随着中国制造业影响力的减弱，以及市场已转向到更多元化的生产和消费的模式，投资和价值创造战略也必须适应。— Kyle Shaw，萧氏投资公司
Q: How would you describe the dealflow that you are seeing globally right now?
Kyle: For context, ShawKwei & Partners is an Asian-focused private equity industrial investor with a portfolio of investments in Asia, the USA and Europe. We were early investors in developing China’s manufacturing supply chain from the 1990s to about five years ago, when we saw an opportunity to bring our industrial investment experience to Southeast Asia, India, Australia, Europe and the USA.
We are currently seeing very strong dealflow out of the US; average dealflow out of Southeast Asia, India and Australia; below average dealflow out of Europe; and very little out of China.
At ShawKwei & Partners, we have certainly been more active in the US than anywhere else over the past 12 months, and while valuations were high at the beginning of the year, they seem to have come down a little after the summer months. I think sellers are becoming more reasonable.
Q: How have dynamics shifted in Asia, in particular, and how have you adapted your strategy in response?
Kyle: From the early nineties to around 2015, we were very active in China. That period was a mega-cycle in which China became engaged with the world, both economically and socially, and the Chinese economy was booming, growing by about 10 percent per annum.
By 2015, however, China had started to lose its appeal because of increased deal competition and rising valuations. There was no longer the opportunity to dig deep into due diligence of companies. To win deals, you had to be fast, and you had to overpay.
At the same time, labour costs were increasing dramatically. Every year, there was a 9 percent to 10 percent wage increase for local staff, which was eating away at profit margins. Finally, there was also a general decline in government support for foreign investors. As a result, in 2015 and 2016, we started to rotate out of China and naturally began looking to Southeast Asia instead. That region shared many of the characteristics that we had initially liked about China. It was less competitive, valuations were lower, it was near to China, and we knew it well.
Q: How have shifts in global supply chains impacted these markets?
Kyle: Fast forward to 2021 and 2022, and it was clear there had been a dramatic shift in supply chains. China had moved from being the workshop of the world, to having a national strategy of domestic production and consumption, while foreigners were concerned about over-reliance on China and wanted to de-risk their supply chains by shifting production into places such as Southeast Asia, Australia, India and the Middle East.
Of course, replacing the huge economic machine that is China will not happen overnight. But it will happen. Supply chains will diversify over a five- to 10-year period. After all, if you think back to 2000, foreign trade in China was negligible. Think back to 1990, when China was completely unimportant to the global economy. Thirty years might sound like a long time, but historically it is quite short. We are moving into a period that will be characterised by a more diversified and global production and consumption model, and ShawKwei is capitalising on that trend right now.
Q: What do you believe it takes to be successful as a private equity manager?
Kyle: It may sound obvious, but to be successful as a private equity manager, you need to deliver returns to your investors. Every day, therefore, you need to be thinking about how you are increasing the value of the companies that you back. The advantage that we have as private equity investors is a long-term horizon. Hedge fund managers are thinking about the monthly or quarterly returns that they need to generate. Our money is typically locked up for 10 to 12 years.
That means we can take a view on something like building a new facility, which is typically a three-year process. We can take a view on investing in enterprise resource planning, which might be a two-year process. We can take a view on branding, which again, is a multi-year endeavour. We can invest in people, execute on M&A and do all of these things with a view to building business value over a five-year period rather than making plans predicated on the quarter or even the fiscal year.
I would add that it is also important to nurture the employees within your own firm and within portfolio companies. They are the ones that are doing this work every day. Plus, you need to bring in additional expertise from time to time, whether that is in marketing, branding or technology, finding consultants who are familiar with you as an organisation and can work seamlessly with the rest of the staff. But ultimately, as long as you remain focused on doing what is best for your LPs, then you will be successful.
Q: To what extent is automation supporting this move to a more diversified and balanced model?
Kyle: There is a pronounced trend towards reshoring – moving production back to places like the US and Europe, driven by the need to diversify out of China, certainly, but also supported by robotics. The biggest challenge that a market such as the US faces when it comes to industrial production is labour costs, but as robotics prices have come down, it has become compelling to task robots with menial tasks. You can make use of robotics wherever you are – whether you are in Singapore, Stuttgart, or San Diego.
Q: In addition to robotics, what other value-creation techniques are particularly relevant to the industries where you operate?
Kyle: We focus on operational improvements. We move businesses into newer factories that are more appropriate for their stage of development, for example. We take advantage of economies of scale and of new technologies. We also spend a lot of time and effort on enterprise resource planning – managing information flow within the company and tracking products from raw materials all the way through the supply chain.
Data management is really important. We produce millions of parts per month for critical items in healthcare, automotive and tech. These are products – medical instrumentation for instance – that cannot fail and we produce them for customers around the world. Ensuring the quality of the product and ensuring complete traceability through its lifecycle, including what went into making a product, where it was made, and at what date and time, is essential for our customers.
There is value-add in data management. The Internet-of-Things (IoT) is able to provide us with all sorts of information from production equipment, ensuring it is appropriately serviced, for example, in order to optimise efficiency. I would also point to branding. We take the companies in which we invest and raise their profile, making it sharp and distinct through messaging to staff, customers and suppliers. That messaging is also important when it comes to potential buyers, who can see exactly what that company does and what it stands for.
Creating appropriate incentives for employees is also critical. You need to ensure that interests are aligned, and that people are moving in the direction that you want them to move.
Then there are global connections. Twenty years ago, we were building businesses in China. Ten years ago, we had moved on to regional plays. Today, we are building global companies. We have a health and beauty business called Icons, for example, which has operations in Asia and Australia and now in North America as we recently announced a deal to buy a factory in North Carolina.
In Australia, we make lotions and hair treatments using natural products that exist in that country. In the US and Asia, we make packaging materials – bottles, caps, tubes and jars. The expansion into the US was important because consumers in the beauty space today are concerned about the environment. They want local production, rather than having something they will eventually dispose of shipped half the way around the world. We may only be a relatively small fund, with around $1 billion of assets under management, but having that global footprint is still a necessity in order to serve our customers and meet all of their needs.
Q: Do you view decarbonisation as a value-creation lever, or more as an investment opportunity?
Kyle: We see it primarily as an investment opportunity and have been very active as investors in a variety of decarbonisation themes including lithium batteries. Solar and wind power are important, but you still need an effective way of storing that energy in order for solar and wind to be viable and, of course, electric vehicles also have huge demand for batteries, alongside everyday appliances from vacuum cleaners to power tools.
We have been invested in a German company that makes equipment for the manufacturing of solar cells and have recently invested in a US business, based in Houston, that has developed an ecofriendly chemical that cleans and decontaminates petrochemical facilities, oil refineries and liquified natural gas plants. That product allows waste to be flushed back into any sewage system and makes these facilities run more efficiently and therefore have a lower carbon footprint themselves.
We very much see decarbonisation as an investment opportunity that is right in our sweet spot in terms of industrialisation, services and developing new technologies to allow these things to be done in a better way.