2021 Annual - (released February 2022)
SA's quarterly Private Equity & Venture Capital magazine
This is the 17th year in which the Gold Medal is awarded for the Private Equity Deal of the Year. Nominations were received from advisory firms which were passed on to an Independent Selection Panel, headed by Bernard Swanepoel and consisting of Naspers SA CEO, Phuthi Mahanyele-Dabengwa and businesswoman, Nicky Newton-King.
2021 PRIVATE EQUITY DEAL OF THE YEAR
Ascendis Animal Health acquisition by Acorn Private Equity
The rise and fall of Ascendis Health has gripped the investor community for the last few years, with twists and turns that would make The Game Of Thrones writers proud. The one difference is that when characters died in Game of Thrones, they rarely, if ever, came back. Not so this time around as, late last year, two prime movers of Ascendis’ acquisitive phase, former CEO Karsten Wellner and co-founder Gary Shayne, were voted back onto the board as non-executive directors. The experienced Andrew Marshall, former CEO of Oceana and Nampak, was removed as Chair and appointed CEO, and then recently removed as CEO. Shareholder activist Harry Smit, described by some as South Africa’s version of Tyrion Lannister, achieved the unthinkable by seeing off two CEOs and a private equity fund to ascend to the Iron Throne.
After being brought to market by private equity firm Coast2Coast in 2013, Wellner and Shayne geared up, pursuing earnings growth at the expense of the balance sheet, and it all eventually collapsed in on itself six years later.
Despite the underlying businesses performing well, an unsustainable capital structure, amassing a debt pile of over R7bn, led to a recapitalisation agreement with Blantrye Capital and L1 Health, with the lender consortium taking control of the crown jewels last year – European subsidiaries, Remedica and Sun Wave – in exchange for Ascendis’ outstanding debt.
Prior to that, Ascendis, under the stewardship of then CEO Mark Sardi, had set about disposing of assets it deemed non-core, which saw Acorn Agri & Food pipping Amethis and Phatisa to the company’s Animal healthcare business in a move that took the market by surprise.
After initiating a sale process in August of 2020, Ascendis revealed that it had created a short list of potential buyers, including an unnamed preferred bidder.
Acorn Agri & Food is a publicly listed investment holding company managed by Acorn Private Equity.
The animal health unit was a small part of Ascendis, contributing around 7% of its overall topline, as a manufacturer and distributer of products in South Africa.
The unit makes medication for farm animals (cattle, pigs, sheep and poultry) and pets (including cats, dogs and horses). It has three niche businesses: Ascendis Animal Health (focusing on farm animals), Ascendis Vet (for pets), and Kyron Laboratories, which makes over-the-counter health and beauty products.
Its portfolio includes brands such as Ivermax, MAXI-TET, Attila, Triworm, Petcam, Mobiflex, Purl, Cleangel, Petremedy and Protexin. Kyron offers a range of veterinary medical devices. The company also exports to several countries in Africa and the Middle East.
Financial Advisers: Absa CIB and Questco
Legal Advisers: ENSafrica, Webber Wentzel and Werksmans
Transactional Support Services: PwC
Comment from the Independent Panel:
Many smart and timely deal opportunities are found in the non-core assets which are disposed of when corporate restructuring and recapitalisation take place. Our winning transaction involving Ascendis Animal Health is a classic PE deal involving good cash generative assets and concluded at good and fair valuation for both the seller and the buyer.
PICK OF THE BEST (IN ALPHABETICAL ORDER)
Ata Fund III Partnership/Manco spv acquisition of Respiratory Care Africa
The most recent deal to emerge from the Ascendis saga was the Management Buyout of Respiratory Care Africa (RCA), a medical devices supplier, in November 2021, led by private equity firm Ata Capital. The MBO was financed through Ata Capital’s latest BEE value fund, Ata Fund III, and makes the PE firm a majority shareholder.
The MBO has enabled RCA to return to its original status as a 100% South African, privately owned medical devices company. The MBO opportunity is a result of Ascendis’ asset divestment and group recapitalisation strategy.
Commenting on the MBO, Ata Capital’s CEO, Mamedupi Matsipa said, “We believe that this investment offers significant growth prospects. As a leading supplier of ventilators and high-flow nasal oxygen equipment to both public and private hospitals, RCA has been instrumental in the fight against COVID-19. RCA has performed exceptionally well during the pandemic, and the increase in its device install base since early 2020 has created the potential for continued enhanced profitability through increased support and consumables sales once the pandemic subsides and trading conditions normalise. We are proud to partner with excellence.”
Established in 1998, RCA is a supplier of respiratory, monitoring, radiology and other medical equipment and consumables used in the treatment of patients in hospitals (with a focus on high care, intensive care units, operating theatres, and maternity wards), and in the home. It also provides its customers with technical support, services, and consumables.
RCA Managing Director, Christiaan De Wet commented, “We are elated that this transaction lets us once again become a 100% South African, privately owned company, allowing the business agility to operate & adapt the business to cope with this everchanging healthcare environment”.
Financial Advisers: Rothschild & Co, Sapila Capital and Questco
Legal Advisers: ENSafrica, Webber Wentzel and Falcon & Hume
Transactional Support Services: PwC
Comment from the Independent Panel:
Another typical PE deal of good assets coming out of the Ascendis Health restructuring. The panel appreciates the open and transparent cooperation between all parties, resulting in a good outcome for a leading supplier of ventilators and high-flow oxygen equipment right in the midst of the Covid-19 pandemic.
Everite – Lonsa and Legacy Africa acquisition
A few glimmers of light offer some hope for South Africa’s battered and bruised construction sector, which is longing for the boom years prior to the 2010 Football World Cup to return.
First, President Cyril Ramaphosa’s Economic Reconstruction and Recovery Plan has placed a grand R1 trillion infrastructure plan (leveraging up to R660bn of ‘crowded in’ private sector capital, or so it is hoped) at the centre. Clearly, plans are wearing thin, and only execution matters at this late stage to pull South Africa back from the brink of failed statehood, but insiders remain hopeful.
Second, inbound deal activity is heating up in the sector, as evidenced by Mauritian investment entity, Lonsa Group (Lonsa) acquiring the majority and controlling shareholding in Everite – the leading industrial manufacturer of a range of building products for the commercial, industrial and residential markets – for some R600-million, in a massive vote of confidence in South Africa’s struggling construction sector.
The deal, which was effective 1 May 2021, includes Everite Group’s assets, businesses and companies (including Sky Sands Pty Limited and Sheet-rite Pty Limited), as well as the purchase from a third party of the freehold property from which Everite operates. It was partially debt-financed by Nedbank Limited.
Everite is an iconic name in local construction; founded in South Africa in 1941 as an asbestos cement manufacturing company, by the Schmidheiny family (founders of Holcim Cement, a multinational giant), it was acquired by Group Five from the Swiss Eternit Group in 1991.
As one of the “crown jewels” of Group Five, Everite was put up for sale by the listed construction and engineering group as part of its business rescue process. Group Five was placed in business rescue in March 2019 after experiencing financial problems due to, inter alia, its financial exposure in Africa and a lack of contracts. From a peak market value of R8.2-billion in 2007, Group Five was worth less than R100 million when its shares stopped trading.
Lonsa Everite, the special purpose vehicle incorporated to execute the acquisition – made up of Lonsa (55.49%), Everite Management (14.5%), Legacy Africa Capital Partners Pty Limited (25.01%) and Muvhango Netshitangani (5.0%) – emerged as the successful bidder following a highly competitive auction.
Everite and its various related businesses and subsidiaries employ over 500 people.
Lonsa, chaired by experienced Zimbabwean investment banker Robin Vela, is a principal investment entity, investing in the energy, industrials, logistics and property sectors in Africa. In a release at the time of the announcement, Vela said that it acquired Everite because of its 80-year track record of profitability and cash generation, as well as its significant tangible growth prospects into the rest of Africa, which is currently underserved; its consistent growth amid challenging economic conditions prior to and during COVID – EBITDA was in excess of R100 million per year for FY16 – FY19, increasing to R130 million plus in FY2021; and a strong management team.
Undoubtedly, other reasons included the significant barrier to entry created by the R2bn cost of the facility that Everite holds, and the 10-year period that it would take a competitor to get the premises in place, and permits (EIA, Water, Power, and others) to compete; and Everite being the only large-scale fibre cement manufacturer in South Africa, and sub-Saharan Africa.
Financial Advisers: Metis Strategic Advisors, Birkett Stewart McHendrie and Mazars
Legal Advisers: Werksmans and ENSafrica
Comment from the Independent Panel:
A very nice, clean and simple transaction involving one of the ‘crown jewels’ of Group Five, implemented as part of the formerly listed group’s business rescue process. The panel liked that these were good PE assets, well priced and saving some 500 jobs. The panel wishes to commend Birkett Stewart McHendrie for the quality submission they made.
MVM Holdings acquisition of the Sharks
The COVID-19 pandemic has ushered in the era of private equity in professional sports. Over the past two years, PE firms have taken on passive stakes in professional sports franchises and leagues, after the NBA, MLB and Major League Soccer loosened ownership rules to include institutional investors. And rugby has been no different. The game saw private equity investors taking stakes in the New Zealand All Blacks and, most notably, locally, The Sharks in January of 2021.
The man behind MVM Holdings, an international investment consortium that acquired 51% of the Durban franchise, is Marco Masotti, Amanzimtoti-born New York Lawyer who has built as fearsome a reputation on Wall Street as the Sharks have done in their aggressive forward play over the years.
The current shareholders, the KwaZulu-Natal Rugby Union and SuperSport International, will hold the remaining 49 percent of the franchise. The financial terms of the transaction are confidential.
MVM Holdings brings significant finance, sports and management expertise and resources to The Sharks franchise. In addition to Masotti, the members of the consortium include Vincent Mai (Chairman and CEO of Cranemere LLC), Marc Lasry (Founder of Avenue Capital and owner of the National Basketball Association’s Milwaukee Bucks team), Doug Cifu (CEO of Virtu Financial, Inc. and owner of the National Hockey League’s Florida Panthers team), Robert D. Haswell (Founding Partner of Dominus Capital), Dominic Silvester (CEO of Enstar Group Limited) and Michael Yormark (President of Roc Nation Sports International).
Roc Nation will assist with the global expansion of The Sharks brand, and have recently taken former Sharks and Springboks prop, Tendai “The Beast” Mtawarira under their wing as he takes his brand from the rough and tumble of the front row to the cut throat world of business.
With the international rugby landscape poised to undergo transformational change in the coming years, investors have identified rugby as an attractive opportunity and invested in some of Europe’s leading rugby competitions. It is expected that the enlarged Pro16 competition will accelerate this trend. Navigation of the fast-changing rugby business requires a diverse and strong shareholder group who can implement a strategic plan and provide the resources to ensure that The Sharks become the premier rugby brand in the world.
Masotti’s expertise as a preeminent advisor to international asset management firms has enabled him to put together a group of investors who share the vision and expertise to ensure the continued growth of The Sharks franchise.
“The Sharks have a deep and wonderful history that can translate into a formidable global rugby brand,” Masotti said. “Our investment is designed to facilitate the expansion of the franchise through deep relationships with business people, financing sources and other sporting codes. We believe that rugby provides a unique platform for character and community building. We intend to shine a global light on the city of Durban and create opportunities for players from diverse backgrounds to become international stars.”
Brian Van Zyl, the newly-elected president of the KwaZulu-Natal Rugby Union, expressed confidence that the partnership has come at the right time, and with the right partners for the Sharks: “In all our dealings with Marco Masotti, it was abundantly clear that his consortium, together with SuperSport, will bring not only greater commercial savviness, but also international ties that will result in the Sharks becoming one of the most recognised global sports brands,” Van Zyl said.
Legal Advisers: Werksmans and Webber Wentzel
Comment from the Independent Panel:
The panel had heated and emotional debates on this deal, probably in part because significant deal specific information was not available due to confidentiality. Let’s watch this space!
Criteria used for the selection of the shortlist for Private Equity Deal of the Year:
An asset with good private equity characteristics: a cashflow generative business and able to service an appropriate level of debt; a business model that is resilient to competitor action and downturns in the economic cycle; a strong management team that is well aligned with shareholders, and capable of managing a private equity balance sheet; predictable capex requirements that can be appropriately funded.
Deal size is a factor to filter deals, but plays a limited role for acquisitions. It does carry more weight for disposals.
Potential/actual value creation – was the asset acquired at an attractive multiple? If the deal is a disposal, was it sold at an attractive price? What is the estimated times money back and/or internal rate of return?
There is limited information available in the public domain on private equity deals, and even somewhat educated guess work doesn’t provide all answers in all instances.