“Existing Funds Will Continue to Make More Exits in 2014”

Mekong Capital is a Vietnam-focused private equity firm, specialising in consumer driven businesses. Mekong Capital’s investee companies are typical among the fastest growing and market leading companies in Vietnam’s consumer-driven sectors such as retail, restaurants, consumer products and distribution. On the occasion of the New Year, Vietnam Business Forum interviewed Mr Chris Freund, Partner of Mekong Capital. Huong Ly reports.

Existing funds will continue to make more exits in 2014 because they need to prove their track record in order to raise new funds. This is especially true for investments that have been held for more than 5 years.

 

I believe that consumer related sectors are attractive in Vietnam in general – for example, retail, consumer products, health care, education services, etc. Some internet businesses will do very well as online is growing fast in Vietnam, but only a small percent of them will be profitable. However, I think there are lots of attractive sectors in Vietnam. It’s easy to find attractive sectors in which to invest. The bigger challenge is finding well-managed companies that meet high standards of corporate governance.

 

The typical SME in Vietnam has poor growth prospects because so many of them are managed in an old-fashioned way. They often don’t really invest in developing a strong management team, they don’t seek out and apply best practices, they don’t invest in scalable IT systems, they don’t track KPIs, they don’t have a clear strategy, their accounting isn’t reliable, they don’t have a strong Board of Directors, etc. These companies will slowly die. However, there is a small percent, less than 5 percent of the companies in any field, which are doing a much better job than their competitors in these areas and they are gaining market share to prove it. These are the companies like Masan Consumer, MobileWorld, Golden Gate and ICP, which started small but have grown much faster than their competitors.

 

One area is corporate governance – for example, companies that add value-added independent Directors to their Board of Directors will be stronger and more attractive than companies that don’t do it. For example, recently companies such as Vincom, THP and MobileWorld have added various experts to their Board of Directors and they will benefit from this. Another important area is transparency and tax compliance – investors will prefer a company with a Big-4 auditor (namely Deloitte, PwC, Ernst & Young and KPMG) and no liabilities due to tax evasion. And investors will be much more interested in a company that is investing in building a strong management team, because only a strong management team will be able to deliver sustainable grown over the long-term, but most SMEs in Vietnam are focused on the short-term cash flow and don’t want to spend the money hiring a really strong team.

 

Tet is a reflection of Vietnamese people’s strong commitment to their families. Officially it’s about the new year, but when I look at how Vietnamese celebrate Tet, it’s about spending a lot of time with their extended families. In the U.S. we have a holiday like this which is Thanksgiving, but it only lasts for one day. This year I will celebrate Tet in Con Dao Island, with my Vietnamese wife, my daughter and my parents who will be visiting from the U.S.”