Truong’s private equity wishlist

Yarra Capital Partners’ Huy Truong has a clear idea of the businesses that will make the strongest returns – and they are all in the SME marketplace. He tells AMANDA GOME why.

By Amanda Gome

Huy Truong Yarra Capital Partners

Yarra Capital Partners’ Huy Truong has a clear idea of the businesses that will make the strongest returns – and they are all in the SME marketplace.

Huy Truong is only 37 years old. But after arriving from Vietnam aged seven with just the clothes on his back, he has built dot-com company Wishlist, turned around and sold a large company, managed fast growing company Julique, and has now launched a fund to invest in small and medium businesses.

What has he learnt, what is he looking for – and might he invest in your business? He tells Amanda Gome.

Amanda Gome: What in your background shaped your desire to run a small business?

Huy Truong: My father was always in small business, importing and exporting. He instilled an entrepreneurial attitude.

How did he do that?

He had an inherent interest in business, how things were made, how things were sold.

Did he push you into small business?

My mum, like most Asian families, wanted us to be doctors, lawyers or engineers. But dad encouraged us to do business. He had been a poor orphan and started his working life on a factory floor before building his own business. Then he bet on the US winning the war and lost everything. The communists confiscated our assets and house, so we came out to Australia with what we were wearing. He tried to start a few things but ended up as a factory worker for 25 years and invested his time and finances in our education.

Did you have a sense of obligation to him?

No, just a sense of responsibility to make the most of every opportunity.

How did you express that?

We worked very hard at school. We didn’t just have our noses in a book; we had part-time jobs at a very young age.

Your first job?

I was 12 and worked in a screen printing factory printing scratchie tickets.

Your first real job?

Boston Consulting. I was 21. I learnt to do market analysis, learnt what competitive advantage looks like, how to take advantage of opportunities. I stayed for five years including two years on an MBA.

What did you learn from the MBA?

It expanded my horizon. I came into contact with finance people, technology, entrepreneurs and you learn to think from their perspectives. That’s what inspired me to launch Wishlist in 1999. My peer group was doing sites like SEEK.

Wishlist had big dreams to be a huge online retailer. What happened?

It was a combination of Australians not shopping online as much as Americans, and not having the infrastructure to support it.

When we spent money on marketing, Telstra promised to have two million households on broadband by 2000. By 2004 they had half a million. So the roads to the shops had not been built.

But that’s like in a high tech venture; you are trying to create a market. SEEK had a very powerful niche and didn’t need to create a market because there were already classifieds.

Also the capital markets crashed in April 2000. We weren’t able to raise the capital we needed to make retail offer work.

So what did you learn?

To change the business model around. We refocused the business on a less capital intensive model. It’s not a SEEK, but it is a profitable business. We used the same ecommerce structure but now we do corporate reward and recognition programs. We have tier one corporate clients and SMEs who don’t want to spend millions but do want to incentivise people to sell more.

How big is Wishlist now?

It’s about $20 million revenue with 70 employees.

Why did you leave?

I was the CEO and am still the chairman, but I needed a break. We had had twin girls. I wanted to spend more time with them. The business also needed more of a corporate focus and someone with a business development background to take it to the next stage.

After that I ran a $250 million business that needed turning around with a view to selling it. It was a non-core business of Carter Holt’s that was not getting the attention it deserved. It needed more capital expenditure and the right people to drive the strategic plan. We combined it with other businesses and sold them for $850 million.

What did you learn from that experience?

Running larger businesses is about working through people. Broader leadership is not so much about financial engineering and technological issues. It is a lot is about leadership, painting a vision, distilling it into a tangible strategic plan that people from different parts of organisation can grab on to. It also confirmed in my mind that I enjoyed small and medium business compared to the large corporate sector.

Why?

You get a nice comfortable support network in a corporate environment with nice people, which are the positives. But I found myself spending more time in meetings and it was less about the operational issues and more about broader corporate issues, which was frustrating.

So then I became the CEO of a smaller company, Julique, from 2005 to the back end of 2006.

What was your brief?

We are transitioning from owner-operator to a more professionally owned business that could grow in other parts of the world, driving a growth path through Japan, Hong Kong, South Korea and Taiwan. That went well and these markets are very profitable.

So what happened?

The previous owner had gone over to set up a US operation. My view was Australia and Asia was very attractive and that the US was very competitive. I also didn’t have the skills to grow it in the US. We also had shareholders in the states and ended up selling a controlling interest to a private equity firm outside San Francisco. Through the transaction it became a US-based company.

Were you bitter they hadn’t followed your strategy?

No. Everyone understood the logic.

Were they right?

It’s too early to tell. I suspect they have more revenue, and not as much profit. We’ll see.

I’m still a big believer in products that have a position in Asia being based here. As China becomes more wealthy, there is a great opportunity for Australian-based products or companies.

So you went from a start-up to a large company to a medium company. What’s left after that?

It’s now a good time to jump into the investment side. I also wanted to move back to Melbourne from Sydney.

So I joined private equity group CHAMP, but I was the only one commuting to Sydney every week and it was too hard. I decided I had to move to Sydney or it wasn’t going to work and I didn’t want to. So that led me to start Yarra Capital.

All the private equity happens out of Sydney, and a lot of the industrial and entrepreneurial base is in Melbourne.

So what size companies will you focus on?

As private equity firms get larger, they focus on $100 million to $200 million so a significant part of the SME space is below that. We want to focus on companies with between $10 million and $50 million revenue.

So I approached two investors Carol and Alan Schwartz, and Alison Watkins of the Bennelong Group. We have a $60 million fund.

I also recruited Nicole Gardiner who has had five years experience working for Bain and four years for Coca-Cola on their acquisition team. What was also attractive about Nicole was her father ran a manufacturing business for 20 years and she saw the whole journey to grow and sell that business. It is very important our team have empathy with SMEs. Founders take a big risk both personally and professionally to create something whether successful or not. If you haven’t taken the risk you struggle to fully understand it.

What is your long-term ambition?

To make Yarra Capital one of the leading private equity funds focused on SMEs and add strategic skills along with capital to build great businesses. We will raise a second fund but we will stay in the SME marketplace.

What are you looking for?

We are not industry specific. We are looking for businesses that have got very good IP or market position and have new product innovation coming through, and we can see with the right investment and organisational support the company can triple its size in three to five years, and even greater profits through organic or inorganic growth.

So which companies have you invested in so far?

Two in seven months.

Australian Life Insurance group is the market leader in selling insurance products throughout the broker industry. They control 30% to 35% of all mortgages in this country and they have been so successful because of their service proposition. We see tremendous opportunity in the next three to five years too, with terrific product innovation and better sales and marketing channels to entrench the company at both the individual and corporate level.

So how much do you own?

We have a majority stake and invested millions.

How much do you typically want to take for an investment? Do you always want a majority stake?

No. Our benchmark is an influential stake. We are there adding value so we need to be able to influence the company. But it is more art than science. In some cases you may be influential at 10% if everyone holds less than 10%.

It’s also important to structure the shareholders agreement so that goals are aligned with the objectives. You put in there how you might want to be influential. For example you might want a say over major capital investments, over the annual budget, recruitment of senior appointments over say $150,000; so they are the things you put in the shareholders agreement.

So what is your second investment?

Three glass companies in three different states, that we will make into one national company. That includes Bevelite Glass of Sydney, Costless Glass of Brisbane and Moen Glass of Melbourne and Canberra.

Each has specialties in different areas: Bevelite Glass is a specialty supplier of laminated and toughened safety glass for architectural applications, Costless Glass supplies toughened and laminated safety glass to the commercial glazing and shopfitting industries. Moen Glass is a major supplier of insulated glass units to the building industry.

Where do you see the growth?

The glass industry is going to change. Everyone is concerned with being energy efficient, and energy efficient glass will become the dominant glass that goes into homes.

There is also a greater stringency in building codes, which has increased market demand for energy efficient glazing. Ultimately we want a vibrant local glass industry that can compete with imported products.

What are you looking for in owners and managers when you are deciding whether to invest or not?

A very strong technical understanding and IP in an industry niche. At AIG the founders understand risk insurance really well. In the glass business they really understand high quality glass and how to add value.

We want them at the top of their game. Then we support them with sales, marketing and financial expertise. That allows them to be more confident and to back their own vision.

Once you invest how often do you talk to the owner/manager?

There are different levels of engagement. On an informal level, once a day or once every few days by phone. Then we have strategic sessions every two months to review all aspects of the business and we have monthly board meetings to look at the financials, the plan and how it is tracking, plus governance issues. We get sufficiently engaged to understand key things facing the management and the business.

What are your weaknesses as an entrepreneur?

First and foremost I am always looking at things from an opportunity perspective. What value can be created? How can we put people, ideas and capital together to make something work?

But I don’t have a lot of patience and discipline to do the nitty gritty operational stuff. Most CEOs of medium sized businesses work a lot on the day-to-day execution. I would rather be involved in four or five companies working on the strategy and finance, working with the people on what will or will not work. I am a true believer in building businesses, but I am not an analytical boffin. More of the creator.

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