ARC to acquire stake in Alex Forbes

AFRICAN Rainbow Capital (ARC) has announced that it was going to acquire a 10 percent stake in financial services company Alexander Forbes Limited (AFL) for a cash consideration of R753.45 million.

ARC, which is chaired by mining magnate Patrice Motsepe and owned by Ubuntu-Botho Investments, said the acquisition was part of its expansion strategy into new markets. ARC joint chief executive Johan van Zyl said the investment would establish a good base and foundation for the company’s venture into Africa.

“We have a 10 to 20 year vision to build a South African base and expand into the rest of Africa and our investment in AFL is a key step towards executing that strategy,” said van Zyl. Alexander Forbes has been searching for a BEE partner for a while and in ARC it has managed to find a partner with the right credentials.

Besides Motsepe and Van Zyl, the ARC board also boasts former Nedbank chief executive Tom Boardman.

Milestone

The company said AFL’s largest shareholder Mercer Africa supported the transaction by ARC. Andrew Darfoor, chief executive of Alexander Forbes said the investment by a 100 percent black-owned investor was a significant milestone in the group’s ongoing transformation.

“It introduces an investor with an impressive commercial track record whose vision, values and expertise perfectly complement the group’s strategic ambition of building a globally distinctive pan-African financial services organisation,” said Darfoor.

Nolwandle Mthombeni, an equity analyst at Mergence Investment Managers, said the substance of this transaction was that the group had found an empowerment partner who will invest in Alexander Forbes’ African ventures through an underlying subsidiary that would house its African operations. Mthombeni said that the R753.45m was a major material consideration for Alexander Forbes as it equated to almost 8 percent of the company’s market capitalisation.

Partnership

“The transaction is meant to be a strategic partnership that will help unlock value through expansion in the public sector and the rest of Africa,” Mthombeni said. “This transaction will ultimately see ARC swopping out its shares in the subsidiary for shares in the listed entity subject to certain conditions. However, the transaction requires shareholder approval, so ultimately shareholders will have to weigh up their options and vote.”

Nico Smuts, an analyst at 36ONE Asset Management, said the transaction appeared to be based on Alexander Forbes’ empowerment strategy.

Smuts said however the deal was vague on how the funds raised would be used to facilitate the growth of the business.

“I expect that investors will be given more details at the interim results announcement in late November,” said Smuts.

Alexander Forbes shares dropped 0.94 percent on the JSE yesterday to close at R6.34.