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DEAL OF THE WEEK - ETHOS ACQUIRES KEVRO

DEAL OF THE WEEK: FINANCIAL MAIL: 2 February 2012

Ethos Capital has been one of the premier private equity firms in SA for 25 years. It made its 101st investment this week when it bought Kevro, a leading supplier of corporate clothing (what used to be called uniforms) as well as promotional gifts.

After a slow first half of 2011, the pace has picked up at Ethos. In July it listed Holdsport, owner of Sportsmans Warehouse, at an enterprise value (combined equity and debt finance) of R1,5bn.

Five years earlier it had taken what was then Moresport off the JSE for R680m.

And in October it delisted Universal Industries at an enterprise value of R1,3bn. It is a leading supplier of industrial refrigeration and baking equipment.

Ethos CEO André Roux says it has raised R6bn in its five funds and it has already given R9bn of capital back to shareholders. He estimates that it still has about R4bn of unrealised assets.

Kevro markets clothing products under the Barron brand and is also the exclusive distributor of CAT Work & Leisure Wear, Nike Golf wear and Indestruktible Bags. It also offers embroidery, printing and engraving services for corporate gifts.

Ethos replaces private and founder shareholders and takes a 72% stake. Kevro management holds the balance. Kevro joint CEO Steven Isaacson says Ethos’s injection of capital will help the business to enhance its growth. He says Roux brings “business gravitas” to the table.

Kevro already operates from six locations in SA. It is headquartered in a 12000m² warehouse in Modderfontein, Johannesburg and has distribution centres in Durban, Cape Town, Pretoria, Port Elizabeth and Bloemfontein.

Ethos has a wide range of limited partners, both local and international. Roux says that increasingly its shareholder base has shifted from the large North American pension funds towards the sovereign wealth funds in the Middle East and East Asia. “Local banks such as Standard Bank have exited from the private equity business as Basel 3 regulations force them to focus more on their core banking activities.”

Ethos focuses on late- stage and growing but established businesses rather than on venture capital. Roux says the Ethos approach to private equity is relatively low risk.