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The best of SA’s private equity deals for 2015

Up for awards: Actis, Ethos Private Equity and Old Mutual Private Equity.

In February each year DealMakers recognises the achievements of players in the South African mergers and acquisition industry at a black tie gala awards dinner.

The awards are based essentially on objective evidence: the value of deals or transactions, and the number of them. In only three of the awards is selection subjective. One such award is ‘The Catalyst Private Equity Deal of the Year’. Four deals made the short list for this award. The winner will be announced at the 15th DealMakers Annual Awards dinner on February 16.

Acquisition by Actis of Food Lover’s Market

Actis, announced in November it was acquiring a substantial minority stake in Food Lover’s Market for R760 million ($54 million). Estimated to be the largest independent food retail group in Africa, it is one of the last few independent food retailers of scale on the African continent. Actis hasn’t gone public with details of the split on how much of the R760 million is for the acquisition of shares and how much is being injected into the company.

The company has over 120 Food Lover’s Market stores and a presence in 11 countries. It has, in recent years, added categories such as bakery, grocery, butchery and deli foods to complement its market-leading position in fresh produce. Behind the retail facade of Food Lover’s is a very big fruit and vegetable import and export business.

Both Actis and Food Lover’s Market have a very strong alignment in terms of what they do particularly in South Africa and sub-Saharan Africa. The business has a big sub-Saharan African growth drive and Actis been there and done it before with other investments.

Actis is a medium to long-term investor and although operating in a challenging macro environment at the moment, which makes it more difficult to assess investment opportunities, the overall consumer growth story in sub-Saharan Africa is still relevant on a long-term basis.

Disposal by Ethos Private Equity of Plumblink

Ethos acquired Plumblink in 2006 premised on a buoyant outlook for the South African building and construction market. For the first 24 months its rationale was correct. However, in the wake of the global financial crisis the business was significantly adrift from target. Plumblink was mainly a distributor, as opposed to a retailer so when the crisis hit several tough decisions had to be made.

Ethos believed in the business’ fundamentals and realised that the business required a more defensive customer segment. The company was reconfigured and re-engineered. Plumblink went from having large distribution nodes to having much smaller stores in accessible areas, operating like a real retail distribution business. Today, Plumblink is a different business to that which Ethos acquired nine years ago. It is stronger, more robust and more sustainable than it was prior to Ethos’ ownership.

Acquisition by Ethos of Nampak’s businesses

Ethos’ acquisitions of Nampak’s Tissue and Corrugate divisions and the recycling business have been rebranded to reflect the new vision as Neopak (corrugate) and TwinCare (tissue) with a number of strategic appointments. The divisions have become autonomous entities under Ethos’ control, reflecting separate, new leadership and operating structures. The due diligence conducted confirmed significant opportunities to stimulate innovation and inject fresh thinking into customer orientation and manufacturing excellence.

Ethos has put in place a growth agenda which will lift Neopak to new heights and thinking differently about the ordinary will push boundaries. What it envisages is a new strategic direction: the shift from a packaging, manufacturing-led company to a consumer-led, FMCG brand powerhouse.

Acquisition by Old Mutual Private Equity of MoreCorp

News broke in December that Old Mutual Private Equity had closed the MoreCorp deal – best known as the owner of The Pro Shop, World of Golf, Playmoregolf and Cycle Lab.

The opportunity for OMPE’s Fund V to buy MoreCorp arose when founder Rhys Hughs decided to sell his share in the company – the group’s other significant shareholders were also open to the idea. OMPE saw MoreCorp as an entrepreneurial, cash generative business with a great management team, a strong market position in its niche and attractive growth prospects.

The deal was roughly R300 million, for the 70% stake and for growth capital to help management pursue its Cyclelab strategy. MoreCorp aims to launch the mega store format in Cyclelab, where other big box type retailers have been quite successful in the South African market, and roll it out across the country. The capital injection is placed firmly behind that strategy. OMPE says this investment might be longer than normal but that the business always indicates when the right time is to exit.

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