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Business Advice

Mining for 'gems' among SMEs

Equity fund Credence to invest in 10 firms, groom them into champs.
The Straits Times - August 21, 2012
By: Aaron Low
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Mining for 'gems' among SMEs Xenon Technologies chief executive Jack Tuen with the flashes that his company makes for cameras around the world. Xenon is one of the companies that have received investment from Credence Partners. -- ST PHOTO: ASHLEIGH SIM

SMALL and medium-sized enterprises (SMEs) have often been seen as family-run companies that are managed unprofessionally and unable to compete with the big boys on the world stage.

But one private equity fund believes that local SMEs have huge potential, and can be regional, if not world, beaters.

Credence Partners, which is headed by former DBS chairman Koh Boon Hwee, wants to raise $200 million to invest in 10 companies with the hope of grooming them into local champions.

The Credence Fund II has already raised $100 million with private investors.

Heliconia Capital Management, which is a subsidiary of investment company Temasek Holdings, is the anchor investor of the fund.

"There is a perception that local SMEs are family-run and not run professionally. But we believe that there are gems out there, and they can excel in what they do," said Mr Koh.

The fund is particularly interested in manufacturing, logistics, information-communication technology and services companies, said Mr Tan Chow Boon, Credence's managing partner.

"For manufacturing, we believe that firms in the mobile device space have good potential to tap the next wave of growth," he added.

One company it has invested in is Xenon Technologies, which is one of two main manufacturers that make flashes for digital cameras around the world.

Xenon's chief executive Jack Tuen believes that the next wave of growth for the company is in flashes for smartphones, and it is already in talks with some of the biggest smartphone makers in the world.

"We are talking about multiples in growth, if we can break into the market. Hopefully, we will be able to in the next few years," he said.

One reason he cited for partnering Credence in buying Xenon from its previous owner, a pharmaceutical company, was that he knew that the management team had a strong record of taking a small company big.

Mr Koh, Mr Tan and fellow managing partner Seow Kiat Wang spent years developing Omni Industries from scratch into one of the largest electronic contract manufacturers in Asia.

It was acquired by Canadian giant Celestica in 2001 for US$890 million (S$1.12 billion).

Mr Koh said their collective experience from developing Omni is one reason why they believe they can add value to the companies they invest in.

He noted that SMEs get to a certain size and then fail to make the leap to the next level.

"They need to manage increasingly through systems, information, because the founder cannot be in all his plants at the same time," said Mr Koh.

"What we want to do most of the time is to work with the founder and the management to grow past this plateau. Because it is our view that in this world, scale is important."

SMEs could of course raise funds by going for a public listing, but Mr Koh said that could make them become focused on the short term.

"Once they are in the public domain, they have to focus on quarter-to-quarter financial management, on market expectations, as opposed to focusing on strategy," he added.

"So our goal as private equity is to provide capital for the founders and managers of the company, allow them to take a strategic perspective over three, five, even 10 years."


Help schemes for SMEs under review