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Q3 2023 - (released November 2023)

SA's quarterly Private Equity & Venture Capital magazine


Navigating South Africa's Private Equity Landscape with Vision and Tenacity

by Michael Avery

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In the hallowed halls of South Africa's private equity arena, one name stands out: Infinite Partners. Established in the wake of a strategic spin-off from Ethos, this visionary outfit, led by Edward Pitsi and his accomplished co-founders, has rapidly emerged as a force to be reckoned with. In an exclusive conver-sation, Pitsi shared insights into the birth of Infinite Partners, its unique focus on the mid-market, and its unwavering commitment to driving value in a dynamic economic landscape.

According to 27four’s latest annual BEE.conomics report, the largest BEE private equity firm in South Africa is Convergence Partners – founded by Andile Ngcaba and Brandon Doyle – with R5,5bn. 
After Convergence Partners, Third Way Investment Partners (R3,6bn), RH Managers (R3,3bn), Infinite Partners (R3,2bn), and Sanlam Private Equity (R3,0bn) make up the five largest BEE private equity managers, and the sector has raised R43,7bn.


But it is the story of Infinite’s rise that is quite remarkable, and Edward Pitsi brings a distinctive approach to his private equity game, navigating the complexities of the investment landscape in South and sub-Saharan Africa like the seasoned manager of a football club. Catalyst caught up with Pitsi recently, after the firm entered the top five ranking of the league of black-owned private equity firms.

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The Spin-Out Play
Much like a football team refining its strategy for the season, Infinite Partners made a pivotal move in late 2022. After a successful stint at Ethos, Pitsi and his partners, having laid a solid foundation, embarked on a spin-out. The aim was clear: to forge their path in private equity with a sharp focus on the mid-market.

"I think we, my partners and I, had been at Ethos for a significant period, about ten and nine years respectively,” explains Pitsi. “We had established a robust leadership team for the fund, particularly the Ethos Mid-Market fund, a R2,5bn endeavour. As we considered the evolving market landscape and customer needs, we initiated a conversation with the Ethos leadership, which was conducted in excellent spirits. This led to a successful agreement regarding the spin-out. What we're most proud of is the unanimous support from our investors—100% endorsement from our LPs. That was an extraordinary vote of confidence." 

Infinite's Mid-Market Advantage
Choosing the mid-market space is akin to targeting the less-charted territories on a football field. It allows Infinite to uncover hidden opportunities and engage with businesses that larger institutions might overlook, much like a football manager discovering underappreciated gems in the transfer market; unearthing businesses with untapped potential, below the radar of mainstream investors.

“If you read all the headlines around some of the macros, sometimes it can be a little bit morbid,” says Pitsi. “The country has faced quite a few challenges, along with a couple of others in the global economy. But a mid-market focus allows you to go and look under the radar. It allows you to go and look where large asset management firms aren't necessarily looking. And we do think that, at some point, there is a line where a dislocation does occur; where we're able to go and negotiate transactions on a proprietary basis, come up with the appropriate capital structures, and really build partnerships with the founders of these businesses, the professional management teams of these businesses.  

“But what I like about it is that all successful economies, globally, have a burgeoning private sector in the unlisted space where people are doing innovative things, and that's really why we look to play in that space.” 

E4: A Stellar Play
Infinite's investment in E4 exemplifies their methodical approach. The software-as-a-service company operates in Proptech and data aggregation, and Infinite identified the potential of this market through meticulous sector analysis. By leveraging their insights and sector expertise, they swiftly secured the deal, illustrating their proficiency in identifying and capitalising on promising opportunities.

“This came about following quite a protracted period where we were doing deep sector dives, and one of the areas that we were looking at was the idea of software-as-a-service. If you look internationally, you've got Robert Smith’s private equity firm. They are a dedicated software-as-a-service shop. And we had some conversations with people across there to understand why they like these types of businesses. 

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“Fortunately, the owners of that business were coming to the end of their investment period. Given the proprietary insights that we had, and some of the sector expertise that we had on our side, we were able to move quickly. It's a business in which we've now partnered with a professional management team who had a small shareholding in the business. We've since increased that, and we think that the technology that they have, whilst appropriate for the sector that they currently serve, can serve many, many other sectors in South Africa, as well as in other geographies. Speaking of other geographies, we've launched a business in the UK which does exactly what it does in South Africa. And we're working with several of the big banking institutions in that country. We believe there's a massive opportunity of which to take advantage. And it's a nice story –  South African tech smarts winning on a global stage.” 

Expanding the Playing Field
While Infinite's roots are in South Africa, they're not confined by borders. They extend their reach to the broader African continent, seeking businesses with a strong South African base, but potential for expansion. This strategic move mitigates single-country risks, offering investors exposure to multiple markets.

While Pitsi says that they do play in the rest of the continent, he is altering the way that Infinite approaches investing in Africa, from a risk adjusted basis, in the new fund that they are raising. 

“In our prior fund, we’ve invested in businesses with a strong South African base, but that had an ability to expand into other countries on the continent. And we've done that successfully with several assets. If you think of a business like Synerlitic – which is essentially an industrial laboratory business, operating in the testing, inspecting and certification sector – there, we have a phenomenal footprint across ten other countries. We've just opened a second lab in India as well. So, we've managed to expand that. And we like that model because we've got a strong anchor tenant asset with the management skills there. And we look to try and export those into the rest of the continent. So, if you think about it on a risk weighted perspective, we didn't take too much of a risk on territories north of our border.

“We've tweaked that slightly in the current fund that we're raising, where we can invest up to 25% of the capital directly into assets anchored in other countries on the continent. But that's a maximum, so you don't necessarily have to use it. But when I look at the pipeline, there are a couple of good assets that lend themselves to that. But the way that we try to approach it, we don't necessarily want to take single country risk. Rather, we want to have a look at assets that have representation in multiple countries. There are assets and sectors that lend themselves to hard currency exposure, so you're not necessarily taking local currency dynamics fully on board. A number of these markets are dollarised, which does take away a little bit of the risk, though it doesn't get rid of it completely. Those are the types of businesses that we're looking at on the rest of the continent.” 

Navigating the Economic Climate
Just as a football team adapts to changing game conditions, Infinite carefully manages the impact of market dynamics. With an eye on interest rates, they maintain a conservative stance on debt, prioritising the disciplined pricing of assets. Their approach ensures that they weather economic fluctuations, while preserving equity value growth.

Pitsi says that he and his team are massively disciplined about what they pay on entry price. 

“From a fund perspective, investors typically give you a fixed hurdle of 10%,” he explains. “But if you do deploy debt in your acquisition funding for underlying portfolio companies, when rates start to run away with you, it does make it difficult to generate equity value growth. We'd rather be more conservative on debt. We look to keenly price assets when we go in. So, the biggest lever in our industry is making sure that you pay the right prices for the assets. If you overpay, you're going to be chasing your tail for five years.

“And from a gearing perspective, we're not pushing the debt multiples as high as we would have previously. E4 is a case in point. I think that, in a couple of months, the gearing on that asset will be below two times, which is quite phenomenal.” 

Diversity – The Winning Play
Diversity forms the core of Infinite's success. The founding team's long-standing collaboration is fuelled by what Pitsi refers to as radical honesty and mutual respect. This collaborative spirit extends to their portfolio companies, where diverse backgrounds and experiences converge, driving innovative thinking and optimal outcomes.

In navigating the complexities of private equity, Pitsi emphasises the importance of open, clear communication. Relationships are nurtured through candid conversations and informal engagements, allowing for effective collaboration. Backing leaders within portfolio companies and aligning incentives further strengthens the foundation for mutual success.

“We've adopted an approach of radical honesty with each other, but it also helps to like the people that you work with. We enjoy each other. And that doesn't change in tough times, nor does it change in good times. But the key thing for us is that it's happened organically. We haven't tried to put something like that together. We've got a track record of working together, and the theory is right: diversity, and not just diversity across race, which is a big focus area in South Africa; but for us, it's race, it’s gender, it’s past experiences. And you'll see it in some of the newer members of our team that we're looking to bring in. But that is a plus. There's diversity of thought. Sometimes you get some off the wall thinking, where – if you're a little bit of a square, like me – that takes a few minutes to consume and conceptualise and understand. But it just makes things very inter-esting. On a net-net [basis], I think it does help us to get to the right outcomes.” 

With a focus on the mid-market, a collaborative ethos, and an eye for strategic opportunities, Infinite demonstrates that in private equity, as in football, it's the team that makes the difference. 

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