Almost a year after concluding a black empowerment and staff deal, financial services group Prescient obtained regulatory approval for the transaction in March.
In a deal worth R710 million, Prescient Empowerment Trust has increased its interest in Prescient Holdings to a controlling equity stake of 56%. The deal also saw black-owned Sithega Financial Services acquire a controlling equity stake of 75% in the Prescient Empowerment Trust for R360 million. Former chief executive of Liberty Holdings, Thabo Dloti, is the managing director of Sithega. In a second deal worth R234 million, strategic management subscribed for a 16% equity stake in Prescient Holdings.
The change in ownership structure is set out below.
The journey to becoming a black-owned group with a level 2 BEE certificate follows an undertaking given to stakeholders when Prescient delisted in 2017.
Stellar Capital Partners previously got involved with Prescient when it delisted and unbundled from the IT business, and ended up with a 49% stake. The transaction saw Stellar dilute from 49% to 19% to facilitate the BEE transaction. Although some staff already had shares, an additional 16% stake was sold to staff.
Herman Steyn, the chairperson of Prescient, says over time the empowerment charter has changed.
“We started changing. Our demographics of our staff started changing and the desire to be black-owned increased, not only from internally but externally as well. It became sort of one of the criteria that gave you a ticket to the game.”
It took some time to get the right black partner on board. Steyn says they spoke to a lot of people, but nothing really fitted. Then Dloti left Stanlib, and Steyn saw an opportunity. Dloti previously chaired the board of the Association for Savings and Investment South Africa, during which the pair had interacted.
They both previously received actuarial bursaries from Old Mutual and both come from small towns, talked the same language, and agreed to a transaction in July 2017. They then had to negotiate with Stellar around the structure of the transaction. There were also other existing shareholders to keep in mind.
“Obviously everybody comes from a slightly different angle and we had to manage the transaction, making sure everybody is on the same side, but it took a while. It also took some time building up trust,” Steyn says.
Prescient did not want to transact with anybody that would compete with them.
With regulatory approval finalised, the group can now focus on growth.
R18bn in lost business to reclaim
When the Public Investment Corporation previously said fund managers had to be 51% black-owned to retain pension fund mandates, most parastatals followed their cue. Within six months, Prescient lost about R18 billion, even though it was among the top performers, Steyn says.
“Clearly we believe we can get that and more back,” he says.
But as most black-owned South African fund managers will attest, being black-owned is no guarantee that you will attract pension fund money.
Steyn acknowledges that and says the investment team will need to make sure performance and consistency are satisfactory.
“But at least I think we are very much more in the game.”
Dloti, who co-founded Sithega with Discovery Insure founder Themba Baloyi, says the firm was looking for businesses to partner with. Sithega focuses on asset management, life insurance and short-term insurance.
“All of us know how hard it is to build a business from scratch and we would prefer not to do that unless we have to.”
Against this background, Sithega was looking for partners with strong capabilities it could leverage, and firms that also want to grow.
“Our aim as Sithega is not to operationally run businesses. It is to strategically influence them,” he says.
Peter van Zyl, CEO of Stellar, says the firm has gone through a couple of changes over the last two years and has been exiting its industrial assets. Going forward, it will retain its exposure predominantly to financial services businesses.
While it is undoubtedly a difficult time to grow a business in South Africa, Steyn says the way people do business is also changing. Certain legacy businesses might struggle, but there may also be an opportunity.
“We do recognise that the retirement fund industry is shrinking. It is not just a rising tide that is going to lift all boats. We need to go take business away from other people. That is going to have to happen.”
Moreover, global markets cannot be ignored. Steyn says the partnership makes the group stronger as a unit to grow its offshore earnings.