Deal focus: Apis backs EPS to lead India ATM industry consolidation

The origins of Apis Partners' $25 million investment in Electronic Payments & Services (EPS), an India-based ATM provider, can be traced back to 2011 and another payments business, Network International.

When The Abraaj Group bought a stake in the Middle East-headquartered company, Udayan Goyal advised on the transaction and Matteo Stefanel was working for the PE firm. Both had previous deal experience in the ATM space and over the next couple of years they tracked numerous possible acquisition targets for Network International. This took Goyal and Stefanel to India, among other places, and they conducted due diligence on market leaders such as SSS, Prism and Euronext.

The appeal of the industry in India - there are currently approximately 230,000 ATMs in the country, up from about 25,000 three years ago, and the government is targeting 550,000 in two years' time - was not forgotten. Four years on, having formed Apis Partners, an early-stage financial technology investor in Africa and South Asia, Goyal and Stefanel started looking for investments again.

"EPS was one of the younger companies and the people came from many of the companies we had conducted due diligence on before," says Goyal. "They got seed capital from Aavishkaar and when they got to the growth phase they reached out to us. There aren't many people in the world who have done as many ATM deals as we have, so we could contribute in three areas: product expansion, value chain expansion, and potentially geographical expansion."

While the opportunity to consider other markets that fall under Apis' remit has seen EPS start working on a couple of contracts in Africa, domestic demand remains the primary growth driver. Recognizing the importance of ATMs in its financial inclusion strategy, the Indian authorities transferred responsibility for managing these systems from government agencies to third-party contractors. Private sector banks have largely followed suit, with contracts still put out for tender from either side every few months.

EPS has operations in 28 states and Goyal places it in the middle tier, comprising providers with 7,500-15,000 ATMs. The company recently bought out its joint venture partner CISB to gain full control over 5,400 ATMs that are under long-term operating contracts with public sector banks.

The likes of SSS, Prism and Euronext sit in the first tier, with more than 15,000 ATMs apiece, while there are numerous smaller players with fewer than 7,500 machines. Goyal believes there could be further acquisition opportunities at every level: from large companies that see ATMs as a non-core asset; from small and mid-size players that struggle because they lack scale.

"When we did the analysis of the sector we felt the combination of the quality of the contracts, team and operations at EPS meant the company could become the market consolidator and potentially a market leader," he adds. To this end, the capital Apis has committed to EPS - most of which will be used to support organic growth - could be followed by additional tranches should bolt-on acquisitions emerge.

The investment comes from Apis' debut fund, which launched in mid-2014 with a target of $250 million and a hard cap of $300 million. A first close of $157 million came in August of last year. The firm is now working towards its second close. It will include a $75 million commitment from the Overseas Private Investment Corporation (OPIC), as part of a drive by the US-based development finance institution to finance development-oriented funds in emerging markets.

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Financials
• Expansion
• South Asia
• Financial Services
• India
• Growth capital
• Apis Partners