Successful Deal Entry and Exit for a Southeast Asian Private Equity Firm

Background and challenge

In 2015-16, L.E.K. Consulting worked with a prestigious private equity firm looking to acquire a local hypermarket chain in Malaysia. The chain has multiple stores across tier 2 and 3 Malaysian cities and has a focus on fresh produce. A consumer survey conducted by L.E.K. indicated that the target was the choice destination for fresh food and rated favourably compared to wet markets. The asset was also well regarded on price/value by its own and its competitors’ customers and enjoyed substantially larger average basket sizes than competitors. The survey also highlighted that the target enjoyed high ratings relative to competitors across the board, from its own and its competitors’ customers. 

However, the Malaysian large-format grocery retailing sector (hypermarkets and supermarkets) has historically been challenged, with customers prioritising convenience and increased competition from smaller modern retail formats. 

Approach and recommendations 

Despite the challenges in the overall market landscape, given the virtues of the asset, upon L.E.K.’s counsel the client decided to enter the deal. To create value for all stakeholders through this transaction, we suggested approaches to grow the asset (See Figure 1). 

Results

As the new management’s strategy around increasing revenue started taking hold, the business saw very strong growth — since FY16, revenue grew at ~8% p.a. and EBITDA at 25% p.a. In addition, while the new stores grew revenue, existing stores became major drivers of EBITDA growth. The strategic position garnered by the hypermarket chain enabled it to deliver stronger growth in the subsequent years than several key competitors in the market.

The private equity firm then asked L.E.K.’s help in preparing the growth story for the business as it planned its exit. The firm achieved a successful exit to another investor who understood the quality of the asset and the management team and was able to bring its unique plan to support management in the next phase of growth.