Ethos Primed For High-level Equity Deals
Ethos Private Equity has raised the largest private equity fund to date in Africa as it prepares to take advantage of a growing number of large private equity opportunities available.
Ethos said yesterday its Fund V had R5,5bn available for investment, with more than half of that coming from overseas investors.
Over the past few weeks, a number of proposed large private equity deals have come to the fore, including the buyouts of Alexander Forbes, Edcon and Shoprite. Ethos is part of a consortium of private equity players interested in buying Alexander Forbes, led by Actis.
“We think there is a lot of opportunity in the South African private equity market for transactions that are worth more than R7bn,” CEO AndrÃ© Roux said.
Although Ethos had concluded a number of smaller deals from the investment in Fund V, Roux said larger investment opportunities were also presenting themselves. There was less competition in the market for the larger deals, with Ethos, Actis and Brait dominating the local landscape.
“What we are predicting going forward is a paradigm shift in the amount of capital that is going to be available to the large end of the private equity market,” Roux said.
While there was R12,4bn available for investment by private equity funds aimed at the large end of the market last year, according to a survey by KPMG, Roux said this was likely to swell to R30bn at the end of this year as private equity groups raised larger funds. Globally, about $1-trillion was invested in private equity, he said.
“I think our success in raising such a large fund is also attributable to the amount of capital that is flowing around the world,” Roux said. “Clearly, a lot of that capital is seeking a home.” Roux said expected growth rates of more than 4% for the next few years and good investment opportunities had made SA an attractive destination for investment.
Investors in the Ethos Fund V included local institutions Old Mutual, Sanlam, Momentum Life and the Eskom Pension Fund. Offshore investors included Canadian pension fund Teachers Private Capital, the State of New York Pension Fund, a number of high net-worth individuals, and a significant Middle Eastern investor, the Ethos CEO said.
Ethos had already made three investments from its Fund V, including helping fund a management buyout at Moresport and the purchases of payments solution group Kanderlane and plumbing supplier Plumblink.
“By no means do we just want to get involved in the Alexander Forbes kind of deals,” Roux said.
Roux said it made sense to buy and delist Alexander Forbes due to the problems it had faced over the past year over its previous bulking practices. He said a lot of work had to be done to return Alexander Forbes to the state it was in five years ago and this would be easier to do if it was a private company.
“It makes a lot of sense for a business like that to be taken private and sorted out without the short-term pressures of the stock markets,” Roux said. “It would be the logical thing to relist it once it has been restructured.”
Roux said private equity interest in the retail sector had been driven by the potential growth of the black middle class in SA and the positive effect that had on retailers.