Ethos’ Investment Reveals Universal Truths
Sometimes the most compelling investment stories are found in the most unglamorous places. The nuts and bolts holding everyday life in place, often unseen or unnoticed by the consumer, are frequently where these stories are born. The Ethos-led management buyout of Universal Industries, one of Catalyst’s three finalists for the coveted Private Equity Deal of the Year Award, is one such.
Universal Industries isn’t a sexy money-spinning casino operation, or media empire, or cash churning retailer – though it is heavily allied to the retail space. No, it’s better than that. It’s an essential industrial component in the machinery of mass market retail, making it indispensible to the consumer-led growth that Southern Africa is trying desperately to establish as the foundations for its push into the first world.
Universal is the holding company for South Africa’s leading suppliers of: Refrigerated display cases; Polyurethane insulated panels; Commercial ovens and related baking equipment; and Commercial catering and kitchen equipment.
The group supplies mainly to the perishable food retail, wholesale, hospitality and related industries. All underlying businesses are well established (some with a history of more than 100 years) and supply a diverse range of blue chip customers in the local and international markets. The management team is particularly well regarded in the industry.
When one throws the entry of American heavyweight Wal-Mart into the mix – it has stated that it will introduce food retailing to the already successful Massmart stable – then the decision by Ethos and management shareholders of Universal Industries to buyout and delist the company makes for a mouth-watering investment case.
The acquiring consortium comprises Ethos Private Equity Fund V and management and directors of Universal. It is intended that a BEE shareholder will be introduced in time to improve the empowerment credentials of the business.
Ethos was prepared to pay a generous premium to get its hand on the asset as the scheme consideration was pitched at a premium of 37.3% to the closing price of Universal shares on the last business day immediately prior to the date of publication of the first cautionary announcement.
Unsurprisingly, the leveraged buyout received overwhelming approval from shareholders and achieved all the required regulatory approval, including Competition Commission approval. The price of R2.50 per share represents an enterprise value of R1.3bn.
Ethos partner, Shaun Zagnoev, was particularly encouraged by the pedigree of Universal’s management.
“Universal has considerable potential, with a leading share of the local market, powerful brands and exciting sub-Saharan growth prospects,” explains Zagnoev, “making this an extremely attractive investment for Ethos in partnership with a highly regarded management team.”
Ethos has a history of innovation in the South African private equity industry and is once again ahead of the pack by concluding the first public-to-private transaction under the new Companies Act.
“Together with management, we will unlock value by enhancing operational efficiencies while increasing local market share and directing substantial resources towards the burgeoning African opportunity,” added Ethos principal, Samantha Pokroy.
Ethos is currently raising Fund VI, focusing mostly on control acquisitions and expansion capital in medium-to-large companies in South Africa and selectively in sub-Saharan Africa.