Delta Capital Myanmar is seeking to raise $100 million for its third fund that will target bigger-sized and control deals in the frontier market, according to managing partner Nick Powell.
Delta Capital Myanmar has started talking to existing limited partners (LPs) as part of the fundraising process, and expects to hit the first close in March 2021, Powell told DealStreetAsia.
The Yangon-based investor launched its first $50-million fund back in 2013. Its second, a 2016-vintage vehicle, has $70 million committed capital and will be fully invested within weeks.
“[For the third fund] $100 million is an achievable and necessary number for Myanmar,” Powell reasoned.
He said the Myanmar Opportunities Fund II had a limit of 20 per cent of the fund allocated for each deal, and its investments have hit that limit nearly on every deal.
Fund II, which has committed to four transactions, recently backed plastic bottles recycler Commercial Plastics Company (CPC).
“We’re seeing bigger opportunities in size, so we’re ready for a bigger fund,” Powell said.
LPs in Delta Capital Myanmar’s funds primarily include development finance institutions such as Denmark’s Investeringsfonden for Udviklingslande, Norfund and CDC Group.
Institutional LPs accounted for about 50 per cent of Delta Capital Myanmar’s second fund, and it is anticipated to increase to 80 per cent for the third vehicle.
Hitting the road with a new fund despite the COVID-19 global healthcare crisis, Powell asserts that this is actually going to be a good time to make investments in Myanmar as more opportunities are emerging in the country.
Time to see consolidation
The CPC investment announced in October was Delta Capital Myanmar’s first control deal. While growth equity will continue to be the major source of deals for the firm, the new fund’s mandate has also added more consolidation opportunities.
“We will probably start with control deals then rolling up multiple companies to do M&A transactions,” Powell said.
Naturally, as the market evolves, businesses need scale to reach a stage where they are ready for exits or strategic interest, he explains. In addition, Powell also sees better opportunities to invest in younger companies and build them into leaders in their respective sectors, because these newer businesses can easily outgrow the incumbents who have legacy issues with corporate transformation.
Delta Capital will continue to look at consumer-facing sectors, telecom and financial services. In addition, the firm is looking at logistics and healthcare.
“These sectors are very fractured with lots of small to medium-sized players. We will be looking at these two sectors as they offer the potential to consolidate and create national champions,” Powell said.
Frontier market play
The COVID-19 pandemic is still looming large on the regional economy. But that does not mean Delta Capital Myanmar will take advantage of distress in the local market. In fact, as Powell opined, investment opportunities in the country remain solid, because it is becoming easier to see the survivors come out and increase market share.
“We will fund companies to be well capitalised so that they can survive through this period. The country needs investment, and this is the time to be doing it.”
Bullish on the Myanmar market, Powell added that Myanmar is a long-term market that sees fund managers holding their assets for longer periods than other markets.
Delta Capital Myanmar has made three partial exits from its total nine investments. “Some of our companies have got to the scale where they’re very attractive for exits, but we’re still a few years off having full exits across the portfolio,” Powell said.
“That’s [a longer holding period in Myanmar] how you get your best returns by compounding at 30-40 per cent a year.”