The Journal of Private Equity

The Future Dynamics of the Chemical Distribution Business in the ASEAN, with the Anticipated Surge of M&A.

KIN BEE TAY — Tue, 07 Jan 2020 00:00:00 -0800

The chemical distribution market size is worth about €210.00 billion in 2015 and is expected to reach €440.00 billion by the year 2030. The specialty chemical distribution market itself had a global market size of about €97.00 billion of which the Asia-Pacific market contributes about €40 billion (sales in 2017). Asia Pacific has the largest specialty chemical market size and it is also the fastest growing with a CAGR of 6.8% from 2012 to 2017.

The chemical consumption in North America and Western Europe region are reducing due to weaker demand from the mature western economies. The bright spot is that the increased growth of the chemical distribution business through to 2022 will originate from the Asia Pacific region. Mergers and Acquisitions activities will pick up tremendously in the Asia Pacific region as global companies search for fast growth in their business and will opt for M&A to grow inorganically.

The purpose of this paper is to address the following research questions:

Who are the major chemical distributors operating in the Asia Pacific region, and, especially in the ASEAN?
Who are the possible potential targets for mergers and acquisitions for the Global chemical distributors in the ASEAN? and
Are there any other strategies for the Global chemical distributors to grow in the ASEAN without doing any acquisition?

The research is conducted through literature review of published trade data, company’s annual reports, trade publications and other relevant news media. The Author has over 25 years of experience in the chemical distribution business in the ASEAN and is also currently heavily involved in the mergers and acquisitions process of chemical distributors and could contribute his own experiences and observations into the paper.

This paper is unique from the perspective that there is no specific research being conducted before in the field of mergers and acquisitions in the ASEAN by Global chemical distributors though there are plenty of publications on their activities in Europe and North America. The Asia Pacific will be the fastest growth region for the specialty chemical distribution business and they are currently served by literary thousands of chemical distributors. This offers a very fertile hunting ground for mergers and acquisitions by the Global chemical distributors.

Start-up Accelerators and Crowdfunding to drive Innovation Development under Thailand 4.0 Policy

Jarunee WONGLIMPIYARAT — Tue, 07 Jan 2020 00:00:00 -0800

This paper attempts to study the mechanisms of start-up accelerators and crowdfunding to support entrepreneurial development in Thailand. In particular, the study explores the major accelerator programmes to support innovation commercialisation and the start-up eco-innovation system. The results have shown the problems of weak Triple Helix system since the interactions among the university, industry and government are not strong enough to drive effective technology commercialisation. Arguably, the accelerator programme should act as an intermediary among the institutional spheres to provide interactive linkages and promote effective utilisation of research results. The empirical study provides insightful implications on the move towards Thailand 4.0 and the lessons of Thailand in stimulating entrepreneurial development which can be applied to other developing economies.

Economic Growth, Poverty and Income Inequality: What Implications for Lower and Middle Income Countries in the Era of Globalization

youness youness jouilil — Tue, 07 Jan 2020 00:00:00 -0800

The main goal of the present work is to establish a dynamic profile of poverty and to evaluate the impact of economic growth on poverty and income inequality. The economic literature motivated to the previous theoretical works of (Alesina , 1993), (Ravallion, M., 2004), (Stiglitz, J. E., 2013) & (Ferreira, F., 2016), shows that there is an inverse correlation between the income inequality approached by the GINI index and the economic growth measured by the Gross Domestic Product, but the facts prove that this is not always the case. The objective of this article is to establish whether there is econometric evidence of such relationships.

For this purpose, we used econometric methods to take into account the heterogeneity of the used panel data (lower middle-income countries and time 1970-2018). Using fixed effect approach and consistent with the expectations, we argued that an increase in income inequality decrease GDP per capita in our selected sample. Typically, we found after controlling for heterogeneity that, on overall, a one-percentage point rise in poverty gap and the GINI index decrease GDP per capita by around 3.8 % and 6.8%, respectively.

Accordingly, the path to sustainable economic growth in the future, therefore, passes through a reduction of inequalities, especially income inequalities by making for instance some public actions and policies for poorest people.

Michael Milken: The Junk Dealer

Ravi Kashyap — Tue, 07 Jan 2020 00:00:00 -0800

We take a closer look at the life and legacy of Micheal Milken. We discuss why Michael Milken, also know as the Junk Bond King, was not just any other King or run-of-the-mill Junk Dealer, but ”The Junk Dealer”. We find parallels between the three parts to any magic act and what Micheal Milken did, showing that his accomplishments were nothing short of a miracle. His compensation at that time captures to a certain extent the magnitude of the changes he brought about, the eco-system he created for businesses to flourish, the impact he had on the wider economy and also on the future growth and development of American Industry. We emphasize two of his contributions to the financial industry that have grown in importance over the years. One was the impetus given to the Private Equity industry and the use of LBOs. The second was the realization that thorough research was the key to success, financial and otherwise. Perhaps an unintended consequence of the growth in junk bonds and tailored financing was the growth of Silicon valley and technology powerhouses in the California bay area. Investors witnessed that there was a possibility for significant returns and that financial success could be had due to the risk mitigation that Milken demonstrated by investing in portfolios of so called high risk and low profile companies. We point out the current trend in many regions of the world, which is the birth of financial and technology firms and we suggest that finding innovative ways of financing could be the key to the sustained growth of these eco-systems.

New horizons of behavioral valuation

Semen Bogatyrev — Tue, 07 Jan 2020 00:00:00 -0800

The purpose of the study described in this article is to solve the problem of investment decisions in the current environment where investor irrationality comes to the front and blinds traditional classical analytical tools. During the post-crisis period it becomes a problem not only for Russian valuation analysts but for global as well. The current study uses behavioral finance methodology to solve this problem.

To illustrate the solution, we used the discounted cash flow valuation techniques on a huge amount of on-sale Russian businesses and then applied quantitative financial solution methods to process the multiple results.

Private Equity and Qualified Small Business Stock: Tax Implications of Various Holding Company Structures for Control Investments

Michael Spiro — Tue, 07 Jan 2020 00:00:00 -0800

In recent years, interest has grown in structuring private equity acquisitions to take advantage of the tax incentives associated with investments in “qualified small business stock” (“QSBS”). Although QSBS can often provide a meaningful tax benefit for private equity investors, deciding whether, and how, to structure a control investment for QSBS can be highly complex. This article considers the benefits of QSBS relative to investments in certain “flow-through” entities and explores several legal ambiguities and anomalies that lead to both planning opportunities and traps for the unwary in structuring platform investments and add-on acquisitions in a manner that optimizes QSBS.

International Trade and Stock Market integration: Evidence from study of India and its major trading partners

Ritesh Jayantibhai Patel — Tue, 07 Jan 2020 00:00:00 -0800

The objective of this paper is to examine the stock market integrations among the stock markets of India and its major trading partners with respect to global financial crisis 2008. The study is conducted on India and Its major trading partners, USA, China, Germany, Switzerland, Russia, Hong Kong, Saudi Arabia and UAE. The study is performed using daily covering a period of 18 years from January 1, 2001 to December 31, 2018 (Pre-crisis period from January 1, 2001 to December 31, 2008; while Post-crisis period from January 1, 2009 to December 31, 2018). The study uses Correlation, Unit root test, Granger Causality test, Johnsen co-integration test and Generalized method of moments (GMM) to evaluate the integration among the markets. The Granger causality test found the short-term integration among majority of the markets. The Johnsen cointegration test and GMM found the long-term integration among the markets. It was interesting to know that after the financial crisis the stock markets become more integrated with each other due to increase in the international trade. From the factor analysis it was found that, before the financial crisis, the Nasdaq was more closer to BSE as compare to SSE. But after the financial crisis, the SSE is more closer to BSE as compare to Nasdaq. The reason for such outcome is increase in trade with china after the financial crisis. The outcome of the study has implication for Government in International trade policy framing considering the other member countries. The Investors can design their investment portfolio for short-run and long-run by considering the changing degrees of financial risks of different securities. The study has practical implication for the Multinational corporations in policy decision-making. The study has limitation that it is limited to only 8 major trading partners of India.

Infrastructure investment as a true portfolio diversifier

Clemence Duclos — Tue, 07 Jan 2020 00:00:00 -0800

Often compared to real estate for its inner characteristics, infrastructure (such as a railway, a bridge or a port) is an alternative asset deeply involved in the growth and development of the countries where it is implemented; infrastructure is also intertwined with the political and economic environments of these countries.

Developing and developed countries face different problematics in terms of infrastructure investments. European countries are improving their life quality with better transportation networks, access to renewable energy and social infrastructures. Countries try to achieve economic growth through the improvement of economic infrastructures. In developing countries, it is social infrastructures (hospitals, schools, desalination plants, waste and water treatment plants...) that dominates the field with the goal of achieving a higher level of economic and social development.

Infrastructure investments have specific features that differentiate them from traditional assets, among low volatility of cash flows, indexation to inflation, predictable and steady stream of cash flows, large capital outlays at the start and nearly nonexistent capital cash outs thereafter. We used to qualify the investment in infrastructures as low risk, low return even though that it depends on the sector in which you decide to invest.

This article is aimed at comparing a diversified portfolio, namely the Yale endowment fund investment portfolio, with a portfolio fully invested in infrastructure investments in order to determine which one is the most efficient. The Excel tool: solver used to obtain optimal portfolios. We maximize the Roy’s safety-first ratio: a risk-adjusted return performance metric measuring the risk that the portfolio value falls below a minimum acceptable level over a time period. We consider various levels of risk aversion as minimum return requirements.

After running some tests, the diversified portfolio appears to be the most efficient one for all types of investors. However, during a financial crisis, the portfolio made up of infrastructure investments is the least impacted and the most efficient. The analysis demonstrates that infrastructure investments are less impacted by specific economic situations than other types of asset. Albeit, a diversified portfolio is more efficient in normal times.

Overview of Venture Capital Landscape in India

Mohammad Mustafa — Tue, 07 Jan 2020 00:00:00 -0800

It is difficult to find an overview of Indian venture capital industry as no systematic attempt has been made at that and to fill this critical gap, I want to bring out an overall understanding of the Indian venture capital industry. The definition of venture capital is tricky, and I propose to use the term venture capital, referring only to Start-up, early stage & growth-VC Stage funding. The term thus encompasses only ‘traditional’ venture capital.

To create an overall understanding or overview of Indian venture capital, I will try and cover the following:

How has the venture capital industry in India developed in recent years and how will it continue to develop in the future? Which factors influence its development?
How does it compare to other Private Market Investment asset classes in India and other developed venture markets like US and Europe?
How are Indian Venture funds structured in terms of organization? What are the sources for the funds invested in Indian venture capital?
What are the investment patterns of venture capital investment, in terms of e.g. venture stage, industry sectors, investment size, deal trends and geography?
What exit mechanisms are used? Which exit mechanism has been more favorable and reasons thereof?
What levels of return are achieved?