Creating new opportunities

01.04.13 / Author: Shoeb K Zainuddin, Globe Asia

Newly-established private equity outfit Creador is aiming to ride on the consumer spending boom in Indonesia, India and Malaysia. With all three markets now growing robustly, it is already working on its second $300 million fund.

The combination of a stable but robust economy and rising consumer spending is just too tempting to resist for private equity firms starved of attractive opportunities. Add in the large number of companies which have substantial turnover and are looking for capital, and you have an explosive growth situation.

As a result, Indonesia is poised to see a sharp rise in the number of private equity firms, both international and local, over the next few years. According to survey reports, private equity firms could pour as much as $3 billion into Indonesia this year as they seek to cash in on one of the most attractive markets in the world.

It was this unique opportunity that led Cyril Noerhadi to leave his comfortable job at Medco Energi to join Creador and help establish its Indonesian operations. Founded by Brahmal Vasudevan, Creador invests in three markets in Asia – India, Indonesia and Malaysia.

“If you look at these three countries, the rationale is the commonality across sectors such as pharmaceuticals, construction, power and consumer goods,” Cyril noted. “We can therefore get our team to focus on these markets and find opportunities that we can leverage on.”

Currently, Creador manages a $130 million fund and is now in the process of raising another $300 million for a second fund. Its last transaction was the $35 million acquisition of PT Simba Indosnack Makmur, the Indonesian-branded food business of Godrej Consumer Products Ltd., which decided to let the non-core asset go.

“This is the sector that needs financing for growth,” Cyril said when explaining the thinking behind the acquisition. The company has a turnover of $22 million annually and produces cereal and popular snacks such as Turbo. It has a 17% market share for its cereals, the second largest in Indonesia after Nestlé.

Creador has also invested in media company MNC Sky Vision, as Cyril is bullish on the growth of pay television in the country. “We bought 10% for $28 million during the initial public offering as an anchor investor,” Cyril states.

This level of investment is only the beginning of Creador’s interest in Indonesia, according to Brahmal Vasudevan. Indonesia, he notes, is about seven years behind India in terms of liberalizing its economy and the development of the private equity industry.

“One of the reasons why we wanted to do something in Indonesia is because we saw a big opportunity here and to bring some of the learning from India,” he said. “Growth is now accelerating and there is a role for private equity.”

He added that in the past, many business families in Indonesia were not familiar with private equity as a channel to raise capital. Apart from capital, private equity firms can also provide advice and assistance in growing the business.

“There is a process of evolution,” he said. “We also need to educate the market and the business community.”

New ventures

As Creador works to raise funds for its second fund, Brahmal and Cyril are already sniffing out new investments in the consumer space. The firm is working on three to four opportunities in media, financial services and retail.

“In the course of this year, we hope to close another two transactions,” Brahmal noted. “Our model is to partner the entrepreneur so he remains in the business and we buy a minority stake because we do not want to replace them but provide additional tools for them to grow their business.”

Creador typically invests in companies that have a turnover of between $50 million to $400 million, as it is these companies which require capital and management know-how to get to the next level.

“Indonesia has about 500 listed companies and another 300 to 400 medium-sized companies that are not public,” Brahmal noted. “This is the current universe that private equity firms are working in.”

According to him, Indonesia has a handful of private equity firms which are active, compared to 200 such firms operating in India. Each year, about 10 to 15 private equity deals are done in Indonesia but this number is expected to rise over time.

The key to investing, according to Cyril, is discipline. For each investment, he expects a return of three times the investment over a five-year period. It is for this reason that Creador does not invest in start-ups or completely greenfield projects.