Mekong Capital continues to build on success in 2014

Chad Ovel, partner of Mekong Capital talked with VIR’s Hoang Mai about the fund’s success in 2013 and his vision for the Vietnamese market this year.

Has Mekong Capital had a successful 2013?

Mekong Capital’s success last year was based on being able to return capital to our limited partners by exiting three of our investments and partially exiting a fourth. One of those exits has been considered a benchmark exit in the region for the high multiple on the invested capital we obtained. Secondly, we have cemented our reputation for being a value-added private equity investor. The outstanding net profit growth of our investee companies during 2013 can be directly linked to our very active involvement with the companies in terms of strategy, introduction and implementation of world-class best practices, and supporting their commitment to aligning around key drivers. Our value-added approach was recognised in 2013 as Mekong Capital won Private Equity International’s Operational Excellence Award for the Asian Small Cap category based on the success of MobileWorld. Lastly, Mekong Capital underlined our long-term commitment to Vietnam by me joining the firm as a partner and adding my operational experience.

What are the main reasons for the fund’s success?

Mekong is consistently and firmly grounded in the belief that any management team in Vietnam can make their company the best in their respective industry through first setting ambitious targets and then adopting best practices to obtain and exceed those targets. We repeatedly see that those companies that quickly adopt globally recognised best practices outperform the market. Mekong Capital works with our investees to gain a deep understanding of the key drivers in their business and actively build a performance-based culture. This has been our approach for several years and I think we have demonstrated this can have a major impact.

In 2008, Mekong Capital invested in Golden Gate, a restaurant chain operator in Vietnam. The company has steadily expanded its restaurant brand in recent years. What is Mekong Capital’s role?

Mekong Capital has supported the CEO of Golden Gate Dao The Vinh, on business strategy and operations over the past five years. Golden Gate has been successful because of the openness of the senior management team. We supported Vinh to instil a performance-based culture in Golden Gate which is based on a healthy mix of profitability and sustainable expansion. Mekong Capital assisted the company’s management team to stay focused on providing customers with value for money. We also provided Vinh and his team with coaching from our Value Optimisation Board, all of whom are ex-CEOs of large global companies. Since our investment in 2008, Golden Gate has expanded from five restaurants with their Ashima concept, to nearly 60 restaurants across eight different concepts.

Mekong Capital has assisted the company with getting far deeper granularity and accuracy in budgeting, linking pay with performance throughout the organisational structure, and ensuring the company determines and aligns around the key drivers of profitable growth. One of the main challenges faced over the past five years was that the pace of expansion at times exceeded the capacity of the internal supply chain. This challenge has been overcome through professional and hygienic central kitchens in Ho Chi Minh City and Hanoi, which ensure consistent product quality across the platform and serve as a very strong foundation for future growth. Additionally, purchasing was centralised and synergies have been developed in the menus across the brands. Lastly, Vinh and his leadership team have shown a high commitment to standardised systems and procedures throughout the company.  

Mekong Capital plans to divest from five companies in the next couple of years as it plans for further growth in the future. How has the divestment process proceeded so far?

Divestment is a key element in the private equity business model. As a fund manager we must generate liquidity for the limited partners that invested into our fund. In 2013 we achieved a full divestment from three companies and a partial exit from MobileWorld. In 2014, we plan to complete between two to four further exits. Since our preferred exit route is to sell to strategic buyers, international sentiment on Vietnam is very important. We see investor sentiment slowly improving but it does not yet fully reflect the substantial progress that Vietnam made last year in terms of a trade surplus, large foreign currency reserves, very stable currency, and reduced inflation. We are working hard to educate people outside that Vietnam is a far more attractive proposition than the newspaper headlines would suggest.

How will Mekong Capital continue remaining successful during this year?

We remain deeply committed to the companies in which we remain a shareholder. Throughout 2014, we will stay actively involved in adding value to our current roster as we see substantial growth potential in all of the companies we are still holding. More broadly, Mekong Capital believes strongly in the future potential of consumer-driven businesses in Vietnam. We also expect to start making some new investments in 2014. Pipeline development and once again returning to investing fresh capital is very exciting for us as we can build on all the experience we have gained from our 26 previous investments and share this knowledge base with our new investees.