Deal focus: EQT thinks quality before M&A activity

It's a well-established PE investment thesis that the clearest path to growth in corporate services is consolidation. Each of the four largest players in the space globally has benefited from its owner's M&A prowess and their combined market share is expected to double to about 50% over the next few years.
However, adding value is about more than just absorbing competitors.

EQT Partners kept this in mind when targeting Singapore's InCorp Group for an investment expected to transform the local standout into a regionally relevant operator. The PE firm plans to introduce the company to potential partners in its network of portfolio companies across Greater China and Southeast Asia, with a view to achieving growth through operational optimization as well as bolt-ons.

"While consolidating and making acquisitions is one of the key drivers here, integrating the targets and harnessing their synergies is also very important," says Tak Wai Chung, a partner and mid-market advisor at EQT. "It's about organic growth after you've put together a few different businesses."

EQT acquired the interest in InCorp through its mid-market division, which typically makes investments of EUR40-100 million ($45-113 million) in Southeast Asia. This unit pursues both control and co-control deals, the latter of which comprise minority stakes with pre-negotiated decision rights. InCorp's founders and top management will remain significant shareholders and continue to lead the group.

The business - which specializes in corporate compliance, accounting, incorporation and advisory services for international companies setting up entities in Singapore - had taken its expansion in the city-state almost as far as it could go when it started seeking PE help for an international push. This involved building up a sizable client base by combining various local corporate service providers, including the likes of Rikvin, a company that has served more than 3,000 customers since 1998.

For EQT, the deal follows quickly on the acquisition of Hong Kong-based corporate compliance assessment business Elevate and emphasizes the firm's continued confidence in the broader corporate support sector. The GP flags both its latest investments in this space as benefiting from low customer concentration risk and scalability across multiple geographies and products.

Naturally, EQT will leverage its M&A expertise to drive InCorp's inorganic expansion in the region. However, the plan will be tempered by an imperative to improve marketability at the same time as market share. This will be achieved largely by channeling resources into the enhancement of IT systems as a means of practically connecting businesses under the InCorp umbrella, accelerating financial reporting processes and improving service quality.

"There's a lot you can do in terms of efficiency on the operations side by having a robust platform," Chung says. "Many of the businesses we are combining today have very interesting IT platforms, so we're really building on that. It's also a trend in terms of providing the right customer experience with an IT offering."

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• Topics
• Southeast Asia
• Support services
• Expansion
• EQT Partners
• Singapore
• professional services