Going private with Absa Capital
BEE - the leverage in buy-outs in South Africa today
outh Africa is a great place to be doing business at the moment. Business confidence is at a high, while economic prospects are positive. It therefore comes as no surprise that the Private Equity industry is also robust and confidence in its continual growth amongst practitioners is high. One of the drivers of continued growth in Private Equity is Black Economic Empowerment (BEE). The recent management buy- out of MB Technologies (MB Tech) by black investment company Royal Bafokeng Holdings (RBH) can be regarded as one of the recent Private Equity success stories in our country. MB Tech is a market leader in distribution of branded hardware, software, services and solutions in the South African information technology sector. RBH bought into the business in 2006 by taking a 26% stake to give MB Tech an empowerment profile. It has now exercised its option to buy-out minority stakeholders and become the primary shareholder, turning it into South Africa's largest black-empowered and privately owned information technology group. Absa Capital’s Equity Investment team successfully facilitated the transaction – from leading the R513 million management buy- out and delisting transaction of MBT during October 2002 to facilitating the introduction of RBH as a shareholder in MB Tech in 2006 and now assisting RBH to buy out the balance of its shareholding in MB Tech. “Absa Capital added significant value to MB Tech in the period since our delisting. Underperforming divisions were sold or restructured, revenue and profit were grown substantially and funding support was provided for growth activities. We are today a stronger business, with significant growth opportunities,” says Leo Baxter, the managing director of MB Technologies.
Taking BEE to the next level “ The conclusion of the Information and Communications Technology (ICT) Charter in 2005 created opportunities for BEE companies and banks alike to supply funding and play an advisory role in this sector. Absa Capital has a strategic focus on the ICT sector and the Royal Bafokeng/MB Tech transaction is in line with our vision to take BEE to the next level,” says André Pieterse, head of Equity Investments at Absa Capital. And that’s what Absa Capital’s Equity Investments team is all about – taking BEE to the next level.
“Absa Capital is well prepared to add impetus to the empowerment drive. We understand the challenges of financing empower -ment transactions and our innovative solutions are home-grown, versatile and designed with a view to promote sustainable broadbased BEE that will fundamentally transform the ownership patterns of the South African economy as espoused in the Financial Services Charter (FSC), of which we are signatories,” Pieterse adds. The challenge in structuring BEE deals continues to be a lack of funding and access to funding on the part of BEE investors. “Absa Capital’s Private Equity team has a significant role to play in partly addressing this challenge. Private Equity seeks to partially meet the gap of required capital to complete BEE transactions. For a sense of how much capital is required, the JSE is currently capitalised at approximately R4 trillion. To be able to place 25% of that into black hands, a whopping R1 trillion is required,” says Pieterse. “Equity still remains costly as opposed to debt, however, most of the opportunities arising in Private Equity have a BEE flavour. This trend will continue for the next couple of years until companies have met their requirements,” he adds.
Fully local, fully global Absa Capital came into being after Barclays Bank plc bought a majority share in Absa in July 2005. The philosophy driving the acquisition has been to combine the best of Barclays and the best of Absa to create the pre-eminent bank on the African continent. The spin-offs for BEE stakeholders are hugely exciting. There is no other investment bank, or similar institution locally, that can credibly lay claim to what Absa Capital can offer in terms of the innovative structuring, arranging, underwriting, implementation and funding of BEE transactions. In addition to structuring and financing local empowerment deals, Absa Capital’s Equity Investment team, through its affiliation with Barclays Capital, can now also accompany BEE companies on their ventures to leap further offshore. As an emerging market that’s increasingly playing on the world stage, the South African market has for a while demanded access to this level of investment bank. Absa met this need head-on and now, through Absa Capital, has become a global player in investment banking circles.