When Northstar Group sold Indonesian hotel booking services provider MG Group earlier this month, it proved its thesis with an asterisk. The plan was to attract a strategic buyer, anticipating that a global consolidation trend in the hospitality industry would eventually come to Southeast Asia. That indeed happened, but in the end, the asset went to regional GP.

Malaysia-based Creador prevailed over a field of travel companies representing the US, China, Korea, Japan, and Australia, including US segment leader Booking.com. Several put in bids.

Chee-Yann Wong, CIO at Northstar, described the sale process as indicative of an increasingly vibrant Southeast Asia’s exit market, especially in terms of more globalized M&A.

In the last two years, on top of the traditional buyers from Japan, Southeast Asia and, to a lesser extent, Europe, Northstar claims to have seen a significant increase in strategic interest from Greater China and the Middle East. This is believed to be driven by geopolitical tensions and a slowing Chinese economy.

The firm achieved six exits last year, taking distributions since 2019 past USD 1.5bn. They include Singapore-listed Nera Telecommunications [SGX:N01] – acquired by Taiwan’s Ennoconn [TPE: 6414] last October – but not precision parts manufacturer Innovalues, which reportedly received an offer from state-owned China Finecast International Corporation China (CFIC) in September.

“The exit environment in Southeast Asia has also become more sophisticated – vendor due diligence and W&I [warranty and indemnity] insurance are now common – which helps facilitate smoother transactions,” Wong said.

“Nevertheless, exits in Southeast Asia remain non-plain vanilla and require experience in execution. You can’t simply run a process and expect it to be done. We started planning the exit of MG in 2022.”

Storm conditions

Northstar led a consortium including several Indonesian travel agencies that acquired 100% of MG in November 2016 for less than USD 30m. It was the company’s first institutional investor and largest shareholder, exerting significant control despite having a minority stake.

The asset now sits in Creador’s fifth fund, which typically deploys in a range of USD 50m-USD 70m. This was Creador’s first investment in the travel space and its last for the fund. Fund VI is in the market targeting almost USD 1bn and has raised more than USD 900m to date.

Mizran Nahar, a director at Creador who led the deal, described it as near the top end of the firm’s usual deployment range. Like Northstar, he is confident that as global travel companies seek to penetrate deeper into Asia, a trade sale exit will readily materialize.

“It was a hotly contested transaction,” Nahar said. “Southeast Asia is hot market where growth is strong, so a lot of strategics were keen to bolster their presence in the region. So, we can reach out to the same guys in five to seven years’ time.”

Creador wants to aggressively ramp up hiring, especially in terms of overseas sales, during the next one to two years. In addition, it plans to help MG establish itself as the outright leader in Southeast Asia, while breaking into new markets.

“We see a lot of synergies between Southeast Asia travellers to Japan and Korea, so those will be the key markets. We also see a lot of travellers coming from the Middle East to Southeast Asia, so we want to prioritise those as well,” Nahar added. “The longer-term ambition is Europe.”

Creador drew comfort from the company’s private equity ownership and more than a year of relationship building with CEO Brett Henry. But MG’s investment appeal arguably centres on its status as a pandemic survivor in the most lockdown-punished industry.

Northstar hired Henry, a 30-year industry veteran, in the fourth quarter of 2019. Three months later, the travel industry was in a death spiral. By the second quarter of 2020, revenue went close to zero. Three-quarters of the staff was laid off. Northstar organised a shareholder loan to keep the lights on as an ongoing digital platform buildout continued.

By 2022, total transaction value (TTV) was at about 70% of 2019 levels despite Chinese tourists still not returning to the market. In 2024, it surpassed 2019 levels.

Digital dividend

Much of this outcome can be attributed to the digitalisation drive. The new platform, called Jarvis, allowed MG to outflank global competitors in terms of providing travel agent customers with timelier and cheaper hotel options. Creador plans to inject artificial intelligence into the system during its stewardship.

As a result of the digitalisation, MG has maintained its massively reduced headcount even as transaction flows have increased. Agus Sandianto, an executive director at Northstar, observed that by committing to the digitalization process during COVID-19, the company was able to substantially reduce variable costs of doing business.

“Hence, when topline rebounded post-COVID, the cost structure of the business remained low, resulting in strong profitable growth since 2022,” Sandianto said, adding that the shareholder loan was fully repaid last year.

Contracted hotels have grown more than sixfold since Northstar invested, according to Northstar. BDA Partners, which advised the GP on the sale, said the company currently connects 8,000 global buyers with 350,000 accommodation suppliers.

MG grew about 50% last year in terms of TTV. Recent forays outside of Indonesia have been fruitful, with the Thailand business having grown 100% last year; it now represents 7% of TTV. Creador is still targeting overall TTV growth of 40%-50% a year going forward.

“MG has demonstrated strong profitable growth since 2022,” Wong said. “Ideally, we would have preferred to hold onto it for a few more years. However, we decided to remain disciplined on exits to generate consistent distributions annually.”