Deal focus: PE proves the right fit for fintech

As investors pour into Southeast Asia's financial technology space, looking to support the digital payments infrastructure related to an increasingly affluent and online consumer industry, private equity is proving to be one of the more competitive sources of funding.

This development has most recently been demonstrated by the acquisition of a 44.4% stake in Malaysia-listed payment services provider GHL Group by emerging markets-focused private equity firm Actis. The GP paid MYR290 million ($65.5 million) for significant minority positions held by prior PE backer Creador and Simon Loh, GHL’s executive vice chairman. This triggered a mandatory takeover offer for the entire company.

For Creador, the deal represented a 2.8x return and an IRR of 40% in Malaysian ringget terms. It had invested $19.7 million in the company in 2013, taking a 28% stake. The exit – a first for the firm’s second fund – was initiated last year with support from Deloitte and generated substantial interest from both strategic and private equity corners.

“In the end, what was important for us was what the potential investor had in terms of vision and capabilities for the company, and chemistry with Simon because he was going to stay on to build the business,” says Brahmal Vasudevan, founder and CEO at Creador. “The strategics were very slow and bureaucratic, so we didn’t feel they were going to be as entrepreneurial as Actis.”

Actis is expected to further GHL’s growth by leveraging its experience adding value to existing products in international markets. The idea is to build on the momentum of the Creador hold, which was characterized by a 50% increase in revenue during the two years to 2016 to MYR246 million. Over this period, the company expanded its bill payments business and acquired Australia-listed E-Pay Asia to tackle a 60% non-digital customer base in the local mobile phone top-up market. Profit climbed from MYR6.5 million in 2014 to MYR18 million in 2016.

A key factor in the growth spurt included an effort to equip Malaysia’s small retailers with digital payment terminals that were previously unavailable to them. Currently, shoppers in the country are estimated to have access to only about 250,000 credit card terminals – but the Central Bank of Malaysia is pushing for 800,000 by 2020. Under Creador, the number of GHL’s points of sale in the country increased from around 13,000 to more than 30,000 terminals as of last year. 

“At the very core of this, it’s really that the level of electronic payments in this region is still very much in its infancy, which was part of our thesis when we first entered the company,” says Vasudevan. “In the West, 80% of transactions are digital whereas in markets like Malaysia and Philippines, only 20% of the market is digitized. So there is a massive shift from cash, and companies like GHL are really driving that whole transformation.”

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• Topics
• Southeast Asia
• Financials
• Technology
• Buyouts
• Trade sale
• Malaysia
• Creador
• Actis Capital
• Financial Services