Private equity funds eye deals with SMEs in South-East Asia


Dymon Asia Private Equity partner Tan Chow Yin.

AMIDST the difficult economic conditions faced by entrepreneurs, some private equity funds are looking for new deals. Some entrepreneurs are wary of striking deals at this point, considering the weakened situation they are in.

But to the private equity funds, what they are offering is a lending hand to promising entrepreneurs who are likely to do well, post the Covid-19 crisis.

Local firm COPE Private Equity has launched a fund of up to RM40mil called the BOW programme, which stands for ‘Bridge Over Troubled Waters.’

“Facing rapid sales decline and supply chain disruptions, many entrepreneurs need assistance beyond the loan moratoriums and government assistance, ” says the firm in a statement.

Datuk Azam Azman, the founder of COPE, says they are looking to fund “ambitious entrepreneurs” who, when the recovery arrives, will be “well-funded and be the first one off the block in launching new products and winning market share.”Datuk Azam Azman, the founder of COPE, says they are looking to fund “ambitious entrepreneurs” who, when the recovery arrives, will be “well-funded and be the first one off the block in launching new products and winning market share.”Datuk Azam Azman, the founder of COPE, says they are looking to fund “ambitious entrepreneurs” who, when the recovery arrives, will be “well-funded and be the first one off the block in launching new products and winning market share.”

Similarly, Dymon Asia Private Equity, which is investing its second fund of RM2bil in SMEs across South-East Asia, is offering its money and experience to entrepreneurs.

“We have some experience funding strong companies that are temporarily hampered by one-off events, ” says the fund’s partner Tan Chow Yin.

However, from the standpoint of entrepreneurs, the issue of whether they will be getting best value in any funding deal in today’s climate remains a big concern.

“With private equity firms, we are unsure if we will be pressured to give up equity for cheap, and we are concerned about who maintains executive decision-making powers in our company as the investee company, the cultural fit of the investor company, ” says a tech firm.

On this concern, COPE’s Azam says, “Over the past 15 years, we have invested based on the spirit of partnership or ‘musyarakah’ to arrive at a fair and profitable outcome for both parties. We do not intend to change our approach, nor do we intend to take advantage of the current situation to structure one-sided deals.”

He adds that businesses stand to benefit from substantial capital injection, “relieving their cashflow pressure from having to sell assets and intellectual property for cheap. The additional financial resources will enable these businesses the ability to invest, retain and attract talents and pivot their business strategy to respond to changing customer behaviour, providing them an advantage over competitors.”

Dymon’s Tan explains that if it is a buyout, it requires mutually acceptable valuation and if the investment is a minority stake, private equity investors are more flexible as their investments are interim and finite.

“Investments, especially minority stakes, can be structured where there are redemption features or conversion options depending on how the business does. In general, as the business does better, the entrepreneur will have more flexibility to decide on whether to exercise on some of these features.

“Private equity investors may also be concerned that they are not short-changed when a business does really well, or over-exposed when a business does really poorly. Hence there will be protection mechanisms as well.”

COPE Private Equity is looking to invest in sectors that fulfill large consumer needs such as energy, healthcare, education, food production and peripheries, like medical devices and engineering maintenance services.

Meanwhile, Dymon Asia Private Equity invests across various sectors and have in the past invested in healthcare, education, consumer staples, food and beverage services and retail, engineering services as well as niche manufacturing, with preference for less regulated industries.

Dymon Asia Private Equity was founded in 2012 to invest in SMEs across Southeast Asia.

Tan says the first fund did very well and by early 2018 it had successfully returned its investors’ capital and presently still sitting on strong returns. It is currently investing its second fund, a US$450mil (about RM2bil) fund.

"The fund is a 10-year closed-end fund and since we raised it 2 years ago, is relatively new. Covid is certainly an unprecedented situation and we have never experienced anything like this in the past. However, we do have quite some experience funding strong companies that are temporarily hampered by one-off events.

"More important than funding is our focus on working alongside the entrepreneurs and management teams to grow the business further together," Tan adds.

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Private , equity , funds , eye , deals , SMEs , COPE , Tan Chow Yin

   

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