Old Mutual is betting on consumers

OLD MUTUAL’s private equity unit plans to buy stakes in two consumer-facing companies this month, betting that high-end spending will remain strong even as a mining slump puts pressure on the economy.

The country’s largest insurer had agreed last week to invest R300 million in one consumer company and it planned to make a similarly sized purchase this month, the head of private equity at the asset manager, Jacci Myburgh, said on Monday without naming the businesses.The purchases will mean the R4 billion Fund IV will reach the halfway point in investing its capital.

“The higher-end consumer is a better place to be, maybe over the next two or three years,” Myburgh said in Cape Town. “Given where the mining industry is, and the knock-on effect on manufacturing, you may see some job losses coming through and we think that will impact some areas of the middle-class consumer more than the higher-end.”

South Africa’s mining companies are shedding thousands of jobs as commodity prices slide.

Turn to retailers

The country’s private equity investors are turning to investments in retailers and financial services as improvements in education and infrastructure reduce poverty and boost consumer spending. Old Mutual’s Fund IV has R1.3bn invested in companies such as cinema chain owner Primedia, investment company 10X and Tiger Automotive, a tyre and battery supplier.

Old Mutual sold its stake in Lagos, Nigeria-listed Ecobank Transnational to close its Fund III. Nedbank, controlled by the insurer, holds about 20 percent of Ecobank. “We saw the bank had rerated a little bit over the past and we’re not sure there’s much more to come from that in the short term,” he said. “There are issues around Nigeria with the oil price and the currency.”

Growth in Brazil and Mexico might produce buying opportunities in a year or two, said James Regout, the manager of R6.1bn in three Old Mutual international private equity funds.

The investor was planning to sell its remaining five assets in the R2.8bn Fund II by the end of next year, Myburgh said.

The fund would perform “reasonably well” considering it started before the 2008 financial crisis.

Targets for potential investments typically had high prices and muted expectations for growth, Myburgh said. Investing in health care was appealing for its defensive nature and education was also interesting to the team, he said. – Bloomberg