Initial public offering (IPO) has ceased to be the most appealing way for VC exits. While the demand for exits is still there, the market is shifting towards another path – mergers and acquisitions (M&As). On the global level, M&A activities soared in two straight years to an all-time high in 2016, when a dry spell hit the IPO sector. Together with the transition, rose the startups that aim to change the traditional way of connecting and accelerating M&A deals.
Tanguy Lesselin, co-founder and CEO of Finquest, has felt all the points in the traditional M&A model as a former consultant working on post-merger and joint-venture projects. He started Finquest in belief that there is a better solution for tech startups looking for investors.
Finquest is a global platform to foster cross-border mid-market direct investments in Asia to build bridges between institutional investors, M&A Advisors, and Asian mid-market companies.
“Our goal is to help the market identify the right kind of party for the right marketplace. If you want to get these targets manually, you would lose a lot of opportunities,” said Tanguy.
As part of its expansion plan, the Singapore-based company just acquired Detecq, a private marketplace that matches technology companies with strategic investors in Asia. Detecq’s founder Wong Zi En, will join the Finquest team to expand the company’s presence in Asia’s tech ecosystem.
Why tech, why mid-market, why Asia?
Started as a cross-sector platform, Finquest gradually strengthened its presence in technology M&As segment not only because it is becoming an increasingly large part of the M&A market. Tanguy pointed out that tech is becoming less and less a vertical by itself in the sense that all industries are integrating into tech in their value chain.
“Take healthcare, for instance, we are meeting investors that don’t have constraints from VC or PE. When they look at healthcare they could very well buy a hospital or invest in doctor booking application. That’s why every vertical is being penetrated horizontally by tech,” he said.
For the estimated half a million mid-market companies in Asia, most are too small to go public but too large to have their corporate finance needs met by early-stage venture capital firms, crowdfunding platforms, or peer-to-peer lending. Furthermore, less than 1% are currently backed by private equity.
“We define mid-market by transactions between 10 and 150 million USD. In the tech segment, we choose to look at series B and beyond because series B start to be cross-border deals. When you do fundraising as a business owner and CEO, series B is quite often where you expand your operations at the international level,” he said. “So that’s where you would be actually seeking investors who are in new markets and by definition, you don’t have a network there.”
With economic growth in Asia continuing to outpace other regions, the world’s institutional investors are becoming more interested in exploring opportunities in this market. However, lack of access and the market’s overwhelming size and complexity are blocking progress.
“Finquest will keep Asia as the core priority because M&A data is missing here as compared with other countries like the U.S.,” said Tanguy. “I’m not saying I’m not interested in expanding to additional geographies. But the figures in Asia is very significant part of the future growth, It’s more than 50 % of future GDP growth in the world, so it’s already a very large territory.”
Tech M&A in China
China often makes the headlines with regards to M&A transactions these days, for a number of reasons. There is a very strong appetite from Chinese institutional investors and companies to purchase assets outside of China and leverage them in the domestic China market.
“We see strong demand from Chinese investors for IP and brand related assets in general. From an outbound M&A perspective, some of the new constraints imposed by the government may create a more uncertain environment, but we also see more structured funds from large Chinese technology companies looking for investment opportunities in Asia and beyond,” said Tanguy.
“From an inbound perspective, we see strong demand from institutional investors to access Chinese innovative companies in various sectors,” he added. “Because of the highly concentrated market structure in some segments, key industry players outside China are trying to generate new opportunities by approaching the few large players in the digital space.”