This article first appeared in Wealth, The Edge Malaysia Weekly on May 29, 2023 - June 4, 2023

Private equity (PE) firm 5X Capital is led by two young professionals, Lim Jet Liang and Natalie Tan, who have years of experience in finance and investing under their belts.

But behind them are even bigger players — a couple of well-known entrepreneurs and corporate figures who provide advice and are eager to share their knowledge. They include Tan Thiam Hock, who created the Silkygirl beauty care brand; Lim Yong Lee, who has more than three decades of management experience in companies like UMW Corp Sdn Bhd, Malaysian Ventures Management and Mizuho Asia Partners Pte Ltd; and Liew Tian Xiong, executive director of Eco World Development Group Bhd.

“It’s important to have a strong investment committee (IC). This is not to discredit ourselves, because we do have a lot of experience in finance. But from a different perspective, it is not just Jet and I on the team. We have our IC, general partners (GPs) and limited partners (LPs). We are mainly the driving force to create deals,” says Tan.

The PE firm has more than 20 family offices as its LPs.

LPs are investors in PE funds managed by GPs. The latter is akin to fund managers responsible for the administration, management and operation of the funds.

5X Capital began its journey in 2018 when Thiam Hock and Liew had the idea to start a PE fund and invest in small and medium enterprises (SMEs). Its first investment was in BFM Media Sdn Bhd, an independent radio station in Malaysia that focuses on business news and current affairs. 5X is still the second-largest shareholder of the media company today.

5X’s proposition is simple. It wants to invest in SMEs that are typically ignored by venture capital firms that focus on start-ups and bigger PE firms that write cheques of between US$30 million (RM136.4 million) and US$50 million per investment.

“We want to invest in SMEs that ideally have revenues of RM5 million to RM50 million and grow them with the aim of exiting to a bigger PE firm. We can also strategise for trade sales and an initial public offering (IPO). We are open to having a minority stake as low as 30% or a majority stake as high as 70%. Our investment ticket size ranges from RM5 million to RM20 million,” says Lim.

He and Tan believe these SME entrepreneurs are savvy enough to operate and expand their businesses. “All they need is just some funding or banking facilities, network resources and corporate governance to push them to the next level,” says Tan.

For instance, SME owners who want to exit their business may not know what to do because going through that transition would require a different style of management, says Lim.

“SMEs are typically family-run. They require some form of corporate governance. Having 5X as an investor in the earlier stage will set that up in stone so that it is much easier to exit in the future,” he adds.

Tan pitches the entrepreneurial background of 5X’s IC and LPs as useful resources to help these SMEs grow. “We’re not the usual kind of professional fund managers. We understand the pain points of actual entrepreneurs and we evaluate risks the way they do and get our hands dirty.”

5X’s investment in BFM is premised on the rise of digital media as traditional media platforms such as newspapers and even radio stations are on the decline, says Lim. BFM has a strong brand name and is well known among those who like politics, business and finance news in the Klang Valley, he adds. But it is not just a radio station, its content is also available via its app, social media and website.

“We’ve established a digital team and Chinese-language segment called CaiJin. These two [strategies] mean we are no longer constrained to the [radio] spectrum,” says Lim.

BFM, however, has seen its profit after tax slide from financial year (FY) 2018 to FY2021 and had an increase in liabilities in 2021. Lim and Tan attribute that to Covid-19, when advertising revenue plummeted.

“In response, BFM successfully pivoted. We’ve (BFM) embarked on platform diversification and established a digital and Chinese-language platform. These ventures are still in investment mode and are building audiences, which BFM has successfully done with traditional radio,” says Tan, adding that BFM’s investments in digital strategies only began in the last two years.

While the rest of the media industry is struggling to keep afloat, Lim believes that BFM’s content, which is available on digital platforms, will drive the growth of the company.

“If you look at BFM’s content nowadays, you’ll realise the way messages are being conveyed is geared towards the younger crowd. You can see memes come into play,” he points out.

“But the content is still very genuine and related to business, finance and politics. This is how we think [it can] continue to stay relevant to listeners going forward.”

In 2021, 5X invested in beverage company The Vida World Sdn Bhd when it was making losses. The PE firm was convinced by the founders’ turnaround plan and confident of the potential of its products. The founders of The Vida World have 15 years of experience in the fast-moving consumer goods industry.

This turned out to be a good decision as the company saw significant improvement in its sales and profit the following year, say the duo. The company was profitable in the FY2022, just a year after 5X invested in it.

The Vida World was loss-making from FY2017 to FY2021, according to its CTOS report. Its main products are its Vitamin C sparkling drinks, ZERO sparkling drinks, Yobick yoghurt drinks and BeFine probiotic drinks.

“Its products have a health angle to them. They are carbonated but the zero-sugar and Vitamin C components are part of the rising health trend in Malaysia. From a 5X perspective, it was very rewarding to go into a loss-making company and turn it around in only a year,” says Tan.

The firm did it by streamlining the operations, adding distribution points and fortifying the marketing efforts online.

“The packaging of the products is very eye-catching. They take up whole rows in the fridges of 7-Eleven. The cans have a matte finish and are very colourful. The taste profile is quite interesting and the price point works well in the mass market and mass premium market,” says Lim.

For instance, the ZERO sparkling drinks include flavours such salty lychee, minty lime and Sakura.

Since 5X’s investment in the company, the latter’s valuation has increased by three times, says Lim. Ultimately, the PE firm hopes to exit its portfolio companies within five to seven years. This timeline is flexible as the firm hopes to get optimal valuations for the companies, says Tan.

The PE firm’s internal target rate of return for growth companies is five times, much like the name of the firm, says Lim. For dividend-generating companies, the number is 10% to 15%.

While the firm is not currently looking for new investors, it is actively seeking companies to invest in, especially SMEs that want to expand, turn around their businesses or whose owners want to exit.

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