Malaysian government-linked private equity firm Ekuiti Nasional Bhd (Ekuiti) earmarks 10-15 per cent for technology investments, according to its CEO Syed Yasir Arafat Syed Abd Kadir.
“Tech investments are inevitable. You’ve seen tech investments growing tremendously across Asia Pacific and deal volumes have increased….Technology investments are sort of the domain of venture capital firms but as companies mature, a lot of PE money go into tech investments,” said Syed Yasir Arafat in the 2018 annual report media briefing today.
“So, what we’re seeing is that it’s a necessary area for us to look at and would like to put some capital into. But it’s not going to be a huge focus on us – we probably allocate 10-15 per cent of our fund in that area. Tech investments also help us to understand the trend that is coming to our traditional investments,” he added.
The PE firm has recently picked up a 40 per cent stake in Malaysia-based web hosting company Exabytes Capital Group for RM44 million ($10.7 million) – the second tech investment done by Ekuinas since its inception in 2009.
“Our thesis in Exabytes is simple – we see it as a fast-growing company. We found that Exabytes, as the market leader in Malaysia, is a platform that we can bring in further to hopefully become one of the top regional companies,” said Syed Yasir Arafat.
He also added that Ekuinas is ready to acquire stakes in subsidiaries of government-linked companies (GLCs). The firm has identified several companies that appear attractive and “high-level talks are already taking place.”
“A lot of these are smaller subsidiaries within a very large company, so there is no management focus. If we buy into these companies, it would be our primary investments and we will ensure that we will drive the company forward,” said Syed Yasir Arafat. “At the moment, it’s just high-level talks. It is subject to their internal plans and the whole direction of the company itself, but we are watching that space quite closely.”
For the financial year ended December 31, 2018, Ekuinas second fund (Tranche II), which has RM1 billion worth of committed capital, posted a gross portfolio return of RM490.1 million, generating annualised gross internal rate of return of 14 per cent and net IRR of 9.8 per cent. Its third fund (Tranche III) – RM1.5 billion – posted a gross portfolio return of RM53.5 million and an annualised gross IRR of 4.5 per cent. Both funds are fully deployed.
Ekuinas launched its fourth fund, Tranche IV, at RM1 billion with an option to increase to RM1.5 billion this January. The vehicle, which has an investment period of three to four years, will continue to invest in Malaysia-based businesses, with an emphasis on core sectors such as education, oil and gas, fast-moving consumer goods (FMCG), retail and leisure, healthcare and services.
In FY2018, Ekuinas committed a total of RM331.5 million to acquire two new companies and make three follow-on investments. In the same year, the PE firm also exited three companies – Tranglo, MediExpress Group and PMCare Sdn Bhd.
Tranglo generated gross proceeds of RM114.9 million, achieving an IRR of 26.9 per cent and a money multiple of 2x. Meanwhile, MediExpress Group and PMCare Sdn Bhd generated a minimum IRR of 38.8 per cent and a money multiple of 2.6 times of the capital invested.
“2019 will also see us crystallising our assets under Tranche II as part of our prudent investment strategy to secure positive IRR and ensuring the realisation of the fund is done within the expected timeline,” added Syed Yasir Arafat.
Established by the Malaysian government in September 2009, Ekuinas has invested in over 40 local mid-sized companies of various sectors except for property and construction sectors, with typical ticket sizes between RM50 million and RM300 million.