S'pore food businesses attracting private equity

The top restaurant-related deal this year was Standard Chartered Private Equity's US$52 million (S$73 million) growth capital injection into Crystal Jade, a household name in Chinese cuisine.
The top restaurant-related deal this year was Standard Chartered Private Equity's US$52 million (S$73 million) growth capital injection into Crystal Jade, a household name in Chinese cuisine.PHOTO: CRYSTAL JADE

3 out of top 4 deals backed by private equity this year were in restaurant sector

Private equity investors have developed a taste for Singapore food businesses of late.

These investors, mindful of Singapore's reputation as a food paradise, are showing a healthy appetite for food businesses with good potential to expand abroad.

According to research company Preqin, three out of the top four private equity-backed buyout deals here this year were in the restaurant sector.

The top restaurant-related deal this year was Standard Chartered Private Equity's (SCPE) US$52 million (S$73 million) growth capital injection into Crystal Jade, a household name in Chinese cuisine.

This comes after the restaurant chain was taken over by L Capital Asia, the private equity arm of Paris-based luxury group LVMH Moet Hennessy Louis Vuitton, for an estimated US$100 million last year.

ASIAN BRANDING

Successful Asian brands can now command associations with quality on a par with global brands, and therefore tap the growing cultural confidence of the aspirational middle class.

MR NAINESH JAISINGH, global co-head of private equity at Standard Chartered Bank

Crystal Jade operates more than 100 outlets spanning fine dining, casual and speciality restaurants and bakeries across the Asia-Pacific, including 47 here. The investment will be used to help Crystal Jade expand beyond its strong base in Singapore and Hong Kong, said Mr James Quek, chief operating officer of Crystal Jade.

Its focus is now on opening more outlets in Greater China, with more than 50 planned for the next three years. It has also started venturing into other South-east Asian countries, such as Vietnam, Myanmar and Cambodia.

Mr Nainesh Jaisingh, global co-head of private equity at Standard Chartered Bank, said Crystal Jade's brand, good reputation and loyal customer base made it an attractive investment for the firm.

The restaurant chain's expansion plans also coincide with the British bank's geographical footprint in the region.

"(This) allows the company to leverage our presence in these markets, and the operating knowledge of these markets," said Mr Jaisingh.

He pointed out that the Singapore-based SCPE has been "particularly active" investing in the food and restaurant sector.

Other than Crystal Jade, it has five other investments in food businesses in China, South Korea, Vietnam and India.

He believes that home-grown consumer brands in Asia are getting more powerful and valuable.

"Successful Asian brands can now command associations with quality on a par with global brands, and therefore tap the growing cultural confidence of the aspirational middle class," said Mr Jaisingh.

And the restaurant chain business, in particular, can generate good cash flows once it reaches a critical size. A good size coupled with a brand premium can help the business fend off competitors looking to enter the market.

He observed that the restaurant chain sector in Singapore seems to be going through a consolidation phase, with some inter-generational changes in family-owned businesses as well as consolidation due to increased competition.

"The more successful chains are now clearly emerging and breaking away into a different size category," he noted. "All these make for fertile ground for private equity activity."

Heliconia Capital Management is another private equity firm here that has placed its bet on a Singapore restaurant chain this year.

The firm, which is owned by Temasek Holdings, took a $10 million stake in seafood restaurant chain Jumbo's initial public offering in November.

"Our mandate is to provide growth capital to support Singapore-headquartered companies to be globally competitive," said Heliconia chief executive Derek Lau.

"We want to support the entrepreneurs as they grow to the next level," he added.

While Heliconia is "sector agnostic", its investments are largely based on three major themes - the trend of a growing middle class in the region, urbanisation and innovation and technology.

Jumbo, well-known for its chilli crab, fits in well with the growing middle class theme. As consumers' incomes grow, they will have more money to spend on food and will also be increasingly demanding about quality.

Mr Lau noted that Jumbo has a very scalable business that can be expanded overseas. And Heliconia wants to support its growth in its target market of Shanghai.

Singapore, being a regional hub for many things, including entertainment and medical tourism, attracts many visitors from the surrounding countries.

"When they travel here, they can see these brands easily. And when you take these brands overseas, they can relate (to these familiar brands)," he added.

Mr Tan Chow Boon, managing partner of Singapore-based private equity firm Credence, saw the value of a Singapore-based food business from another angle.

"Singapore is a brand by itself," he said, quoting a Taiwanese businessman who had told him this.

So he intends to expand home-grown seafood processor Fassler's business beyond Singapore around its identity as a Singapore company.

Consumers in the region can trust that it is a brand known for its food safety and quality because it is from Singapore, he said.

For Credence, the potential to scale Fassler's business beyond Singapore was the single most important reason why it paid $23 million to buy out the firm from its founder last November.

"If it can't be scaled, then it doesn't make sense as an investment," said Mr Seow Kiat Wang, another managing partner.

And to grow it regionally, the strategy is to capitalise on the strength of the Singapore brand.

"As people in the region grow more affluent, they care more about their lives. And the issue of food safety is a big thing," said Mr Tan.

A version of this article appeared in the print edition of The Straits Times on December 25, 2015, with the headline 'S'pore food businesses attracting private equity'. Print Edition | Subscribe