The volume of private equity transactions may have declined across the board as a result of the COVID-19 crisis, but at UK-headquartered investment manager Apis Partners the slow dealmaking pace was deliberate.
“Deal speed has changed, but not necessarily because there aren’t deals to do,” according to Nigel Lee, partner at the private equity firm. “It’s because we’ve chosen to slow it down and see what the outcome in the markets is looking like in terms of real economic impacts on businesses,” Lee said during DealStreetAsia’s webinar on tech-enabled dealmaking in private equity on Thursday.
Before the coronavirus outbreak, Apis Partners aimed to do “a couple of deals every six months” but the GP has been withholding deployments over the last ten months.
“We need a couple of quarters of new information on companies we’re talking to, to try to understand where they’re going to land in order to make sure that the valuation, expectations that we’re putting out are sensible,” Lee said.
Apis Partners focuses on financial services in emerging markets. The GP closed its second fund at the end of last year. Apis’ predecessor fund, Apis Growth Fund I, closed three years earlier with some $300 in commitments.
Apis Growth Fund II secured $550 million in limited partner commitments, which surpassed the fund’s initial target size of $400 million. LPs include development financial institutions, sovereign wealth funds, banks, and family offices across the US, Europe, Africa, Asia and the Middle East.
The fund expects to invest between $30 million and $50 million into capital-light financial services and fintech companies across Africa, South Asia, and Southeast Asia.
And while such emerging markets can bring significant risk, Lee said what helps the firm in its investment process is being a sector specialist. “We’ve done enough of a scan, we’ve done enough on the market to know what works, what doesn’t.”
Lee said the firm is holding back on investments into the peer-to-peer lending and supply chain lending sectors in Indonesia, for instance. “We decided not to make investments in there until we’ve got more information,” he explained. “We said it was a nascent sector; we know that sector is hurting now. We’ll come back to it, in 12-18 months.”
Among the last deals it made was in November 2019, when it led a $20 million investment into Coda Payments, a Singapore-headquartered fintech firm that helps digital content providers accept payments.
On tech-enabled deal-making in private equity, Lee said, there is significant scope to use tech in the investment process, particularly given the restrictions to contain the pandemic.
“For example, we now look at our infrastructure for sales sourcing, and we have over 100 companies that we haven’t been back to talk to,” he said. “Actually, now people begin to realise in terms of COVID, it’s much easier to go back and re-talk to those companies and understand where they are in their cycles where their last deal was, then it is to try and go knock on new doors because you physically can’t do that.”
“Oddly enough, COVID is forcing us to go back and look at the way we source deals based on technology, rather than necessarily only based on the last person I had a meal with.”