The Challenge and Opportunity of Private Equity in Vietnam

Mekong Capital manages private equity funds with the objective of achieving high absolute net IRRs. We believe that it is possible for private equity firms to generate high absolute long-term returns regardless of external circumstances, as value can be created in any economic environment if companies execute well on their plans.

Vietnam provides rapid growth in GDP and consumer demand, providing extensive growth opportunities for companies in general. At the same time, most sectors are fragmented and most companies in most sectors have not yet applied many international best practices. The companies that are most effective at continuously building strong management and leadership on an ongoing basis have a sustainable competitive advantage in a market in which strong corporate management and leadership are scarce. This empowers those companies to emerge as the leaders in their sectors and achieve attractive growth in net profit.

 

Deal Selection

We believe that skill in successfully evaluating the capacity of management teams, as well as discipline in deal terms are key success factors at the pipeline and deal selection phase.

Excellence in Management – We carefully select for management and leadership teams that are committed to a big vision for the future of their companies, and that are continuously developing the management and leadership capacity to successfully fulfill on those visions. These will typically be companies that are very proactive about seeking out and applying best practices for their industries. Our extensive track record making private equity investments in Vietnam gives us an advantage in evaluating which management teams are most likely to really deliver the results we expect.

Consumer driven sectors - We focus on consumer driven businesses, which capture the growth in spending power by Vietnam’s rapidly growing middle class. We believe other sectors can also be successful, but we’ve chosen to develop a strong core competence in consumer driven sectors that involve some combination of branding, distribution, sales and retail.

Single businesses with scalability – We invest in companies that are focused on a single business that are highly scalable. We don’t invest in groups that hold multiple investments in unrelated businesses.

 

Vision Driven Investing

Mekong Capital is a pioneer in applying Vision Driven Investing to produce consistently high investment returns. Our post-investment philosophy is based on the proposition that we partner with our investee companies to align around and achieve a bigger future than what is predictable without an investment by Mekong Capital. We add value insofar as we provide the leadership to commit to, empower, and achieve a bigger future for our investee companies than what a passive investor would provide.

  • Creating a shared Vision - We facilitate for the most senior management of our investee companies to create a clear vision for their future, with measurable targets, normally for a 5-year period. This will be a vision in which we can both own, and this shared vision is the foundation of our partnership.
  • Aligning the whole management around the Vision – We partner with our investee companies to ensure that the relevant people in the company, especially the middle and senior management, are well aligned around the company’s vision.
  • Measurable annual milestones - We align with our investee companies around measurable annual milestones that will lead to achieving the vision and ensure that that business plan is organized around achieving those milestones.
  • Monthly KPIs and Management Reporting – We work closely with the companies to set monthly Key Performance Indicator (KPI) targets for the areas which matter most towards the company achieving its annual milestones. The company’s performance against these KPIs is then tracked in a monthly (or weekly) management report, which allows the management to quickly identify whenever the company is off-track from any of its KPI targets.
  • Root Cause Analysis - When our investee companies encounter obstacles or are off-track from achieving their KPIs or milestones, together we distinguish the source, and what actions need to be taken to get back on-track. The intention is that the senior management of the company are fully empowered and taking action to deal with the root causes of anything that is not working or missing. In this way, when something is not working, it gets handled quickly and the company rapidly builds capacity in areas critical to its success.
 

Exits

Together with our investee companies, we plan early for exit opportunities, whether this is a listing, trade sale or sale to a financial investor. We take an organized approach towards exits, which also involves setting and tracking key milestones. We have achieved 10 full or partial exits of investments that were unlisted at the time of our original investment.

  • Financial Reporting and Corporate governance - We work closely with our investee companies to ensure that they apply best practices in financial reporting and corporate governance. We have a dedicated team, Finance and Accounting Consulting Team, which specializes in coaching investee companies to implement best practices in financial management and reporting. We believe reliable and insightful financial reporting is critical for successful exits. Almost all of our investee companies use Big-4 auditing firms, and many have implemented international ERP packages such as SAP or Oracle.
  • Preparing for listing or trade sales – We work closely with the investee companies to prepare either for a listing or trade sale. Most of our companies have strong brands, distribution channels, sales teams or retail networks and that are attractive to strategic investors for a trade sale. We develop clear exit plans with the companies, such as listing plans, and stay in frequent communication with them to ensure those plans are on-track. When the exit plan involves a trade sale, we coordinate early with M&A advisors and potential strategic partners to ensure the company is preparing for the best possible trade sale.
 
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