Teachers Teams Up In South Africa
The hunt for big-game buyouts has taken the Ontario Teachers Pension Plan to South Africa, where the fund has teamed up with the region's oldest private equity fund to stalk a pair of targets.
Teachers announced yesterday that it is working with Johannesburg buyout firm Ethos Ltd. on an $850-million friendly offer for South Africa's largest glass maker, Consol Ltd.
The publicly traded company holds 75 per cent of South Africa's glass market ”” it makes most of the country's beer bottles ”” and Consol's board has approved the bid.
Last month, the Teachers fund and the Caisse de dÃ©pÃ´t et placement du QuÃ©bec teamed up with Ethos to back a $1.1-billion bid for money manager Alexander Forbes Ltd. That contested auction promises to yield the largest buyout in South African history.
The Teachers fund is making its first foray into Africa as North American private equity markets become increasingly crowded, and experts suggest strong past performance from the sector cannot be sustained.
“South Africa is the engine of economic growth for this whole region,” said James Leech, head of Teachers Merchant Capital, the private equity arm of the $84-billion fund. “We've been spending a fair amount of time in South Africa over the last three years, laying the groundwork for investment.”
That groundwork included building ties to Ethos, South Africa's oldest private equity fund. Founded in 1984, Ethos has been involved in 87 transactions and has made more than $500-million in profit. In 2004, the fund struck a deal that saw it become a black-owned company, in partnership with what's known as a black empowerment company named Sphere Holdings.
Ethos focuses on steady, Old Economy plays, with stakes in the country's largest plumbing and tap maker, a catering company, a mining equipment maker and a building supplies manufacturer.
“South Africa is a not a difficult a place to do business. You've got a strong economy and a respected Anglo-Saxon judicial system,” said Mr. Leech, adding that the fund will look for other investing opportunities in the region.
More than 60 per cent of Teachers' $12-billion in private equity investments are outside Canada, and the foreign content has been growing steadily.
South Africa may seem a world away, yet circles are small in high finance. One of the Ethos partners, Ngalaah Chuphi, is an engineering graduate of Queens University, the same school where Teachers' Mr. Leech earned his MBA, though the two did not meet until recently.
With bids for both Consol and Alexander Forbes still needing shareholder approval, Mr. Leech would not go into details on financing, except to say that Ethos and the Canadian fund are equal partners in the Consol offer. However, local analysts see Ethos and Teachers sitting pretty with a board-approved bid for the glass maker that supplies all the bottles used in the country by brewer SABMiller PLC.
“It's a knockout,” said Warwick Lucas, an investment analyst at Imara SP Reid Ltd. in Johannesburg. “I don't think they are going to have too much trouble getting acceptances.”
Consol has no controlling shareholder and its stock price is up 60 per cent from mid-July, when the company first revealed it was in takeover talks.