KKR becomes shareholder of PT Nippon Indosari Corpindo

By Taslim Ahmed

KKR, a leading global investment firm acquired a 12.64% stake in Indosari, an Indonesian based consumer goods company, in October 2017. This deal marks the third such deal KKR has made in Indonesia in the preceding 18 months. KKR makes this investment in the wake of major macroeconomic positives for the Indonesian economy including a young and growing middle class, accelerated urbanization trends, and increasing consumption as a percentage of GDP.

Indosari 5-year share price performance

Source: FT

PT Nippon Indosari Corpindo Tbk

PT Nippon Indosari Corpindo Tbk is an Indonesia-based company primarily engaged in the manufacture of packaged bread and cakes. Established in 1995, the Company has 10 manufacturing facilities across eight cities across the country. Marketed under its own Sari Roti brand, Indosari produces and sells a wide range of bread and cake products which have become a recognized staple in many Indonesian homes. Indosari’s products are distributed across its extensive network of 67,000 points of sale across both modern trade and general trade channels. The Company classifies its product into three categories: white bread, sweet bread, cakes and bread flour.

KKR & CO. LP. (KKR)

KKR is a global investment firm that manages investments across multiple asset classes, including private equity, energy, infrastructure, real estate, credit and hedge funds. The Company’s business offers a range of investment management services to its fund investors, and provides capital markets services to its firm, its portfolio companies and third parties. The Company conducts its business with offices across the world, providing it with a global platform for sourcing transactions, raising capital and carrying out capital markets activities. The Company operates through four segments: Private Markets, Public Markets, Capital Markets and Principal Activities. It operates and reports its combined credit and hedge funds businesses through the Public Markets segment. The Capital Markets segment consists primarily of its global capital markets business. Through its Principal Activities segment, the Company manages the firm’s assets and deploys capital. The company manages over $148.5 billion.

Acquisition Rationale

Indosari Operating Performance

Source: Annual Report

Investment in a fast-growing company: Indosari is a fast-growing company with increasing profitability operating in a supportive environment. We must assume that the primary rationale for this investment is participation in the sustainable growth this company will provide. See the chart above.

KKR managerial expertise: We believe Indosari will benefit from KKR’s knowledge and experience in the consumer sector. KKR’s support should accelerate the growth of the business and position the company for long-term success. KKR may also offer some financial expertise to optimize the company’s capital structure, all of which should contribute to a better bottom line for both companies and their investors.

Access to expansion capital: Indosari’s association with KKR should provide access to unlimited capital to pursue worthwhile opportunities as they present themselves. The emerging nature of Indonesia’s economy makes this a large plus.

Positive macro trends: As earlier noted, the Indonesian economy is riding on tail winds with positive demographics as evidenced by over half its 261 million population below the age of 30, increasing consumption, an emerging middle class clamoring for high-quality goods, and accelerated urbanization trends. These factors should provide significant tail winds for Indosari, and the country’s consumer goods industry.

Summary

KKR acquired 12.64% stake in Indosari, an Indonesian consumer goods company, in October 2017. The rationale for this deal are: an investment in a fast-growing consumer company in an emerging market; Indosari gains access to KKR’s managerial expertise; Indosari gains access to capital for future expansion; and positive macroeconomic factors, all of which should serve to make this investment profitable.

 

Authors: Taslim Ahmed

Editor Responsible: Carmelo Spallino