Buyers and Builders
00:27:02 · Eric Tan
[00:27:02] S1: Yeah. Why is it a great business is because a few things. One, it's very hard for a a new player to come into a b two b trade expo space because it's very hard to convince exhibitors to come to a new show when you don't, you can't guarantee that there will be visitors coming. Likewise, on the other end, it's also very hard to convince a buyer to visit a new show if you can't guarantee there will be exhibitors coming. So, it's a little bit like online marketplaces where you need the supply to get the demand, but you also need the demand to get the supply, and it typically takes a while to, to get there, that's one dynamics that's very favorable for a stable show, Two is, once you get to like the number one or number two, you typically have quite good predictability in the business in in that one, you know you can raise price of above inflation, because people want to come back to you, so the price increase will not be a challenge over time. Two is, as you become the number one or number two player in the expo space, you naturally gets allocated a budget in your customers at the end of the year when they are planning for the next year. So, like, for the gold standard of the, the trade expo businesses that we, we look at, typically when they finish the show this year, let's say, we finish the show this today, July 10, they already know, like, 80% of the revenues locked in for next year's edition, and that's a part that we really like, about the business where you, you, you can really predict how the business, performs next year, barring, you know, like trade war and external factors, it's quite a predictable business, that's why we like it quite a lot.
00:28:37 · Mikk
[00:28:37] S0: Okay, and now the, now the third pillar.
00:28:41 · Eric Tan
[00:28:41] S1: Yeah, so the third pillar, it's, it's really software driven, so today we have one portfolio company. So this is quite a similar kind of thesis with Constellation software where we invest in vertical market software in a niche market. So today, one of our... The the only portfolio we have, it's a CRM for the real estate developer, so it's used by the sales and marketing team of, real estate, property developers, and sells houses to, to consumers. We, the, the slight difference in our approach is that, we, in, in the market that we're in in Southeast Asia, there are not a lot of, very mature software businesses where they don't grow by adding customers anymore, but only from price increase, which is typically where Constellation Software would look for, Stable business at scale, no more growth from new customers, and they take over from the owners 100%. In our case, we we find that there are still quite a lot of businesses that still growing between 20 to 40% on a year to year basis simply because the market is just a little bit behind when it comes to software adoption. So our approach is a little bit different where we tend to partner with the owner with, like, multiyear kinda earn out. In some cases, some we don't have earn out. Like, we just take a stake in the business because there's still growth in the sectors that we operate in. So I would say that while the kind of overarching thesis when it comes to business model that we like is quite similar to Constellation, the execution is slightly different due to the dynamics of the market here.
00:30:14 · Mikk
[00:30:14] S0: Now the digital media, the first pillar, 85% of the portfolio. You've been able to grow the business, you said from 6,000,000 to 25 over the last five years. Can you talk me about the value creation, what you guys are doing? Has it been just an M and A or what you guys are doing? Because that's always like the special part. It's not just like the financial part. It's actually like knowing the industry, knowing what to do, how to do it, and maybe you can share a bit more.
00:30:50 · Eric Tan
[00:30:50] S1: Sure. I will try to go as in-depth as possible. And if you think it's too much, you let me know. Okay, so just now, just now I mentioned, the dynamics of the media landscape in, in Malaysia is such a, it's very diverse, because, you know, you have different language group, and hence, it's very difficult for a media buyer to really, you know, deal with, like, 10 different platforms to to buy ads and rather deal with one. So that's really the overarching thesis. Right? How do we consolidate different languages under one roof? So we sell as a network of media assets to, to our advertisers, and that's really the overarching thesis, and why it works is that, you will see a lot of independent publisher brands on the online where they're pretty damn good at creating good content, but it's very difficult to monetize and attract advertisers in a market that we're in simply because it's so fragmented. So why, what, how typically it works with some of our founders that sell the business to us is that, on their own, they might be able to generate, let's say, 500,000 in revenue and barely breaking even. And the reason why they wanna sell to us, typically, are two to three reasons. One is that they know they can't access advertisers that we have. So all the big company enterprises in Malaysia and then big names FMCG, even global names like M and M's and and Nestle, these are all our customers. And the reason why is they could come to us and access all different kind of publisher brands and and deal with us as a one stop shop. So the owners would know that, hey, actually for me, it's very difficult to access these advertisers. One is because of the dynamics of interest being very fragmented, and two is because in the industry that we operate in, there is also a lot of big agencies involved. So as an example, like Nestle might have a globally appointed agencies in in IPG as an example, and everything has to go through that appointed agencies when it comes to media buy, and and these agencies who typically want to work with bigger players like us rather than dealing with 10 different individual brands out there as a as a 10 different individual publishers out there to really help their client with their media buy.
00:33:02 · Eric Tan
So, what then happens is that if you're an independent player, it's very, very difficult to get attention to agencies because agencies interest is to play safe and to play safe is to is to work with established brands like us and allocate as much budget to us as possible. So that's one dimension why the owners want to sell to us. And another dimension why the owners would want to sell to us, is really, these are quite often creative people that don't really want to deal with the headache of running a business, don't wanna deal with sales, don't really wanna deal with compliance, taxes, finance, HR, etcetera. So when they come on board, we strip those things off them, and all we need from them is to ensure the the quality of the content remains tip top, and we have a structure where we carve out a certain resources for any sponsored content, and we work with them. So in many ways, it's win win because we can... We are pretty good at monetizing media assets. They are very good at creating monetizable media assets. So that's kinda a a dynamics that's quite unique in in the business that we're in. And hangs at a kind of overarching thesis around the media kind of buy and build approach. So how how we tend to kind of kind of look back to to your point, right? Like, do, how do we kind of, the reason I want to explain this is because I think it's quite important, I think I've shared our investor deck with you, in particular, there are many companies that when we take on, they might just be barely breaking even and we can really triple or quadruple the revenue quite quickly, is because of these dynamics. So... And it's also form parts of the due diligence, right? So when we're talking to some of these businesses, as we are talking to them, the sales team of these media businesses, we have a consolidated sales team of 15 people that talks to our client every single day. They could just bring that to the customer and say, hey, we are talking to these guys. We are thinking of kind of reselling for them. What do you think? And immediately, we get a sense of whether the the advertisers like it or not. And if they like it, it it really helps to facilitate the conversation with the and it provides confidence internally that, Okay, our business plan could work, and we can forecast ahead of time whether we can monetize the assets.