Pere­grine gets set to go pri­vate

The JSE is los­ing an­other lo­cal small cap to pri­vate eq­uity. But Pere­grine in­vestors can opt to stay in for the long haul

Financial Mail - - MONEY&INVESTING - Stephen Cranston cranstons@fm.co.za Source: Bloomberg

ý Af­ter more than 20 years on the JSE, wealth man­ager Pere­grine Hold­ings is likely to be delisted from the ex­change by Septem­ber.

The preda­tor is pri­vate eq­uity firm Cap­i­tal­works, which has of­fered R21 a share to share­hold­ers, valu­ing Pere­grine at R4.5bn.

Pere­grine CEO Rob Katz says the of­fer gives in­vestors the opportunit­y to re­alise their in­vest­ment in the com­pany at a sig­nif­i­cant pre­mium to its re­cent share price, while those who choose to re­tain their ex­po­sure will ben­e­fit from the sup­port of Cap­i­tal­works as a key an­chor share­holder.

The deal has been brew­ing since Oc­to­ber and so far 37.8% of in­vestors have given ir­rev­o­ca­ble un­der­tak­ings to sup­port the of­fer, which both an in­de­pen­dent board as well as the Pere­grine board rec­om­mended.

Pere­grine’s im­mi­nent dis­ap­pear­ance from the bourse is a uniquely telling in­di­ca­tor of just how un­friendly the lo­cal listed en­vi­ron­ment is. Pere­grine, af­ter all, trades the mar­ket through Pere­grine

Cap­i­tal, and also helps other busi­nesses list, through its hal­fowned unit Java

Cap­i­tal.

Cap­i­tal­works is one of the top five pri­vate eq­uity firms in

SA. It man­ages $1bn of as­sets, and is best known for groom­ing the Rhodes Food

Group (now RFG

Hold­ings) for list­ing.

Its larger hold­ings in­clude chicken pro­grine

GO­ING, GO­ING, GONE

Jul

Jul

Jul ducer Sov­er­eign Foods, an­thracite miner Pet­min and Much Asphalt.

Old Mu­tual Equities port­fo­lio man­ager Tracy Brodziak says the jewel of the Pere­grine busi­ness is Ci­tadel, which now ac­counts for three­quar­ters of head­line earn­ings.

“As a pre-emi­nent fi­nan­cial plan­ner, it has a sticky client base. It is es­sen­tial that Cap­i­tal­works re­tains the cul­ture of the busi­ness, which is why it plans to lock in man­age­ment through its share scheme,” she says.

In its lat­est re­sults, Ci­tadel’s gross in­flows in­creased by two-thirds in the year to March 31 2020 to R9.3bn, partly as it di­ver­si­fied from fi­nan­cial plan­ning into di­rect as­set man­age­ment.

All its main port­fo­lios are in the top quar­tile of their sec­tor over three years and it was the only unit of Pere­grine to im­prove earn­ings by 11% to R259m.

The other two main units of the busi­ness, Pere­grine Cap­i­tal and Java Cap­i­tal, are al­ready 50% owned by their own man­age­ment.

Java is a cor­po­rate ad­viser, fo­cused mainly on the listed prop­erty sec­tor where there were very few list­ings. Un­sur­pris­ingly, its in­come was down 14.4%. to R13m.

Pere­grine Cap­i­tal, mean­while, is the pre­mier SA hedge fund house, ri­valled only per­haps by 36One As­set Man­age­ment. Its earn­ings were a third lower at R22.7m, ow­ing to a com­bi­na­tion of lower av­er­age as­sets and the in­abil­ity to earn per­for­mance fees through ab­so­lute re­turns in the tough en­vi­ron­ment.

Pere­grine is in the mid­dle of dis­pos­ing of its hold­ing in Sten­ham, its off­shore as­set man­ager. Katz says it has al­ready sold 50% of the busi­ness to Sten­ham man­age­ment, and has un­der­taken to sell it the rest on its delist­ing. Even though it earns its in­come in ster­ling, Sten­ham’s profit fell 37.5% to R78.5m. Since Pere­grine ac­quired con­trol of Sten­ham in 2008, the mar­gins in its core fund of hedge funds busi­ness have been squeezed and were off­set only by the de­cline of the rand.

Af­ter Katz was ap­pointed as CEO in Au­gust 2017, he soon fol­lowed a pol­icy of ex­tract­ing value.

In­vest­ments held at the cen­tre such as Pere­grine Cap­i­tal funds were hived off into a sep­a­rate list­ing ini­tially called Sandown

Cap­i­tal, now Zar­clear Hold­ings.

Katz also sold Pere

Jul

Jul Se­cu­ri­ties to an em­pow­er­ment con­sor­tium headed by Le­gae Se­cu­ri­ties, in con­trast to the more ac­quis­i­tive ap­proach of his pre­de­ces­sor Jonathan Hertz.

“I liked the [Pere­grine] Se­cu­ri­ties busi­ness,” says Hertz, speak­ing to the FM this week, “be­cause it was the one busi­ness in the group that could ben­e­fit from clients and trans­ac­tions in al­most any other busi­ness: as­set man­age­ment in SA and abroad, hedge funds, book­builds done in the ad­vi­sory sec­tor and cor­po­rate fi­nance.”

Hertz was also re­spon­si­ble for buy­ing into Java Cap­i­tal, which printed money dur­ing the listed prop­erty boom.

Cap­i­tal­works has pro­posed a scheme of ar­range­ment to im­ple­ment the deal, with a gen­eral of­fer run­ning along­side.

If the scheme of ar­range­ment, which needs buy-in from 75% of share­hold­ers, doesn’t be­come op­er­a­tive, the gen­eral of­fer will kick in.

Hertz points out that ex­it­ing share­hold­ers are get­ting a mul­ti­ple of more than 12 times earn­ings, a good of­fer in this mar­ket.

But, he ar­gues, there’s rea­son to stay in too. “Staff and share­hold­ers re­main­ing in the un­listed busi­ness are get­ting one of the great fi­nan­cial ser­vices busi­nesses in SA in Ci­tadel.”

He be­lieves those share­hold­ers that choose to re­main should ul­ti­mately be larger share­hold­ers in a debt-free ve­hi­cle in four or five year’s time, once the cash gen­er­ated by the group is used to pay off the debt.

“Their re­turn on cap­i­tal should be ex­cel­lent and make up for five or so years of not earn­ing a div­i­dend.”

Div­i­dend

Rob Katz: Sold Pere­grine Se­cu­ri­ties to an em­pow­er­ment con­sor­tium Freddy Mavunda

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