DealMakers - Q2 2019
International inbound investment defies negative SA
by Krishna Nagar and Watson Hamunakwadi
In February 2019, a consortium of investors made an offer to acquire 100% of Clover Industries Limited (Clover). Rand Merchant Bank (RMB) acted as investment bank and financial adviser on the transaction. This landmark take-private transaction highlights a crucial difference of perspective on the attractiveness of South African companies, macro-economic outlook and business confidence – with select international investors taking a different and “through the cycle” view of South Africa. The consortium includes international companies comprising of Central Bottling Company, IncuBev Limited, Ploughshare Investments and Clover’s executive management, who acquired Clover at a substantial premium to the traded share price, a day prior to the first cautionary announcement being made in respect of the transaction.
Given the negative sentiment clouding the South African narrative, low business confidence and a wait-and-see attitude from many local investors, this transaction illustrates that structurally, and in comparison with other emerging markets, in the medium to long term, South Africa’s investing landscape presents attractive opportunities. With many local investors looking offshore, some international investors have shown an appetite to take a long-term view to invest in this market.
The transaction involved complex implementation steps, structuring and funding dynamics executed across multiple jurisdictions, involving a diverse group of international investors. The transaction received close to 100% support, with the major institutional shareholders providing irrevocable undertakings to support the transaction given the significant value unlock as a consequence of the transaction.
The Clover transaction highlights the fact that South African companies possess significant fundamental value, when compared to international peers operating in other emerging markets. In Clover’s case, the company possesses a heritage spanning more than a century and has established the leading ambient distribution chain in South Africa that backs a beloved and valuable consumer. With its ability to expand the reach of its brands beyond the formal market, Clover can further reach the largely untapped informal distribution networks where the majority of South Africans live. This unique and positive viewpoint from the international consortium, who were able to fundamentally see the attractiveness of Clover’s infrastructure and market opportunity in the country’s informal urbanised population, created a strong conviction to acquire the company.
The rationale and approach to this transaction calls into question the defensive approach that South African investors have taken in the recent past and signals a need to begin to evaluate investment perspectives anew, perhaps more positively skewed towards a longer-term mindset.
The Clover transaction unlocks foreign direct investment in South Africa now and into the future, where the consortium will stimulate the Company’s investment into deepening and gaining market share. By acquiring the leading dairy business in Africa with a strong infrastructure and network design, the consortium and Clover would be positioned for further growth in sub-Saharan African markets.
Nagar is the Head: Financial Sponsor Group and
Hamunakwadi is a Corporate Finance Transactor at Rand Merchant Bank.