13 Feb 2015

13 FEB 2015

Shift from SA to rest of continent ‘has been monumental

Ethos Private Equity said it may conclude its first pan-African transaction by the end of the first quarter as South African buyout firms look for growth north of the country’s borders.

The investment will be made from Ethos’s Fund VI, which raised $800 million and has an average deal size of $60 million to $80 million, Chief Executive Officer Stuart MacKenzie said in an interview on Friday.

“We still like consumer services and goods, we like business services and industrial services,” MacKenzie said at the annual Southern African Venture Capital and Private Equity Association conference in Stellenbosch, near Cape Town. “We like logistics,” he said, declining to give more details on potential deals.

The Ethos team is looking at making another two investments from Fund VI in the “near future,” with 10 to 12 deals planned in all. Central to its strategy is taking South African companies and expanding them into faster-growing economies in the rest of the continent, according to MacKenzie.

While South Africa is forecast to expand by more than 2% this year, according to its central bank, some countries in Africa, such as Kenya, may top 7%.

“Almost all the growth is outside the borders,” Andrew Dewar, managing partner of Johannesburg-based Rockwood Private Equity, said at the same conference. “The shift from South Africa to the rest of Africa has been monumental.”

Ethos is also working on plans to exit as many as six investments from Fund V. The companies that may be sold, or which plan share sales include Plumblink, Brandcorp Holdings, House of Busby, Idwala Industrial Holdings, Waco International and Universal Industries, MacKenzie said.

“Some initial public offerings are planned,” MacKenzie said, without giving more detail. Fund V’s projected net internal rate of return, a measure of the profitability of its deals, will be “in the range” of 18% to 20%, he said. When Johannesburg-based Ethos has concluded these investments and allocated more of Fund VI, the firm will consider raising Fund VII, he said.