Value Capital Partners learn from the best to get hands dirty

Activist investors — such as the US’s Bill Ackman — aren’t in vast supply on the JSE. However, there have been some fairly big investorbacked management ructions of late — at Net1, Group Five and now at Adcorp, where CEO Richard Pike and chief operating officer Nelis Swart quit after the arrival of Value Capital Partners on the company’s shareholder register.

Business Day spoke to Value Capital Partners CEO and former Brait director Sam Sithole.

Why the break from Brait? Was it simply time to go out on your own?

I’d been at Brait for eight and a half years, which was a very exciting time. When I joined, Brait was a traditional thirdparty asset manager with hedge funds and debt funds. So we went through an evolution with Christo Wiese coming on board … by the time I left in September 2016, I’d been talking to [Brait CEO] John Gnodde about leaving since 2014 and trying something new…. So it was a very amicable parting of ways and it was time to do something different.

What is Value Capital Partners all about?

In the US they call them “activist investors” and probably the most prominent guys are ValueAct Capital, based in San Francisco. They manage about $17bn and they also come from a private-equity background. And then the other guys who are prominent in Europe are Cevian capital, based in Sweden…. So when we knew this was the model we [wanted] we took a trip to the US and met ValueAct’s chief investment officer Mason Morfit. We went to Sweden and met Christer Gardell, the founder of Cevian, just to understand the model and get it right. We’re basically doing private equity in the listed space where you get companies to get the discipline back, bring about [better] capital allocation, think about remuneration policies, guide strategy and just make companies more efficient and drive value for shareholders.

Your three investments so far (Altron, African Phoenix and Adcorp) could be described as distressed. And what was the thinking behind your Adcorp purchase?

We don’t do distressed businesses, so the way to think about it is that we invest in businesses with a good business model that, for one reason or another, their true value is not being reflected in the share price — this could be because of bad investments that have been made in the past … it could be poor succession planning. We then get involved to make sure that value-add happens. That’s what we saw in Altron and what we see in Adcorp and African Phoenix, where we have 15%.

How are you funded?

We were quite fortunate. Myself and Anthony Ball started the business with our own money and then raised additional funding from friends and family — people who are longterm investors who we know and trust. Our fund, which operates as a qualified investor hedge fund, now has about R1.5bn.

Will you restrict yourself to companies listed in SA?

The way our business operates is that we end up with eight to 10 companies and we have eight to 10 senior guys. Each person will have two investments and we will have two people at each investment. It’s a very concentrated portfolio so when we invest in an asset, unlike with typical nonexecutive directors, we are very engaged. We speak to the CEO, the financial director, probably three to five times a week [and] we get involved in assisting them with capital allocation, acquisitions — so we are not a typical asset manager. We’re targeting assets in the R1bn to R10bn market [capitalisation range].

Who is in the team at Value Capital Partners?

We’ve got two guys who were principals at a private equity firm, a young lady who joined us from Goldman Sachs in London, another young lady from JPMorgan, a guy who was with Microsoft…. So what we want to do is put together exceptional people who’ve got investment brains…. You are dealing with executive directors and sometimes you have to ask people to leave and you have to be able to do that with a lot of humility, a lot of respect….

Are South African companies ready for activist shareholders?

I think SA is ready. It’s got a great governance system, it’s got a great capital market and this is one way of making sure you get alignment between the board, the management and shareholders. We’ve actually found our work complements what the asset managers do.

WE’RE BASICALLY DOING PRIVATE EQUITY IN THE LISTED SPACE WHERE YOU GET FIRMS TO GET THE DISCIPLINE BACK WHEN WE INVEST IN AN ASSET, UNLIKE WITH TYPICAL NONEXECUTIVE DIRECTORS WE ARE VERY ENGAGED