Bulls-eye by Goldis, black eye for the ecosystem?

• Earns over 200 times multiples based on its initial US$33,000 investment for 70% stake Deal also lays bare ugly underbelly of the ecosystem - lack of exit options for investors
• IT is a jaw-dropping return in terms of multiples and according to one of the veterans of the venture capital scene here, Chok Kwee Bee of Teak Capital, it is probably a record for Malaysia.

Chok was referring to the RM22.4 million (US$7.1 million) that Goldis Bhd is about to receive for its 70% stake in mobile technology enabler Macrokiosk Sdn Bhd.

Goldis is an investment company with private equity investments in Malaysia and China. It focuses on life sciences, water/ waste-water treatment, ICT (Information and Communications Technology) and organic aquaculture. It is also the major substantial shareholder of IGB, a listed property developer in Malaysia.

That US$7.1 million will be forked out by brothers Kenny Goh, Henry Goh and CS Goh, the founders of Macrokiosk in a management buyout (MBO). Now, the amount does not look like a lot of money in absolute terms, but when you consider that Goldis paid RM105,000 (US$33,180) for its stake back in 2002, you see why Chok thinks it is a record in terms of multiples (about 213).

Another leading player in the ecosystem could only mutter "wow" when asked for his comments. Upon composing himself, the angel investor surmised that Goldis would probably have contributed more money to Macrokiosk over the years, perhaps in the form of a shareholders' loan. "But it is an incredible exit, credit to them," said the angel investor, who preferred not to be named.

The angel investor was right. Colin Ng, chief investment officer at Goldis, later told Digital News Asia (DNA) that Goldis has invested a total of RM3.5 million (US$1.1 million) into Macrokiosk over the years and, "as per the agreement dated July 8, 2013, there is an inter-company advance [to Macrokiosk] of approximately RM10.4 million (US$3.3 million)," he said. This needs to be repaid too as part of the MBO terms.

While even Patrick Grove, chairman and chief executive officer of investment firm Catcha Group, sees it as positive for the ecosystem, the exit by Goldis exposes the raw underbelly of the Malaysian tech ecosystem – the lack of exit options for investors.

This was one of the key gaps in the ecosystem that entrepreneurs identified during the Silicon Valley Comes to Malaysia (SVC2M) conference in 2011. It has not been closed in the ensuing two years.

Depite this, Grove chooses to be positive and says it is a great result for Goldis, great for the three brothers, and an even greater result for the ecosystem, adding "showing once again, that investors can make money backing Malaysian technopreneurs."

However, the question that should be asked is, "Why did it take so long for Goldis to exit" and realistically, "How often can any investor expect a buyout from the founders?"

It was well known that Goldis had been looking for a buyer for its stake but apparently found nobody, or could not come to a price it was agreeable to.

Making this case even more interesting is that Macrokiosk sits squarely in the telco space and yet none of the main players here sought to acquire it.

It is a regional and profitable company too, with a net profit of RM838,000 (US$264,770) in its fiscal year which ended Jan 31, 2011, and a net profit of RM1.46 million (US$461,300) in the year ended Jan 31, 2012.

I wonder if Macrokiosk had been a Singapore company, would SingTel have swallowed them up by now. After all, they are snapping up local and foreign companies in the Internet space which have a mobile element to their product.

Note that this is the second time the Goh brothers made an MBO offer. In 2011 they offered RM15 million (US$4.7 million) but that deal fell through as the conditions precedent had not been fulfilled.

The previous deal, took into consideration a call option, while the 2013 deal offered was a total buyout deal. According to Ng, both are based on five times of EBITDA/Nett Cash Flow, meaning Macrokiosk's EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortisation) has increased.

Now the the Goh brothers will be fully in charge of running the show, one wonders how much more can they do to drive the performance of Macrokiosk.

I once asked Kenny Goh why they sold such a large stake for a low price and he attributes it to the fact that they were young and inexperienced then. He was 24 years old at the time of the deal – the oldest of the three brothers!

And what will Goldis do, moving forward? Invest the money back into the ecosystem?

Goldis to look at green tech, food & healthcare

Digital News Asia had a Q&A with Goldis Bhd chief investment officer Colin Ng. Below are excerpts.

DNA: How much more money did you pump into Macrokiosk after coming on board?

Ng: RM3.5 million of a total investment. As per the agreement dated July 8, 2013, there is an inter-company advance of approximately RM10.4 million.

DNA: What role did you play in the early years and how has that changed as the company gained traction and the brothers grew into their leadership roles?

Ng: Goldis' principle investment strategy has always been to continuously identify and invest in sectors with high growth potential, and to build businesses within those sectors. We groom and support small companies in terms of transaction support and portfolio oversight.

The private equity arm is active in countries mainly in Malaysia and China. We create new value in the economy while retaining roots within three key areas -- innovation, quality and integrity.

At Goldis we continue to remain faithful to our vision of growing new businesses via the private equity model. Our belief remains in investing in passionate and driven entrepreneurs who grow our companies.

One of the best examples was with Hoepharma, a pharmaceutical company, where we invested at approximately RM6.3 million (US$2 million) and was disposed of at RM370 million (US$116.7 million) to Japan's Taisho Pharmaceutical Co.

For this year, we are actively looking for new investments to grow future business and to mark important milestones for this company. The new investments will be focusing more on green tech, food and healthcare, as projects such as these hold tremendous potential for tackling energy deficits, boosting economic growth and improving people's lives. This new projects will also include private investment.

DNA: In 2011 you rejected a buyout offer for Macrokiosk. Why was that?

Ng: In our announcement dated March 2, 2012, [on the] MBO to the management, we had announced that the conditions precedent had not been fulfilled by the extended period i.e. Feb 29, 2012 and in view thereof, Goldis Berhad had on March 2, 2012 rescinded and terminated the contract formed in the Letter of Offer dated Dec 12, 2011 and subsequent letter dated Dec 14, 2011 'whereupon the contract shall be null and void and of no further force and effect and neither party shall have any claims against the other.'

DNA: What changed in the business since that 2011 offer that saw a revised offer with a 50% premium?

Ng: The previous deal, taking into consideration the call option granted by Trigoh Sdn Bhd, while the 2013 offered was a total buyout deal. Both are based on five times of EBITDA/Nett Cash Flow. (EBITDA has increased).