Private equity tendencies will serve Lamberti well
Last year will not be the last time Mark Lamberti’s Transaction Capital sells one of its divisions and returns some of the sweet proceeds to shareholders, writes Phakamisa Ndzamela.
I am willing to bet the sum of R206m ”” the cost of number one’s security upgrades at Nkandla ”” that 2013 will not be the last time Mark Lamberti’s Transaction Capital sells one of its divisions and returns some of the sweet proceeds to shareholders.
You see, Mr Lamberti and his crew, are the type of entrepreneurs who would sell their suits, shoes and walk home in their boxers and socks, if there was money to be made out of it.
In a nutshell, Transaction Capital has private equity tendencies, just like some print moguls in Rosebank. But Mr Lamberti knows how to play a long-term game.
Oops!!! There goes a potential lunch meeting.
Although Mr Lamberti officially stepped down last week from the executive role of CEO at Transaction Capital, he will remain influential as he moves to the role of nonexecutive chairman.
This means as a nonexecutive he will play a guiding role in building up Transaction Capital both acquisitively and organically.
Mr Lamberti, a fluent Zulu speaker, has a reputation for building and selling and I suspect that at some point as nonexecutive chairman he will have to deal with a sale of a unit at Transaction Capital.
Why do I say this?
Mr Lamberti is the founder and architect of the retail Goliath Massmart, the company behind Makro and Game.
Mr Lamberti, who is also a helicopter pilot, helped to build Massmart "from six underperforming stores to Africa’s third-largest retailer with 238 stores in 14 countries in sub-Saharan Africa", according to his LinkedIn profile.
Of course, Massmart has kept growing under Grant Pattison, to close to 400 stores. In 1990 when it had six stores, Massmart had earnings of about R1bn.
As CEO, Mr Lamberti expanded Massmart substantially. He later became chairman, and then guess what happened? In 2010, when Massmart had earnings of about R47bn, part of the company, 51%, was sold to Walmart for about R16bn.
Will history repeat itself now that Mr Lamberti has moved from CEO to chairman of Transaction Capital and perhaps sell the financial services company to an international player?
I do not think it would happen now. But what is obvious is that Mr Lamberti is not shy of selling anything at a profit.
Even before the Massmart/ Walmart deal, under Mr Lamberti Massmart acquired and sold one of its businesses.
Massmart acquired Furnex in 2002, a supplier of appliances, hi-tech and cellphone equipment and bedding, for R44.5m.
In February 2006, Furnex was sold at an undisclosed premium to net asset value. At the time Massmart believed Furnex was competing with Game and therefore disposed of the company.
Under Mr Lamberti, Transaction Capital has sold at least two businesses for solid profits.
Transaction Capital ended last year with a cash pile of about R2.2bn following the disposal of Paycorp and Bayport Financial Services. Paycorp, a provider of payment services such as ATMs, was sold for R937m last year after it was acquired for R431m in 2007.
Transaction Capital also sold all its shares in unsecured lender Bayport, along with its stake in Zenthyme, for R1.3bn. Transaction Capital had acquired 82.65% of Bayport in 2010 for R650m.
Transaction Capital is now left with four divisions; SA Taxi, Rand Trust, MBD Credit Solutions and Principa. The plan is to target an earnings growth of about 20% in each of the four divisions.
But watch this space. With Mr Lamberti as chairman and David Hurwitz as CEO, Transaction Capital is likely to grow further.
This will be done organically and through acquisitions.
About R900m in cash has been set aside for acquisitions in the next three years.
Transaction Capital is likely to supplement this war chest with debt.
Once the company gets to a stage where it has scaled up, I bet there will be a review and one of its divisions will be sold and proceeds are likely to be returned to shareholders. Just look at the board of Transaction Capital: at least four directors have the word private equity linked to their CVs.
If you are a shareholder who loves dividends, I suspect Transaction Capital may be the right counter.
As a result of the sale of Bayport and Paycorp, R1.2bn will be returned to shareholders in dividends at 200c per share.
I am not yet convinced with Transaction Capital’s share price. It’s been stubbornly sitting at the mid-R7 level. I would buy for dividends and not for share price appreciation for now.