Up to US$30m raised by South-east Asian search fund

WITHIN 16 months, a search fund in Vietnam has raised committed capital of up to US$30 million from over 15 international and local investors, to fund its hunt for and eventual acquisition of small businesses.

LT Partners was launched by Eduardo Batista and Thai Nguyen. The duo began their search for acquisition targets in Vietnam this July, though fundraising efforts began a year earlier. They created a 35-page memorandum for investors that included details on their credentials, with both having previously worked in top investment firms in Vietnam.

“We decided to pursue the traditional search fund model so that we could build a longer-term relationship with the investor base before, during, and after our search, versus connecting to those investors only when we have a deal ready,” Batista told The Business Times. The mentorship provided by these investors has been “invaluable”, he added.

Search funds are rare but on the rise in South-east Asia, said Insead Singapore assistant professor of entrepreneurship Ivana Naumovska. One benefit of a financed search is that investors have a vested interest in the success of the entrepreneurs and will help them in the search process, securing better performance, she said.

LT Partners’ investors include global search fund investors AIJ Holdings and Ambit Partners; family offices; and individual funds from places such as Europe, Australia, Brazil and the United States.

The capital raised has been “enough” to fund the salaries of the duo and a local team of employees, as well as US$500,000 in operating expenses, Batista said.

But a key challenge in Vietnam is obtaining audited information from companies, as business owners are unfamiliar with search funds or merger and acquisition (M&A) deals, he noted. “This leads them to close up or get caught up in wrong assumptions about our intentions rather than disclose information.”

“Sellers unfamiliar with the M&A process may also have unrealistic expectations given their love and affection for their own company,” he said. There was a cybersecurity firm that they liked, but which was “significantly overvalued” from their point of view – it requested a consideration of US$40 million, despite only having a net profit of US$1 million.

LT Partners has given itself up to two years to complete its first acquisition, though it aims to do so within the next six months and is “actively considering” five targets, said Batista.

While the ideal deal size is around US$15 million, the team is open to deals ranging from US$5 million to US$30 million.