Axiata Digital, the arm of Malaysian telecom giant Axiata Group, is looking to further invest into its core businesses – e-wallet service Boost, regional digital agency ada and global API platform provider Apigate – after securing a strategic minority investment from Japanese conglomerate Mitsui & Co Ltd.
The investment had given Axiata Digital a pre-money enterprise value of $500 million for its core digital assets.
No financial details of the investment were disclosed but Axiata Digital CEO Mohd Khairil Abdullah said the funds will enable the firm’s core businesses to “scale up, be competitive and profitable”.
“The most important aspect of having Mitsui as a strategic minority shareholder is that it marks a validation point for our digital and internet ventures journey started five years ago,” he told DEALSTREETASIA.
Axiata Digital was started in 2013 to help the telco business pursue a digital transformation strategy. It has since built a portfolio of 30 companies through minority investments and venture builder models – which were exited to a Singapore-based investment fund this April.
Coming back to the Mitsui deal, Khairil added that having Mitsui on board as a business partner could open many doors and opportunities for the digital firm.
“As an example, it’s been less than a month since we officially inked the investment and Mitsui has already started funneling Japanese brands and bringing in commercial deals to ada,” he added.
Exiting non-core digital businesses to Pegasus 7 Ventures
The announcement on the Mitsui investment came a few days after Axiata Digital said it agreed to exit its digital ventures (DV) portfolio at a valuation of $140 million to Singapore investment fund Pegasus 7 Ventures.
The companies parked under the DV portfolio were non-core strategic minority investments Axiata Digital made in the past five years as part of the firm’s learning process in order to understand the operations of digital businesses.
“This deal is linked to the Mitsui deal. When Mitsui wanted to come in as a strategic minority shareholder, they expressed interest in wanting to invest in businesses we directly operate which are Boost, ada and Apigate,” said Khairil.
He added that the objective of the bulk transfer to Pegasus 7 was “to better manage and monetise the non-core investments” as Axiata Digital continues to focus on core businesses.
“Moreover, as we received an overwhelming interest in the entire portfolio from the various fund managers, there wasn’t a need for a business-by-business transfer,” added Khairil.
According to him, Axiata Digital still owns preference shares in the digital ventures portfolio companies.
“Down the road, if Pegasus 7 were to sell any of these businesses, we will retain roughly 80 per cent of the profits from these assets just like any PE (private equity) or venture capital carried interest structure. From a business perspective, the transfer was beneficial for us. Foremost, it allowed us to streamline and intensify our focus to our three strategic businesses and build towards becoming some of the largest businesses in the region,” he commented.
One of the notable companies that was part of Axiata Digital’s DV portfolio was 11street Malaysia – a joint venture between Axiata Digital and Korea’s SK Planet Global Holdings. Last April, Malaysian media and advertising firm took a 12.3 per cent stake in the e-commerce firm for 40 million ringgit ($9.6 million).
Khairil told us that Axiata Digital will not invest into another e-commerce business anytime soon as it is a non-strategic sector for the firm.
However, he does not rule out minority investments in the core sectors – digital advertising, digital financial services and API platforms.
“However, we would look for a clear path to control if we do make these minority investments. At this point of time, our primary focus remains to build internally,” he added.
Giving a Boost to Malaysia’s e-wallet space
Axiata Digital’s e-wallet platform Boost CEO Chris Tiffin stepped down from his role this February after running the startup for two years and also serving as Axiata’s regional head of digital financial services.
Khairil is currently the acting CEO of Boost as the firm is still awaiting approval from Malaysia’s central bank on the appointment of a new CEO for the startup.
In 2018, Boost claims to have experienced a six-time growth in user base and a 14-time growth in monthly average spend per user.
“Within Q1 of this year, we surpassed the entirety of 2018’s total gross transactional value in a 3-month period,” said Khairil.
As of end of May, Boost has 4.2 million registered users and 84,000 online and offline merchants, making it the leading e-wallet with the largest user and merchant base. “These are all very positive indications that Malaysian consumers are beginning to see added value in going cashless with us.”
Boost only started its operations 18 months ago, hence it has yet to break even, noted Khairil.
“Having said that, we expect it to be PAT-positive (profit after tax) in 2021. At this point, the e-wallet landscape in still at its infancy and much of our focus with Boost is to continue educating consumers on the benefit of going cashless,” he said.