Beyond the buyout is our weekly newsletter dedicated to private equity developments across Asia Pacific, with a special focus on Southeast Asia.
This week, we discuss what’s behind Canadian funds pulling out of Asia’s largest PE market, delayed deals in Southeast Asia, and top PE updates from the APAC region.
Poor consumer sentiment hurts dealmaking
Everstone Capital has finally exited its investment in Domino’s Pizza in Indonesia. It remains to be seen whether other private equity firms succeed too in their divestments.
There are at least two other multi-million dollar transactions in limbo, involving global PE firms and their stakes in companies that operate well-known US brands such as Starbucks and Pizza Hut, in Indonesia and Malaysia.
The restaurants have been the target of boycotts, owing to the perception of links to the US support for Israel in the war in Gaza. This is despite the restaurants being run by local companies as franchises, and the companies themselves issuing statements of their neutrality.
Looking ahead, what are the implications for M&A transactions and investors in these markets? Are boycotts temporary situations to wait out, or are they affecting operational fundamentals?
As household names, such businesses are at a higher risk of consumer boycotts because of their accessibility. One observer says that knowing how the franchise model works would not make any difference to consumers who have been affected by the conflict in some way and want to make a dent.
Indeed, for FY2024 McDonald’s reported that sales in its International Developmental Licensed Markets segment, which the overseas franchises come under, further declined 0.3%, after a decrease in 2023’s performance vs 2022. But, the bigger impact may be at home, should the restaurants cut staffing owing to poor financial performance for instance.
As news travels faster than ever, it is increasingly commonplace to see consumers protesting against or shunning brands and products with which they have beef, even as companies try to reassure their customers otherwise.
The diamond industry, for one, has faced considerable controversy over the past two decades stemming from concerns over human rights abuses at mines in conflict zones. In 2019, New York jeweller Tiffany & Co promised to provide customers with the stones’ conflict-free provenance. Still, barely two years later, the brand and its new ambassador Beyoncé faced backlash as the singer wore a giant yellow diamond—discovered in colonial South Africa in 1877—seen to have a problematic history.
This February, sales of Tesla in Germany, Europe’s largest EV market, crashed 76% from a year ago, as the electric carmaker’s CEO Elon Musk becomes an increasingly divisive figure in the Trump administration. US media also report of social network groups with tens of thousands of angry Europeans, dedicated to discussing which American products to avoid.
On the other hand, consumers have demonstrated a willingness to pay a premium for sustainably or ethically-sourced products, even amid cost-of-living concerns. A 2024 PwC consumer survey showed, for instance, that 80% of consumers polled are willing to pay, up to nearly 10% more, for sustainably sourced or produced items.
It may be tough to foresee what the next issue or event would trigger protests of a different sort. Risk experts say this translates into the need for even deeper due diligence for investments or M&A transactions.
“There are already heightened ESG, sanctions and integrity risks, all across the supply chain, particularly in Southeast Asia, which has been a beneficiary of supply chain diversification outside of China,” notes Charlie Warren, managing director at global investigation firm Secretariat. “There is [also] the need to assess historical and ongoing consumer sentiment towards brands, how the businesses have addressed previous complaints and grievances, and to measure how well prepared the business is to respond.”
Finally, it would be unseemly to be capitalising on conflict, especially in such a protracted tragedy as Gaza. But as exit timelines tighten, valuation gaps could narrow in favour of a deal.
Geopolitical strains accelerate Canadian pension exits
An exodus of Canadian pension funds from China, since 2023, continues with Ontario Teachers’ Pension Plan (OTPP) decision last week to shut down its Hong Kong office amid Beijing’s bumpy relationship with Ottawa.
OTPP, whose net assets stand at $186.5 billion, announced in January 2023 that it will pause direct investments in Chinese private assets, and closed its China equity investment team shortly after.
The development comes as persistent geopolitical tensions and China’s slowing economy have driven many financial institutions with offices in Hong Kong to scale back operations and relocate to places such as Singapore.
Geopolitical tensions and China’s slowing economy have driven many financial institutions with offices in Hong Kong to relocate to places such as Singapore
Soured bilateral ties between China and Canada over a series of incidents have added pressure on pension fund managers in Canada to trim their China exposure.
Canada Pension Plan Investment Board’s exposure to investments in Chinese yuan has fallen by half in just two years—from 10% in 2022 to 5% as of March 31, 2024, according to its annual report. The biggest pension fund in Canada has cut staff in Hong Kong over the last two years, including laying off at least five from its PE team.
In the first half of 2023, Canada’s Caisse de dépôt et placement du Québec and British Columbia Investment Management Corp also made similar moves to suspend new investments in private assets in China.
Top PE developments
After winning a public contest with Bain Capital for FUJI SOFT, KKR is finally able to acquire full ownership of the Japan-based IT services company. The saga was “quite unprecedented” in Japan’s M&A scene, said one insider who let on that Bain Capital had apparently disrupted the process by making multiple statements that would not be permitted if they had formally launched a tender offer. The deal also portends the growing interest in Japan by global investors.
Affirma Capital has sold Indian nutraceuticals contract manufacturer Tirupati Group to Kotak Alternate Asset Managers, reaping a 3x return in rupee terms, or a 2.4x US dollar return. Affirma Capital invested $50 million in Tirupati in 2019.
People moves
Japan’s Government Pension Investment Fund has named former MUFG Kazuto Uchida as its next president. The change comes as the $1.7 trillion pension fund targeted to raise its return on investment target for fiscal years 2025-2029 to 1.9% from 1.7%. Alternative assets, which accounted for 1.46% of the total fund, reached nearly 37 trillion yen ($246.4 billion) in 2023.
Indonesia’s new sovereign fund Danantara announced new roles, including investment billionaires and influential figures, as it gears towards more than $900 billion in AUM.
Malaysia’s Ekuinas will see its CEO, Syed Yasir Arafat Syed Abd Kadir, depart after nine years at the helm.
BlackRock is losing its APAC private credit head Celia Yan to Apollo Global Management, Bloomberg reported.
US-based Audax PE has hired Audrey Low for its fundraising effort in APAC, Private Equity International first reported. Audax PE’s website and Low’s LinkedIn profile also represent the move.
Temasek-backed Seviora Group has launched its Middle East office in the ADGM, and appointed Sadiq Hussain as Senior Executive Officer for its Abu Dhabi Office.
