Turn Capital: Navigating turnarounds and sustainable growth

In an era of dynamic market shifts and strategic investments, Singapore-based Turn Capital stands out for its unique approach. Its strategy involves identifying undervalued consumer and technology companies in Asian markets and turning them around.

Turn Capital Opportunities Fund, launched by 17LIVE’s co-founder and non-executive chairman Joseph Phua and two other Partners, Shang Koo and Ho Kheng Lian, recently acquired the Thai unit of the struggling tech-enabled coffee chain Flash Coffee for an undisclosed sum. The fund plans to expand Flash Coffee’s presence across Thailand and open more than 100 new stores in the next two years.

In an interview, Turn Capital’s General Partner, Kheng Lian, reveals the investment firm’s strategic approach to acquiring and turning around businesses, shedding light on its recent acquisition of Flash Coffee in Thailand and outlining plans for sustainable growth and expansion in Southeast Asia.

Edited excerpts:

Can you provide insights into Turn Capital’s overall strategy with respect to acquiring or investing in businesses, especially in the context of the recent acquisition of Flash Coffee in Thailand?

Turn Capital’s overall strategy is to invest in undervalued consumer and technology companies in Asian markets. We focus on proven business models with revenue and cash flow, which Flash Coffee Thailand has achieved.

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We only invest in companies we are confident we can turn profitable using our deep operational expertise. We are founders who have built startups from scratch to IPO to stabilise the company, make a profit first, and then scale. We believe Flash Coffee Thailand is well placed and within our wheelhouse to do so.

Given the recent closure of Flash Coffee’s stores in Singapore, how does Turn Capital plan to address and overcome challenges to ensure the success and sustainability of its investments?

We have a playbook where we always focus on our strengths.

First, we work on fundamentals, building a solid foundation for the company by creating scalable and leverageable cost structures and optimal unit economics with the founders, which results in companies turning profitable in the first year of our investment. Here, we achieve core sustainability.

Second, we ensure success by educating and guiding founders to build scalable teams and internal processes for future planning, optimise cash flow, expand to new regions and new revenue lines and M&A to consolidate market share.

Third, we know how to create exits and liquidity events. Our team has deep capital market experience and relationships, having led three companies to IPO, and we understand a wide range of potential listing venues. For trade sales, our deep and wide network allows us to find the right strategic buyers and the process is simplified as we own a controlling stake in the companies.

Fourth, the beauty of value investing is that we invest at a low price, so the upside is easier to obtain, and we have great potential for a very high upside.

How do you plan to turn around Flash Coffee? Would you also partner with Flash’s other units in Southeast Asia? Why did you buy only the struggling Thai unit instead of the whole company?

We bought Flash Thailand instead of the whole company as it not only has a solid foundation with a good network of 40-plus locations across Bangkok, but the Thai unit has strong potential unit economics based on its low rent. This gives us a clear path to profitability that we know how to execute to get there.

Our turnaround involves cutting costs and improving sales. Flash has focused on scaling by building more stores in the past years. We will use this existing infrastructure to improve sales at existing locations. We do this by enhancing the visibility of our competitive prices and products to capture more customers, optimising cost structure, and investing in high-ROI digital marketing, one of our core strengths. We will expand with more store locations after we turn the existing stores profitable.

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We will work with other SEA units to create greater brand value for Flash. Flash Indonesia is already doing well. With us taking charge of Thailand, Flash’s existing team can focus all their attention on Indonesia and strengthen the brand in that market. We should only expand to new markets when we are already champions in our home market, so the Thailand/Indonesia split allows everyone to focus on one market and turn that into the number one market leader.

Could you shed light on Opportunity Fund’s preferred sectors or industries for future acquisitions? Are you in discussions to acquire any other struggling companies in SEA?

We are focused on TMT (technology, media and telecommunications) and consumer sectors. With our more than ten years of B2C consumer-facing experience in the live streaming, live commerce, social entertainment, dating and consumer space, we will play to our strengths in the social, entertainment and media sectors where we have a sharp eye to evaluate what will or will not work and have the ability to accelerate their growth should we decide to invest in these companies.

We have a pipeline we are working on that includes online media, e-commerce, a social platform and influencer commerce.

What are Turn Capital’s plans for the expansion of acquired businesses? Are there specific regions or markets the family office currently targets for growth?

We will first stabilise the acquired businesses within their territories. Expansion to other markets will depend on each business’s suitability for other markets and potential for growth in these territories.

Our strength lies in developed Asia, such as Taiwan and Japan, where 17 Live is the market leader, and Southeast Asia, where Joseph Phua and Kheng Lian hail from and have been plying their trade. We will consider companies from the West with a presence in Asia or business models we are familiar with.

After an acquisition, how does Turn Capital approach integrating the newly acquired business into its portfolio? What steps are taken to ensure a smooth transition and maximise synergies?

Synergies are an additional plus for any of our new businesses. However, we don’t focus on the potential synergy as much as making the existing business profitable.

Every business needs to be profitable on a standalone basis. We provide significant assistance in terms of management support, technology, and digital business know-how and development capability to any business we acquire, so expect the businesses to grow their digital sales quickly.

In light of the growing emphasis on environmental, social, and governance (ESG) factors, how does Turn Capital incorporate ESG considerations into its investment decisions and the management of its portfolio?

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While we currently do not have a strong ESG focus for our fund, we realise our investors and partners have ESG requirements. We ensure that the business model does not actively create or encourage a negative ESG environment for any investment we make. We also realise that any business with a large enough scale will have some ESG risk. So, after we take over any business, we ensure processes and reviews are implemented to mitigate and reduce risk.

What is Turn Capital’s long-term vision for its investment portfolio? How does the family office balance short-term returns with sustainable, long-term value creation?

Our strategy is unique with little competition as we created our own niche that is difficult to replicate without the on-the-ground experience and battle scars our partners have gained from their highs and lows building 17 Live from US$2 million revenue to US$400 million revenue to IPO. Turn Capital is here to build a distinguished financial institution with longevity as we generate healthy returns for investors and help founders build meaningful products that benefit millions.

The goal for our 5-year fund is to return at least 3-5x to our Limited Partners, with dividend payouts along the way, as our companies are cash flow businesses. As we are hands-on, we take a concentrated portfolio approach to invest in three to five companies in the first fund.

In the long term, we intend to raise larger funds to deploy into larger-sized deals while maintaining our concentrated portfolio strategy and potentially launching other strategies.

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Image Credit: Turn Capital.

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