of tradition. Whether you are making an as common as it once was,” explains Sachiko management recalibration, replacing those who introduction, expressing thanks or simply Nakayama, an associate with were overly focused on the sales marking a change in the seasons, an exchange J-Star. “So we thought it would side with experienced operations of gifts is usually required. A large section of the better to shift focus to more on- executives. country’s consumer sector relies on providing the the-spot purchases.” “Prior to J-Star’s involvement, ideal present for a friend or colleague. Tokachi has 26 stores in decisions solely relied on Times, however, are changing. Many Saitama prefecture under its main the founder’s opinion,” says businesses, like traditional sweets maker Tokachi brand and nine in Tokyo under Nakayama. “We believe that the – recently sold by domestic mid-market buyout the Kashin-tachibana marquee, mid-level management is now firm J-Star to Media Flag for JPY644 million ($6.5 most them located at roadsides. Sweets: Popular gift fodder sufficiently well established to million) – have been forced to adapt. One of J-Star’s first moves was to support operations and it is no When J-Star acquired Tokachi, which operates bring these outlets to areas in and around train longer a one-man company.” as Tokachi Amanatou Honpo, for JPY450 million stations in a bid to encourage impulse purchases. The acquisition by Tokyo-listed Media Flag – in 2006, it was a classic succession play. The The company also began to look beyond its own which has generated a 1.3x money multiple for owner had been running the business since 1974 outlets for customers. J-Star – represents a new frontier for the buyer. and was looking to get out; and the company “We expanded the business channels,” says Media Flag’s chief line of business is as one of itself was also ripe for renewal. Nakayama, “Most of the company’s stores were in Japan major mystery shopper companies, visiting While its products – which use traditional Saitama, but we helped it start selling products over 200,000 stores a year – including those ingredients such as red bean paste, chestnut and through supermarkets and co-op stores, so it was owned by Tokachi – and offering its clients advice rice cake – continued to appeal, consumer habits operating more like a B2B business.” on sales and marketing strategy. It is now looking had evolved and sales suffered as a result. In addition, J-Star improved efficiency to M&A as a means of leveraging that knowledge. “Traditional sweets remain popular in Japan in Tokachi’s manufacturing operations by This the second exit of 2013 for J-Star, which but many of Tokachi’s products had been sold consolidating existing factories and improving sold clothing brand Olive des Olive in January.

10 avcj.com | October 29 2013 | Volume 26 | Number 41 arvind sodhani | Industry Q&A [email protected] You are what you wear Arvind Sodhani, president of Intel Capital, explains his passion for wearable technology, why cleantech is now a turn-off, and how the group’s investment strategy tracks trends in innovation

Q: Several sectors have been Q: What other areas are you Intel’s mobile chips? the 3-7 year timeframe. “Sizeable” added to Intel Capital’s interested in? A: Our historical practice is not to means $50-100 million in investment areas. Why the A: We are investing in all the sectors invest in customers. This is for the revenue. particular interest in wearable that are relevant for computing, simple reason that, if we chose devices technology? which obviously includes data to invest in one customer and Q: What are valuations like? A: Intel Capital’s focus continues centers and cloud computing. not the others, it would be unfair. A: From time to time, certain to evolve with the evolution The migration of IT to the cloud sectors get very hot. Software of technology. Obviously is very important for us, as well Q: Which areas have you stopped as a service, data analytics wearable is an emerging trend as big data analytics, consumer- investing in recent years? and cloud computing have all that we’ve started investing this related services and consumer A: We no longer invest in WiMax become very, very expensive. For year. There have been several internet education. Then there technology. WiMax was a huge private companies, overvaluation investments, including Basis is mobility, which we split into ecosystem investment effort is equally a danger, because Science, Thalmic Labs and Recon Instruments, and more are in the pipeline. We believe that there “The migration of IT to the will be hundreds of millions of wearable devices in the future. cloud is very important for us, It generates a lot of data that as well as big data analytics, can be collected and analyzed over time – and that data goes consumer-related services and from the wearable to smart phones, ultrabooks, tablets, and consumer internet education” to the cloud where it is typically stored. This has implications for connectivity, wireless, smart phones and tablets, that we undertook between if you cannot deliver on the networking, servers, storage, and ultrabooks and perceptual 2005 and 2009. We also stopped expectations tied to those high data analytics. It touches the computing. investing in cleantech, an area in valuations, then you get down entire spectrum of computing which we have made a number rounds, which can be very and we’re busy in building Q: Google has started making of successful investments. For painful for existing investors. the ecosystem to support the some non-core investments. the latter sector, we found that Companies need to be sensitive evolution of wearable as a Will Intel Capital do the same? the R&D evolution and our to overvaluation. category. A: We are focused on investment value proposition in process areas that ultimately relate to the technology were not relevant Q: What kind of returns are you Q: In which sector do you see the long-term business strategies of to solar cell manufacturing. are looking for? most potential for wearable Intel Corporation as a whole. We Therefore, it didn’t make sense A: We are looking for appropriate devices technology? are supporting the development for us to continue to invest. risk-adjusted returns. As you A: The health sector will be very of the ecosystem – in terms of can imagine, this is a very risky interesting – health insurance, innovation and business models Q: Intel Capital rarely features investment area – many start- hospitals, and healthcare – across mobility, servers, data in angel rounds. Would you up companies may go down management companies. They centers, data analytics, storage, describe yourself as a later or go bankrupt. Like anybody can say, “Okay, now we have networks, smart phones and stage investor? else, there are failures in our all the data, the body metrics, tablets. We’re not investing in A: We are a stage agnostic investor portfolios. Having said that, blood pressure, heartbeat, blood things outside of that domain. – we do everything from seed we have invested more than temperatures sort of information all the way to IPO and post-IPO. $10.9 billion in around 1,300 for tens of millions of people Q: There is a huge demand for All our cash comes from Intel companies, including about collected in multiple years. Who low price, high performance Corporation, so we are not a 300 start-ups. We have made are the candidates for diabetics smart phone and tablets, fund. We don’t have a 7-10 year 526 exits, including 202 IPOs on and heart disease?” They can particularly in China. Would window, so we can be very exchanges around the world also figure out whether these Intel Capital invest in patient, but we are looking and 324 portfolio companies individuals are doing a lot of companies that make these for companies that will start that have been acquired or exercise, for example. devices in order to promote producing sizeable revenue in participated in mergers.

Number 41 | Volume 26 | October 29 2013 | avcj.com 11 Stand Out!

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