Sanlam Private Equity appoints Fernandez as CEO

Sanlam Private Equity (SPE), the private equity investment business within the Sanlam Group, today announced the
appointment of Cora Fernandez as chief executive officer. Fernandez will take up her new role in SPE's Hyde Park offices in Johannesburg on 1 July 2009.

With close to R5 billion of assets under management, Sanlam Private Equity is one of the largest private equity fund managers in South Africa, offering both a direct and fund-of-funds investment programme.

Fernandez has held the role of deputy CEO of SPE, heading up the Johannesburg branch of the business, since 1 February 2006. Current CEO, Pieter Kriel who co-founded the SPE business, will step down from this post he has held since February 2006, but will remain actively involved in an executive capacity as co-founder and senior partner.

Says Johan van der Merwe, CEO of Sanlam's Investments cluster: "The move is the implementation of an agreement made between Pieter and Cora, in conjunction with myself, in 2006 as part of SPE and Sanlam Investments'
succession planning strategy. During this time, Pieter has been actively committed to supporting Cora's development while establishing SPE as a key player in the private equity environment."

In the past three years, Fernandez has demonstrated that she has the passion for private equity, the business acumen and people leadership capabilities required for success in the private equity environment. Fernandez is a qualified chartered accountant and served her articles with KPMG in Johannesburg, after obtaining her BCom degree from the University of Cape Town, and a BCompt Honours degree from the University of South Africa. Fernandez entered the private equity industry in 2001,
and in her role as deputy CEO at SPE has been responsible for deal origination, investor relations, investment strategy and portfolio management, as well as manager of SPE's Johannesburg branch.

Fernandez holds many leadership positions in the private equity arena, and is currently chairperson of the South African Venture Capital and Private Equity Association (SAVCA), is a member of the South African Institute of Chartered Accountants (SAICA) and the Association of Black Securities and Investment Professionals (ABSIP). She also currently serves on the Investment Committee of the National Empowerment Fund (NEF) and on the boards of eight companies where SPE owns an interest.

Since joining Sanlam's investment division in 1987, Kriel's contribution to the Sanlam Group has been immeasurable. Kriel has over 21 years of experience in investment management, covering various roles including financial control, compliance, structured products, equity underwriting, portfolio management, the structuring and management of black economic empowerment investments and finally private equity.

Kriel currently serves as a non-executive director on the boards of a number of empowerment and other unlisted companies, and is a member of a number of investment committees and governing and advisory boards of private equity and venture capital funds.

During his leadership of SPE, Kriel recruited a team of top dealmakers and created a strong base for future growth of the business. Kriel fully supports the appointment of Fernandez, saying: "I am pleased to see the plans Cora and I made for SPE come to fruition. I remain committed to SPE and look forward to relinquishing my management duties in order to focus my innovative and entrepreneurial acumen and experience to further grow the business".

Kriel will continue to support Fernandez in her new role and will play a pivotal role in the strategic leadership of the business. Says Van der Merwe: "Pieter is a talented entrepreneur and has pioneered many new initiatives in the Sanlam Group. This move frees him up to apply entrepreneurial thinking to new business ideas and products, and to more actively participate in the investment decision making of SPE. He has established an excellent team and I am confident in their ability to
implement the strategic plans of SPE going forward."

"Kriel represents SPE on many internal and external bodies, such as fund advisory boards, and will continue to drive transformation and mentor skills transfer within the investments businesses", adds Van der Merwe.

Fernandez has played a central role in building the SPE business alongside Kriel, and has gained a reputation as a respected and credible businessperson well placed to position the SPE business as one of the preeminent players in the industry.

"Private equity is my passion and becoming the CEO of SPE is the culmination of many years of hard work alongside Pieter, who has been a skilled mentor to me and other members of the team. I look forward to working alongside Pieter to grow SPE into a formidable player in the private equity space," concludes Fernandez.

Private equity shows growth despite economic down turn

SAVCA and KPMG today released the annual Industry Performance Survey reporting on the 2008 calendar year. The survey shows that South Africa’s private equity industry breached the R100 billion mark for the first time during 2008, despite the global economic meltdown and a slowdown in local merger and acquisition activity. In addition, R29.2 billion in commitments remain undrawn and can be used for further investment.

Growth in BEE private equity deals grew 38.1 per cent from R11.8 billion in 2007 to R16.3 billion in 2008.

These are some of the findings of a joint KPMG and SAVCA (South African Venture Capital and Private Equity Association) survey into the private equity sector released today.

Private equity has attracted foreign direct investment (FDI) into South Africa, amounting to R23bn over the last three years.

Taking into account the absence of the large public-to-private deals, as seen in 2007 (for example: Edcon, Alexander Forbes, Primedia and Consol), it was no surprise to see private equity investments falling in 2008 from R26.1bn in 2007 to R23.1bn in 2008. Fundraising also decreased from R15.4bn in 2007 to R7.2bn in 2008.

“These figures are a positive reflection on the achievements of the SA private equity industry,” says Warren Watkins, KPMG’s head of private equity markets for Africa. “Although SA is not immune to developments in the global economy, we currently appear to be better off than other private equity markets. This could be due to SA’s ongoing infrastructure spend and limited “credit crunch” exposure.”

The survey also found that funds valued at R68.6 billion were under the management of captives-government or entities that are either black owned, empowered or influenced. This is up 16.3 per cent from R59 billion in 2007.

The private equity sector maintained a lingering exuberance from 2007 through the first half of 2008 and then became more subdued in the second half. The net result was overall growth of 19.5% on R86.3 billion held at December 2007 to R103.1bn.

There is reason for cautious optimism for South Africa, says Watkins, in particular with respect to the prospect of lower interest rates arising during 2010, and the forthcoming FIFA 2010 Soccer World Cup.

“The scale of activity in our industry continues to outperform most of the major international economies, which bodes well for South Africa’s government stated growth targets, as local and international research confirms that private equity investment is a key driver of entrepreneurial activity and growth in any economy,” says SAVCA executive officer J P Fourie.

The survey has found that South Africa’s funds under management (excluding undrawn commitments) relative to GDP of 3.2% was higher than 2007 and again greater than the global average of 2.7%.

This is the tenth year in which KPMG and SAVCA have produced the private equity survey. Funds under management were R30.7 billion in 1999, with R103.1 billion reported in the current survey. This represents a 14.4% compound annual growth rate.

For the full survey, visit www.kpmg.com

Private equity needs to adapt

The global credit crisis has produced a mixed bag of fortunes for private equity - the investment class in which capital is invested in private companies. On the downside, corporate earnings have declined but on the up, reduced company valuations have produced a range of investment ‘bargains’. Profitable exit from deals is likely to be delayed due to the downturn, however, with a slowdown in the number of companies listing on stock exchanges, companies which may previously have gone public are now good prospects for private equity investors.

This was reported by the South African Venture Capital and Private Equity Association (SAVCA) and Sanlam Private Equity (SPE) at a jointly-hosted media briefing in Johannesburg today which examined the state of private equity locally and globally.

Private equity currently…

What is certain, said Cora Fernandez, deputy CEO of SPE and chairperson of SAVCA, is that experienced managers have demonstrated their ability to adapt in a changing and challenging market. “Globally, merger and acquisition activity has slowed and mega deals have evaporated. Investors remain cautious since earnings visibility is a major challenge and debt markets have improved marginally. There is no shortage of debt for good deals, but the amount of debt offered has come down along with gearing levels. We have, in essence, gone back to private equity basics.”

She said that private equity players in developed markets were now looking to mid-size companies for investment opportunities, with a hive of activity currently underway in underperforming assets and secondaries.

“The private equity industry in SA is far better placed than its more mature counterparts in the first world. South African private equity deals have never been geared to the same extent as the gearing levels seen in developed markets. As a result, we don’t expect to see a high level of underperforming or distressed assets, work outs or turnarounds,” said Fernandez.

She said that South Africa’s industry may be small by international standards - it makes up only one percent of global activity - but it does contribute a significant 2.8 percent to GDP which contributes to expansion and development in the country. “It is sophisticated and well-organised with a well established network of highly experienced players, deep and liquid debt markets and solid legal framework.

“Currently, the biggest challenge facing us in the aftermath of the financial crisis is fundraising. Locally, investors into PE funds are largely pension funds and endowments, many of which are currently reviewing their asset allocation strategies in search of greater liquidity. More than 50 percent of capital raised by PE funds in the past two years was sourced offshore, principally the US and European countries. The full extent and consequences of this risk is only likely to be felt in the next 12 to 18 months.”

Fernandez said that, despite these challenges, private equity remains a great source of foreign direct investment and of growth and expansion finance. “This is very good news for the financial services sector and the economy. It essentially means that we can use foreign capital to finance and stimulate growth in SA.”

Looking ahead…

Looking ahead over the next few years, J-P Fourie, executive officer of SAVCA said that more equity-only deals were a strong possibility in South Africa and around the world. “But raising funds in a climate of depressed corporate earnings will be a challenge. We will also see the lifecycle of a private equity deal increase as companies take longer to convert investment funds into tangible business results.”

He said that it looked likely that huge write-downs would be made, particularly in the highly leverage Europe and US, and that highly profitable exits would present a massive challenge. “Private trade sales will far outstrip listing exits or sales to other private equity funds and, unfortunately, some new, young private equity firms could fall victim to a low appetite for private equity fund raising.”

On the plus side, many international players are still extremely interesting in the value which emerging markets can offer. “Because, unlike the stagnant or declining growth in Europe, the US and Australia, there is still good growth in China, Brazil and India and, to a larger extent, the African continent.”

The SAVCA KPMG annual private equity and venture capital industry survey results will be published later in May. For more information visit www.savca.co.za or www.spe.sanlam.com.

Anyone want R50m in venture capital?

Anyone want R50m in venture capital?

Yeah I thought that might get your attention. Had a pretty interesting week with two Venture Capital firms coming up to me - out of the blue - and asking if had any ideas where they can invest funds.

I get to chat to quite a few Venture Capital and Private Equity guys in my spare time and there seems to be a growing theme - "We've got a lot of money sitting on the sidelines and we just can't find anywhere to invest it in SA."

Both firms had problems trying to find places to invest their money - if they go with mass market advertising they get swamped by applications that simply takes too long to work through so they're trying to find smarter ways to find deals.

So I guess I'm throwing it out to the SA entrepreneurs blogosphere - any decent ideas out there for some sizeable investments where guys are open to venture capital or private equity deals?

If you've got some ideas feel free to drop me a 2 page motivation on marc@rival.co.za and we can take it from there....

Buildmax

This isn't really a "Venture Capital" type post, but more in the line of private equity transactions that ordinary SA investors may be interested.

Two of the top SA private equity players - Brait and Peregrine have stakes in JSE listed Buildmax.

The profile of Buildmax according to Sharenet is:

Buildmax has recently been repositioned as one of Africa?s leading empowered opencast mining contractors and the largest in South Africa in the niche of coal mining. The company further provides bulk earthworks and construction materials to the mining and construction industries. Specifically the Equipment - Services business unit is involved in opencast mining projects from greenfields stripping to mine closure and rehabilitation and offers bulk earthworks for civil engineering projects. The Construction Materials business unit houses sand quarry operations, aggregate distributors and cement brick and block manufacturers.

The Brait guys have been extremely bullish on the prospects for Buildmax based on their coal exposure and have recently taken a nice stake in the business. The theory is to follow the "Energy" type businesses as they try to meet SA's constantly growing need.

Buildmax is listed on the JSE and currently trades at around 95c a share. The company trades on an historical price to earnings (PE) ration of 4 times earnings.

If it is good enough for the top private equity guys it might be good enough for the ordinary investment plebs like me!

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NEW PRIVATE EQUITY FUND LAUNCHED TO INVEST IN AGRIBUSINESS IN AFRICA

A new R700-million private equity fund has been launched with the aim of investing in the buoyant agribusiness sector across sub-Saharan Africa. The Agri-Vie Fund, formed by Sanlam Private Equity and the investment group Strategy Partners, will focus on entrepreneurs involved in the agribusiness value chain, rather than directly in the farming industry. It offers an opportunity for potential investors to tap into this growing African market and gives strategic assistance to the owners of agri businesses.

The fund recently had its first close at R330-million, with initial investments from the insurance industry and development finance institutions such as the Development Bank of Southern Africa (DBSA), Industrial Development Corporation (IDC) through the Risk Capital Facility - a fund established by the European Community and the government of South Africa and managed by the IDC - and the US-based Kellogg Foundation. The fund is open to other investors until May 2009.

Pieter Kriel, chief executive of Sanlam Private Equity, said that agribusiness is the mainstay of the economy in most sub-Saharan countries. “On average the gross domestic products in sub-Saharan Africa have grown between six and seven percent in the past three years and the number of democracies has more than doubled since 1999. The resultant effect is that these countries offer exceptional opportunities for investors.”

The fund will look at businesses which offer value-added components along the agri-business value chain. “We will not invest in farms, but rather in the processing and marketing of farming outputs such as food, certain beverages and fibre products. By following the route of expanding the industry, it will ultimately create new growth opportunities for existing and emerging farmers. In addition, Agri-Vie's mandate includes investment into ecotourism in the context of integrated rural development,” said Kriel.

Emile du Toit, the divisional executive for private equity at DBSA said, “Agribusiness is an important contributor to economic growth in the region and is poised for significant expansion. Given the significant lack of equity risk capital to finance agribusiness transactions, the DBSA’s participation in this fund allows it to play a catalytic role in developing financial infrastructure to provide access to much needed long-term risk capital in this critical sector.”

Du Toit added that sustainable investment in agriculture can make a significant contribution to socio-economic development, in keeping with DBSA’s development mandate. “I believe that several countries on the continent have comparative advantages in agriculture, which provide a logical base for economic growth.”

Agri-Vie investors have appointed an active management structure, led by Herman Marais of Strategy Partners, which comprises members from Sanlam Private Equity and a women-led agricultural investment group, Makotulo Agricultural Company, among others.

Marais said that Agri-Vie is a true business partner for agribusiness entrepreneurs. “The fund contributes risk capital and management know-how to fully unlock the potential of businesses.”

He said, “Over and above the opportunities associated with the prevailing global food and commodities cycle, there is growing demand globally for various African exports such as organically grown vegetables, fruit and flowers, processed natural fibre for industrial applications as well as natural supplements and health products. However, there are numerous existing agri-enterprises across the African continent which are not performing to their potential - mainly as a result of lack of access to capital, limited market knowledge and infrastructure limitations.

“Agri-Vie aims to be a catalyst to unlock this potential to the advantage of the enterprises concerned, their host communities and the fund’s investors. Agri-Vie believes that sustainable development is best brought about by the disciplines of investment rather than aid grants.”

Kriel said that the fund had a strong empowerment focus. “Our involvement was partly spurred by the Financial Sector Charter which designates agri as an area of ‘targeted investment’. Both Sanlam Private Equity and Strategy Partners truly believe in the business and investment potential of agribusiness in South Africa and on the continent and are delighted to be playing a role in realising it. The South African portion of the fund was started with the express purpose of empowering agri-businesses and playing a key catalyst role for BEE in the agribusiness sector.”

Agribusiness women such as Ntombi Msimang and Jean Davidson are among the directors of the Makotulo Consortium. Kate Moloto, a shareholder in Agri-Vie’s investment management structure, says “Women are far behind with regard to participation as owners and managers in agribusiness. Through Agri-Vie, we intend to make a meaningful contribution to empowering women in this sector.”

Marais said the fund had found a niche in Africa and was already experiencing healthy transaction flow. “We have had significant interest from international investors and have formed a parallel structure to the South African portion of the fund – a separate entity domiciled in Mauritius which is focused on investment in sub-Saharan countries outside of South Africa. We are already evaluating more than 20 possible investments in South Africa and the Mauritius structure of the fund is looking at a similar number in countries such as Botswana, Tanzania, Uganda and Kenya.”