Despite the novel coronavirus pandemic delaying Sygnus Deneb Investments Limited’s plans in 2020, the regional private equity (PE) firm has set its sights on six potential acquisitions which it sees as businesses that will thrive in the coming economic recovery and deliver a solid return for investors.

These deals span two companies each in Jamaica, the Dutch Caribbean and United States of America (USA) which would be Deneb’s latest investment after Aruba, Wine and Dine (AWD).

The company had originally engaged four companies before the pandemic with the possibility of acquiring a stake in the businesses, but they are currently assessing the situation due to the inability to clearly establish a proper valuation due to the uncertainty in the environment. Deneb is the PE arm of the Sygnus Group. It acquires stakes in companies with the aim of selling that stake in five – seven years for a profit.

“The PEMA [Private Equity, Mergers and Acquisitions] team at Sygnus was looking for opportunities during the pandemic that demonstrated a strong level of resilience. We’re looking at six companies that we’re interested in providing equity capital for as they position themselves to become stronger in a post-pandemic world. These companies span industries in logistics, financial services, transportation related services and retail. These transactions are at varying stages, but all of these potential deals have been given conditional approval by our investment and risk management committee. Should the due diligence come back favourable, then we will proceed and take a position in these companies with an aim to drive value for the companies and shareholders in Sygnus Deneb,” stated Sygnus Group co-founder, Executive Vice-President and Chief Operating Officer Dr Ike Johnson in an interview with the Business Observer.

Unlike a typical private credit deal which is essentially a loan/debt, a PE transaction can take up to a year to get clearance before the acquisition goes through. Through investment advisor Sygnus Capital Limited (SCL), there is a series of steps before a potential deal is executed to ensure that the investment is accretive and can deliver value for Deneb’s investors.

The value of PE/VC (Venture Capital) deals across the globe grew by eight per cent to US$535.62 billion with PE assets under management hitting a record US$4.11 trillion during 2020 as noted by Pitchbook. This was critical as companies across the globe scrambled for capital (money) to survive the unprecedented nature of COVID-19 which decimated extremely profitable businesses overnight. According to a survey done by S&P Global, 50 per cent of PE firms respondents in the US intended to invest in information technology while health care, consumer sector and industrials were the other core sectors of interest. More than 65 per cent of respondents expect PE/VC deal activity to improve during 2021 for Latin America with North America, Asia Pacific and the Middle East and Africa having more than 70 per cent of respondents expecting improvements in these regions.

“The strategy that Deneb implemented in AWD is akin to what other PE firms have done in the pandemic. They are ensuring the portfolio companies are put in a position to become stronger within their industry once the pandemic has ended. There is a light at the end of the tunnel especially in the developed markets. Globally, PE firms have made sure the portfolio firms can be stronger in a post pandemic world. These firms are also providing additional capital to areas of the economy that has benefited from this pandemic such as logistics. What you’re seeing with PE firms is that they are putting more emphasis on companies winning in COVID-19. PE firms maintaining these companies to allow for them to weather the pandemic. By the end of the pandemic, these companies will be more competitive and be a significant player within their space,”explained Dr Johnson.

When pressed as to why Deneb is focusing its interest on the USA while being a Caribbean-focused PE firm, Dr Johnson noted that the companies they invest in need to be backed by a very strong country with governance, military and rule of law. However, he did explain that if a company has strong exposure to Caribbean economies, Deneb would take a look at it. The key thing he mentioned is the need to invest in one strong company which has the potential to generate sustainable cashflow and they are in an industry which is future proof with the potential impact of technology won’t have a deleterious limitation.

While the aim is to enhance value for the region and scale companies further, Deneb is keen on maintaining an oversight role than a direct operational role in a business. Deneb typically has two to three exits planned before they engage in a transaction.

Although Deneb won’t join its affiliate Sygnus Credit Investments Limited as a publicly listed company on the Jamaica Stock Exchange soon, it does intend to list in the future once it has built critical mass. This is to also provide an exit for original investors who injected US$25 million into Deneb last year. It would also open the door for new investors to get exposure to a PE firm of this nature.