Deal origination platform Aurigin, formerly known as BankerBay, was founded six years ago by Romesh Jayawickrama, who wanted to provide more efficiency and liquidity to buyers and sellers of small- to mid-sized companies and assets. Originating in Singapore, the company now has offices located in the US, India, and Singapore.
As initial public offerings (IPOs) in Southeast Asia have been few in recent times, private exchanges like Aurigin have emerged to meet the growing need for liquidity by private market participants. We explored these platforms in depth in our recent report, SE Asia Private Marketplaces 2020.
Aurigin claims to be the world’s first deal origination platform to use a complex algorithmic approach to match middle-market corporates seeking capital with the most relevant providers of capital anywhere in the world. Aurigin helps members raise capital, buy and sell companies, locate potential investments, and new clients, according to its website.
Jayawickrama says banks have finally started to realise that their processes are archaic and expensive. “The cost of execution makes a lot of deals unprofitable. Even if they can close, it makes them unprofitable,” he said. The company has therefore created an end-to-end process that goes from origination to due diligence.
Edited excerpts of an interview with Jayawickrama, Aurigin’s founder & CEO.
You started in Singapore, but you have moved to the US. Why?
We wanted to be global from the start, and one of our taglines is ‘Capital without borders’. We wanted to address the information asymmetry in our world, and that asymmetry is the greatest or the most imbalanced in the mid-market. We wanted to really, really tackle that, so the smaller guys around the world had equal opportunities to get access to the most appropriate capital in the world, wherever that happens to be. It can’t be ring-fenced by opaque bankers holding their cards a little bit too close to their chests.
So I’ve been a banker in London, and then Singapore, but I had been in Singapore for very long, and we had to start somewhere. While there, I ran a very traditional mid-market boutique advisor for five years or so, prior to starting Bankerbay, now Aurigin. We started with pan-Asia on the basis of trying to address that market.
So in the very early stages, I would say, the first six months to a year, 80 percent of our deal was Asian, but it was always the intent to make sure that our process worked. We were tweaking our protocols, refining our matching algorithms, and addressing any feedback we had of how to improve things.
I feel strongly about bringing a bit more meritocracy to this segment of the corporate landscape. But in terms of the way the world works, we are still in investment banking and private equity. We are offering an alternative way of doing things versus traditional ways. We’re trying to change things, we’retrying to change the fabric of what has been done for ostensibly over 100 years in exactly the same way. What we found is that – people need to know who we are – the biggest banks in the world, the biggest funds in the world, you know, that the movers and shakers and the decision-makers within the industry need to know who we are. Unfortunately, Asia tends to follow with regard to this.
Even between London and New York, New York really is the lead in terms of creating innovation, adopting innovation, and driving it through. So we realize that to really make sure that Wall Street knows who we are and what we’re doing, and start thinking along these lines as well, we need to be here.
The global map is broken down, broadly speaking into three equal areas: the Americas, EMEA, and SubSaharan Africa, and then Asia-Pacific. In terms of the sectors we cover, we cover all the domains that have 24 or so sectors and over 200 sub-sectors. And then we’ve broken those 200 sub-sectors into another 114 value chains within those sectors. So we basically cover everything.
How are you different from other deal original platforms or marketplace?
If you’re talking about some form of marketplace, where there are providers of capital or sellers of shares on an institutional or a private basis, we have non-listed companies, private companies, either looking to sell out of their positions or sell out of their companies in an M&A type of capacity or raise capital.
We originally started looking at the Asian mid-market, because that’s where I was based, and that’s what I knew quite well. And then realising that quite soon after (even from the start) that the biggest difference we could make is really with the information cross-border flow for the very, very fragmented mid-market around the world.
So we expanded fairly quickly and we cover 145 countries now. So it’s basically the entire investable sort of universe but catering primarily for mid-market companies. We were initially looking at pure private equity, and then quite quickly realised that there’s a big demand as well for merger and acquisitions (M&A) for either smaller companies wanting to sell out completely because of lack of succession or, there’s too much polarisation in the industry, or there’s consolidation on the cards and they realize they need to sell to survive.
Similarly, there are the bigger incumbents, the big corporates looking for acquisitions. If they are looking for a $2-3 billion acquisition, they can call up their primary bankers at Morgan Stanley. But most of these guys are constantly looking for sub hundred million dollar deals. So where do they find them, and usually, they’relooking all around the world. So they have these little pockets of advisors and traditional consulting and advisory boutiques that they’re using around the world – very inefficient, and very slow, no scalability. So we really tried to address these.
The US mid-market is a lot bigger than Asian mid-markets, but we define mid-market as between $100 and$200 million in transaction value. So, if that means that if it’s a private equity raise, it has to be within that bell-shaped curve. And if it’s a 100 per cent or majority stake sale, it needs to be in that curve as well. Our global average is about $40 million. That’s across the world. Obviously, the average deal size in the Western and the US market is a little bit bigger. And in Asia and parts of Africa, obviously a lot smaller.
How has the COVID-19 pandemic impacted deal flows on your platform?
The question is really about how COVID has impacted the industry as a whole? I think it hasn’t been one particular impact. The impact has changed, I think over the last six months or so and we’ve seen different stages.
I think the first stage was that everything just stopped, engagement stopped, new deals stopped, new customers stopped, new buy-side stalled. I think the entire world was sort of looking around thinking what does this mean? How bad is it? And again, it didn’t all stop in one go. It kind of stopped in Asia first, and theUS was pretending nothing was happening.
Then by the end of March, end of April, when things got really bad particularly in New York, the US started to face the same halt. So it happened in waves across the world, and not everyone was at the same stage at the same time. Now we are all at the same stage at the same time. So there was this paralysis, I would say that kind of that that transcended geographical borders. The result was very little engagement going on, for probably a couple of months in total.
Then, the next thing that happened was there was an increasing flow of sell-side deals now, where a company was thinking of selling. I mean, if you think about it from an entrepreneur’s point of view, if you’re running a medium-sized company, and suddenly most of your staff aren’t able to go to work, your factories are closed down, and you don’t have the benefit of open capital markets, your bank is more likely to get more conservative, then more liberal. More companies that ordinarily would be in a position to look for growth capital, because they’re relatively healthy, are actually looking at the potential of selling the companies completely.
In general, during any period of crisis, that tends to be a significant amount of consolidation that happens within any industry. So the largest, most capitalized companies tend to buy smaller companies within their value chain. And the weakest, unfortunately, fail completely. And that’s what we’re starting to see happen now. So there’s a bigger increase of M&A activity in terms of sell-side deals coming on the platform. However, it doesn’t mean the buy-side engagement is as high as it has been in the past.
Now that you are in the “second stage” with a lot more sell-side deals, is that an indication that things are picking up? How do you measure interest?
The sell-side is kind of getting back to where it was quite quickly. The buy-side is only starting to re-engage now. We’ve talked to a number of private equity funds – it’s not that they didn’t have demand, it’s how do you price an asset that you see in this environment. If you’re buying a factory in Mexico, pre-COVID you seethe EBITDAs for the last five years, that’s fine. You can’t quite feel it in this environment…it’s guesswork.
The intent is still there, but the actual execution, based on our numbers is very difficult. For sell-side, they can tell you what their revenues have dropped to in any current situation, but how long will that last? What will they do? Where will their lines of credit come from? That’s all very murky still, and certainly was very, very murky a couple of months ago, and it’s slowly starting to become a bit more clear.
What we found is that the golden ratio is between 25 and 33 per cent. So basically, between a quarter and a third of buy side, versus sell-side on the platform. And we balanced that quite meticulously. The reason being is a buy-side – whether you’re a corporate buyer, or your financial institution, private equity fund, you need a constant flow of deals and you need to invest continuously. Whereas if you’re a sell-side, once that deal is done, that deal is done, you don’t perhaps need the platform for many years. If you’re an advisor, then you do need the platform, but sometimes you need it for sell-side deals. Sometimes buy-side mandates, what we found is that the ratio to optimise engagement is about 25:75, or up to 33:67.
I can give you a rough estimate. Late last year, and early on this year before the COVID-19 hit anywhere, we would get between 700 and 1000 new members join the platform every month. And again, the ratio was about 25 to 33 per cent buy-side, the rest sell side. Now, that’s probably down to maybe 400-500. And I would say 80 to 85 per cent is a sell-side for these new joiners in the last two, three months.
That is the kind of ratio we found in the last couple of months, there have been much more sell-side deals coming to the platform versus new buy-side activity. We’ve obviously got the old buy-side guys who are still there, but new buy sides have actually only started in the last couple of weeks. They have started to join the platform from many different parts of the world, including Japan, China, and the US who have been very, very quiet in the last three or four months, maybe even longer.
We’re not an exchange yet, so we don’t get the direct bids. We’ve been toying with the idea of having the full transaction on the platform. but essentially, transactions of this nature are very different to the public or any sort of share transaction. We’re more like a sophisticated dating site, where our job is to get the highly correlated partners together to meet online to then have their first date, the second date after date, all the way to marriage. We don’t necessarily conduct the marriage or the wedding itself.
The pressure to invest is increasing, but the dynamic and the traditional process of how you find deals, how you have one good conversation, and you get on a plane and you go and meet new people – that is not coming back for a while, because there are risks associated with that now, regardless of the lockdowns. There’s a health risk involved and quarantines when you come back, so functionally it doesn’t work. Even when restrictions are lifted, the volume of work-related travel is going to go down and you’re going to only be very, very selective. And there’s no stigma attached to now getting on a Zoom call, so I think that there is going to be a bit of a tipping point where I think platform technologies or any technology that helps with parts of this process are going to benefit.
Why have you not built an exchange?
Call it the farm, the factory, the exchange, or the marketplace. It’s fine building a factory but if you haven’t got the access to the farms and therefore the feedstock, there’s nothing to process, and therefore there nothing for a healthy marketplace, or a healthy exchange.
I think in the last couple of years, the excitement around blockchain and cryptocurrencies, there was a lot of emphasis on the exchanges and, and the infrastructure part, but not necessarily enough emphasis on where the farms are, and where’s all this coming from? You have to create healthy liquidity. We were watching carefully until we were comfortable and confident that the education level is high enough, and we will participate in that education as well.
What do you think could be the game-changer in your space?
I think that the potential of security token offerings (STOs) is huge. It’ll take a little while but I mean, that’s one thing that I think is going to make a massive difference to the possibility and the liquidity around private companies. Bringing the STO element so that tokens in those companies can actually be bought and sold in an exchange, and they don’t need to be massive companies, they can be mid-sized companies as well. There’s a very, very exciting move in that direction, and I’m looking forward to that happening.
What is in store for your next phase of growth?
Aurigin has announced “AiB”, an enterprise solution designed to address the increasing needs of investment banks and their clients by digitizing the end-to-end process, from deal origination all the way to deal execution.
Banks have finally started to realise that their processes are so incredibly archaic, heavy, and so expensive. The cost of execution makes a lot of deals unprofitable. Even if they can close, it makes them unprofitable, which is one of the reasons none of the banks have really built a decent mid-market presence. It’s patchy best, and mostly doesn’t exist at all.
So we’ve essentially created an end-to-end process that goes from origination to due diligence, all the way through the legal processes and final execution. It’s really an integrated platform that involves technology in the origination phase, which is what we already do. It involves enhancing the due diligence process by using a lot of technology to not replicate or duplicate processes.
Distribution wise, we’ve got 45,000 members, institutional members, on the platform, and our ability to distribute a deal immediately, instead of emailing a top tier client list is immediate. It literally happens within milliseconds, you’ll get the high correlation matches, milliseconds after that deal goes live, instead of weeks and week.
A company that has $10 million of borrowings from a bank, but needs to raise $25 million of equity. It’s from that first call when that customer makes that call to their existing bank. It takes the process from there, all the way through to actually fulfilling that requirement of $25 million. The banks don’t actually need to say no to those deals, because their unit cost per execution has come down so dramatically. They need fewer people, they can take smaller deals, and they can do them faster.
This interview originally appeared in DealStreetAsia – Research & Analytics’s SE Asia Private Marketplaces 2020 report.