Singapore-headquartered private equity firm Kendall Court Capital Partners is scouting for investment opportunities in the high-growth technology sector in Southeast Asia, with Malaysia being its focal market.
Established in 2004, Kendall Court has so far stayed away from technology and focused on businesses in sectors such as healthcare, consumer and natural resources, among others.
Its interest in the technology sector comes as business models in the sector have demonstrated higher resilience during the pandemic, and lesser demand disruption when compared to other sectors.
“These opportunities (tech) are now becoming your bricks and mortar. It’s no longer some avant-garde, VC-type investment, but are real ideas that are shaping our present and future,” said Kendall Court managing partner Chris Chia.
In November, Kendall Court made headlines when it announced a joint venture with Malaysia-listed information technology and communications company Green Packet Bhd to launch an RM500 million ($120.98 million) fund.
The fund is slated to officially make its way into the market in the first quarter of this year and seeks to invest $10-20 million across 7-10 companies over the next few years.
Through the fund, Kendall Court plans to look at Series B investments in Malaysia as it seeks to take growth-stage companies to the next level.
“We will be looking for companies that can benefit from a strategic operational partner who can bring them to Series C and D. We’re taking an active role in those businesses and be operationally hands-on,” Chia said.
Talking specifically about Malaysia, Chia highlighted how the country unfolds significant investment opportunities for risk capital investors when compared to its neighbouring countries, Singapore and Indonesia, the two markets that Kendall Court is active in.
Malaysia, he reasoned, could become the alternate location for data center investments after Singapore – the latter now has limited space and higher operational costs.
Earlier in 2020, Tencent Cloud set up a joint internet data centre in Malaysia with Green Packet. Prior to that, China’s Alibaba too had set up a logistics hub in the country, cited media reports.
“What feeds it is all the services around it like artificial intelligence, cloud computing and others – Malaysia stands in a good spot for that,” Chia said.
Going forward, over the next three to five years, Chia expects further capital to flow into Malaysia from North Asian countries.
But, apart from Malaysia, Kendall Court is also looking for opportunities in the tech space across other SE Asian nations. While the firm is keen on the more obvious sectors such as fintech, agri-tech, online education and online healthcare under the tech umbrella, it is also open to other areas where companies are nearing profitability – those could even be Series D rounds, said Chia.
Transition from debt to equity
An experience spanning over 16 years in the private equity space, Kendall Court initially focused on mezzanine and debt investments over equity deals.
The firm launched two mezzanine funds in the past, both of which have been exhausted. The first one, Kendal Court Mezzanine (Asia Fund I), was launched in 2006 with a corpus of $90 million, while the second – a $150 million Kendall Court Mezzanine (Asia) Bristol Merit Fund – made its way into the market in 2008. It closed its third fund in 2012.
However, over the past few years, Kendall Court has shifted its focus to structured equity-linked deals (convertible bonds, preferred shares to direct equity).
“We want to match it with the risk that we’re taking in an underlying investment. In a world where uncertainty and volatility are high, we want to be compensated for the risk but at the same time work well with the owners of the companies we invest in,” he said, highlighting the reason for the shift in the firm’s investment strategy.
Going forward, while it continues to be operationally involved with its portfolio companies through the equity route, it also sees growing prospects of credit opportunities in Southeast Asia – a trend that’s gathering steam as conventional banks are increasingly taking a cautious approach towards fresh lending due to tighter regulations.
The funding gap in the market still exists and growing for deals particularly in the range of $20-30 million and “it will always be there even if the market matures over time,” Chia said.
To date, Kendall Court has managed investments worth over $750 million in countries such as Malaysia, Indonesia and Thailand, besides Singapore, its home market.