Symphony Shies From Indonesia’s Froth: Southeast Asia

Symphony International Holdings Ltd. said it’s seeking private-equity deals in markets including Malaysia and Thailand as assets in Indonesia, where it has invested for more than two decades, have become overvalued.

An increasing number of buyout firms seeking companies that serve the growing middle class in the world’s fourth-most populous nation has pushed prices of privately-owned businesses higher, Anil Thadani, director at Symphony, an Asia-Pacific private-equity firm founded in 1981.

“Indonesia was a hot market about seven to eight years ago,” Thadani, who is chairman of Symphony’s investment manager, said in an interview on April 26. “But the time of the low-hanging fruits is over. The whole environment has become too frothy.”

Buyout firms are counting on rising domestic consumption in Southeast Asia’s biggest economy to boost returns as a slowdown in global growth has weakened prices of commodities such as coal and palm oil. Private spending accounts for more than 60 percent of the economy, according to government data.

“We invested in Indonesia in the ’80s, and we did very well,‘‘ said Thadani, 66. ‘‘So over the last couple of years, we stayed away as we always do when we see herd behavior. Private equity is a lot about buying at the right price. And at the moment, the price isn’t right in that country.’’

Symphony is also looking at investments in Sri Lanka, India and Japan and could invest as much as $520 million, he said.

Normal Areas

The London-traded company invests in consumer-related businesses in the Asia-Pacific region, focusing on health care, hospitality, lifestyle and property, according to its website.

Symphony has $120 million in cash to invest, Thadani said. A further $400 million is in liquid assets, which could be sold at any time should a attractive investment opportunity arise, he said, adding that ‘‘we aren’t seeing that at the moment.’’

Thadani, who is also chairman of Symphony’s investment and advisory unit Symphony Asia Holdings Pte, declined to elaborate on the investments the buyout firm is seeking, except they are ‘‘in our normal areas of focus.’’

Nicholas Bloy, managing partner at Navis Capital Partners Ltd., said sellers would value a ‘‘typical branded’’ consumer goods company in Indonesia at between 12 times and 14 times its earnings before interest, taxes, depreciation and amortization. For private-equity firms, the norm is about 8.5 times the profitability measure commonly known as Ebitda.

‘‘You can’t bridge that,’’ he said on April 24. ‘‘Someone has to give. So currently it’s a waiting game.’’

Best Performers

Prices paid in private-equity transactions have risen in Southeast Asia over the past few years, according to Bain & Co., which provides management consulting services to the private-equity industry. Buyout firms paid a median of 10 times Ebitda last year, up from 7.8 times in 2009, it said.

‘‘High price expectations by sellers is the primary constraint for deals,’’ Sebastien Lamy, a Singapore-based private-equity specialist for Southeast Asia at Bain, said in an e-mailed response to queries. That’s the case in Indonesia in particular, he said, citing his firm’s surveys.

Indonesia’s benchmark Jakarta Composite index more than doubled in the past five years, making it the third-best performer among 94 stock gauges worldwide tracked by Bloomberg.

The Jakarta Composite is trading at 19.5 times reported earnings, according to data compiled by Bloomberg, almost twice the 10.7 multiple for Hong Kong’s Hang Seng Index, and higher than the benchmark measures in Singapore and Malaysia.

More Competition

Private-equity firms pool money from investors to buy companies within about five to six years, overhaul and then sell them, and return the funds with a profit after about 10 years.

Prices in Southeast Asia are also rising because more buyout companies are flocking to the region, Thadani said.

KKR & Co., the private-equity firm run by Henry Kravis and George Roberts, opened its seventh office in the Asia-Pacific region in Singapore in October, preceded by rivals Blackstone Group LP and General Atlantic LLC. Navis Capital in January said it will open offices in Vietnam and Indonesia.

‘‘The amount of money that is being raised for this industry is mind-boggling,” Thadani said. “When you have that kind of money, people are going to overpay. And when people overpay, prices go up.”

(Corrects name in 13th paragraph for story published on April 29.)
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