Transcript Document

CAPRICORN PRIVATE EQUITY
Institutional Investor Learning Journey
October 2007
STRICTLY PRIVATE & CONFIDENTIAL
Agenda
Introduction
Section 1
Investment Focus
Section 2
Capricorn Approach
Section 3
Conclusion
Section 5
Appendices
Selected Case Studies
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Appendix 1
Introduction
Introduction
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Capricorn is raising a US$300 million buy-out fund focussing on middle market companies in
the industrial and consumer sectors in South Africa (the “Fund”)
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This is the third private equity fund raised by Capricorn, but the first in which unaffiliated third
parties will be given the opportunity to participate
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The Fund will be managed by Capricorn Private Equity.
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Capricorn is facilitating the introduction of an anchor investor into the Fund who will commit to
investing $45m or 15% of the targeted fund size
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Capricorn will be compliant with the BEE Codes of Good Practice as issued by the
Government of South Africa
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The Fund will seek to achieve an internal rate of return (“IRR”) of 25% net of fees and
expenses
Core Management Team
Geoff Snelgar - Geoff founded Capricorn in 2003 and is Chairman of the Investment Committee.
Geoff is responsible for forming and implementing Capricorn’s investment strategy and managing
key relationships with shareholders and portfolio companies. He is actively involved with the proactive management of all portfolio investments.
Andrew Hunt - Andrew joined Capricorn in 2007 as Director and is responsible for day to day
management of the Manager, the structuring and execution of all Portfolio Investments and is a member of
the Investment Committee. Prior to joining CPE, Andrew was the Head of Investment Banking, SubSaharan Africa for HSBC Bank plc.
Sean Meyersfeld - Sean joined Capricorn in 2007 as a Director and is responsible for transaction
origination and new business development He plays an active role in leading transaction teams, deal
structuring and execution, and the management of Portfolio Investments. Sean is a member of the
Investment Committee. Prior to joining CEP, Sean was a senior coverage and execution banker at HSBC
Bank plc.
Gavin Chadwick - Gavin is the Managing Director of Capricorn. He is responsible for the day to day
management of Capricorn, as well as identifying, analysing, and recommending investments, performing due
diligence and leading transaction teams. He will actively assist the CPE team with a particular focus on
adding value to the Fund’s investments.
Rob Fihrer - Rob is a Director of Capricorn and has been with the group for seven years. Rob was actively
involved in setting up Capricorn Fund Managers which manages the Hollard Stable Hedge Fund with over
R800m under management. Rob is also a key member of the private equity team where he sources and
evaluates deals and performs due diligence investigations and manages investments.
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Investment Highlights
Attractive Region
Strong Track
Record
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• South Africa has a stable political and economic environment
• Good growth prospects on the back of emerging, consumer-driven middle class
• Significant infrastructure investment over the next ten years
• Established track record of superior performance dating back to 1992
• Average returns of 51% net of fees and expenses
Under-serviced
Market Niche
• Private equity share of the regional market remains low
• Attractive investment opportunities exist in middle market
• Middle market defined as companies with a EV of between $75 - $150 million
Experienced
Management Team
• Strong team with complimentary skill sets
• Access to proprietary deal flow across a range of sectors
• Full range of skills and knowledge necessary to make successful investments
Good Transaction
Pipeline
• Strong pipeline of attractive and imminent investment opportunities
Investment Thesis
Middle Market
Consumer Demand
There are many attractive middle market investment opportunities that can be entered
at lower multiples than their larger peers
Established private equity participants have all raised larger funds and are now
chasing larger transactions
South Africa currently has the 2nd largest purchasing power in the Emerging Europe,
Middle East and Africa (EMEA) region
High GDP per capita and growth offers significant opportunities
South Africa plans to invest $50 billion in infrastructure over the medium term
Infrastructure Spend
BEE
Fund will not invest in the infrastructure but in companies that will benefit from the
significant infrastructure spend
Capricorn sees BEE as an opportunity to facilitate transactions that may otherwise not
be available to the private equity market
Capricorn has a strong track record of BEE investments
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Investment Thesis
The Opportunity – South Africa
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South Africa is amongst the fastest growing economies globally, with medium-term GDP forecasted at 5.5%
through 2010
South Africa has a stable political and economic environment
South Africa is the portal for a developing Africa
GDP %
Interest rates %
Inflation (2000a – 2010F)
Trade and Current Account
The Opportunity – Middle Market
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3-year average EV/EBITDA for companies with EV below $100 million averaged 4.2x, compared with 7.5x
for values of $100 million to $250 million, and over 9.8x for companies valued above $500 million
Often a function of low free float, liquidity, or lack of broker coverage
Pricing differential represents a significant opportunity to realise value by growing and preparing middle
market companies for exit in the larger capitalisation market
Established private equity participants in South Africa have raised large ($1bn) funds and are now chasing
larger transactions
Size of Capital
Size of Company
Most competitive space
Large
$500m
revenues
Middle Market
Relatively Less Competitive
$100m to $500m
revenues
Small
Cap
Very competitive space
$15m to $100m revenues
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The Opportunity – Consumer Spending
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One of South Africa’s key characteristics in recent years has been the growing wealth of the previously
disadvantaged, consumer-driven middle class
South Africa currently has the 2nd largest purchasing power in the Emerging Europe, Middle East and Africa
region and a high GDP per capita
Despite historical growth, overall levels of house and car ownership remain low, and therefore the propensity
to spend is expected to remain high
The Opportunity - Infrastructure
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The scale of public infrastructure spending is a key aspect of the South African growth story
South Africa plans to boost investment in infrastructure by approximately $60 billion over the next ten years
This includes investment in electricity generation, ports, roads, rail, housing, bulk and hospitals
Cement, steel, electricity and fuel producers are currently operating at or near full capacity, with significant
capacity expansion expected in response to growing demand.
The Opportunity – BEE
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Capricorn sees BEE as an opportunity to facilitate transactions that may otherwise not be available to the
private equity market
Capricorn has an extensive network of BEE partners and a track record of BEE investments
Since BEE transactions are often executed at a discount to underlying value, Capricorn will use these
opportunities to deliver superior investment returns for the Fund
Selected transactions and the BEE discount
Target
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Economi
cCost
Transacti
on Value
(Rm)
Cost as %
of Value
Cost as %
of Market
Cap
Nampak
250
981
25%
2.6%
Discovery
260
831
31%
2.1%
Murray &
Roberts
175
494
35%
3.4%
Medi-Clinic
224
1,088
21%
3.5%
Old Mutual
799
3,448
23%
3.2%
Nedcor
968
3,085
31%
3.7%
Mutual &
Federal
166
663
25%
3.1%
African
Bank
350
600
58%
4.3%
Capricorn Approach
Who We Are – Capricorn
Capricorn is a leading alternative-investment firm in South Africa which
successfully manages a number of businesses:
Capricorn
•
Private Equity
•
Hedge Fund
•
Property Fund
Associate of the Hollard Group
Hollard is South Africa’s largest private insurance company, providing shortterm and life insurance products
Hollard
Value of $750 million
Operations in 9 countries
Investor based in the United Kingdom
Capricorn Ventures
International
Private equity investments in Nandos and Pizza Express
Value of $1.5 billion
Ultimate holding company of Hollard
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Strong Track Record
Investment
Sector
Investment
Date
Size (Rm)
Exit value
(Rm)
IRR
Type of
Transaction
Baobab Solid Growth
Micro-Finance
1993
R6m
R3,300m
208%
Industry Roll-up
Mustek
Technology
1995
R45m
R164m
122%
Pre IPO Capital
Clientele Life
Life Assurance
1997
R187m
R2,433m
51%
Buy-out
Mercantile
Banking
1998
R174m
R24m
-3%
Public Restructuring
FedCredit Life
Life Assurance
2001
R29m
-
100% plus
Industry roll-up
FedSure General
Short-term Insurance
2001
R42m
R232m
50%
Industry roll-up
NAIL
Media
2003
R252m
R355m
45%
Mobile Holdings
Telecoms
2006
R30m
Unrealised
15%
Public market
restructuring
Growth Capital
Eurosteel
Steel
2006
R37m
Unrealised
143%
Westbrooke
Retail
2006
R45m
Unrealised
91%
Pre- IPO
Capital/BEE
Growth Capital
Toolquip
Industrial
2007
R38m
Unrealised
n/a
BEE
Izwe Loans
Financial Services
2007
R10m
Unrealised
n/a
Mining, Oil & Gas Services
Energy & Mining
2007
R50m
Unrealised
n/a
Pre-IPO
Capital/BEE
Industry roll-up
SAML
Financial Services
2007
R50m
Unrealised
n/a
Industry roll-up
Total
Notes:
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•
R995m
51%
IRRs for unrealised investments based on Director’s valuations as at 30 June 2007;
Investments made in 2007 are valued at cost;
Hollard currently owns 47.6 million shares in Mercantile, with a market value at June 2007 of R15.7 million.
IRR calculations are gross of expenses and carried interest;
Fedsure Credit was integrated into Hollard Group where it currently provides a significant portion of Hollard’s credit life business. Fedsure Credit was purchased for R29 million, plus
interest over the period 1 January 2001 to 15 October 2001. However earnings from the business over that period exceeded the purchase price plus interest, with the result that the
business was effectively acquired for free.
The Fedsure General business was integrated into Hollard Group post acquisition, with the core commercial and industrial business becoming Hollard Commercial and General (HCG). In
2006 Hollard Group sold a stake in HCG to BEE investors for R160 million. The indicative value of the UMAs at June 2007 in R72 million.
Investment Approach
Investment
Committee
Deal sourcing
• Proprietary deal
flow
• Quickly assess
multiple
opportunities
• Rigorous
analysis of
risks, returns
and strategy
Sean Meyersfeld
•
•
•
•
•
Geoff Snelgar
Andrew Hunt
Sean Meyersfeld
Gavin Chadwick
Rob Fihrer
Geoff Snelgar
Transaction
Structuring
•
•
•
•
•
Structuring
Financing
Taxation
Management
Protections
Andrew Hunt
Portfolio
Management
• Business
optimisation
• Operational
efficiencies
• Strategic plan
Gavin Chadwick
Exit
• Exit Process
• Value
maximisation
Andrew Hunt
Highly disciplined and active investment approach to sourcing, structuring, monitoring and exiting investments
Partners with managers of good companies, providing capital and strategic resources to accelerate growth and
improve operations
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Transaction Pipeline
Country
Sector
South Africa
Diversified
industrial
250 million
Leveraged buy-out of a publicly traded industrial
conglomerate in South Africa. Significant
exposure to the domestic consumer market.
South Africa
Sugar
150 million
Acquisition and refinancing of sugar mills and
cane land in South Africa, in partnership with
BEE.
South Africa
Waste
management
30 million
Acquisition of a leading independent waste
management company with a view to
consolidating a highly fragmented and historically
public-sector managed industry.
South Africa
Steel Merchant
15 million
Acquisition of a stainless steel distributor with
significant activities in downstream steel
processing and aluminium distribution, in
conjunction with BEE.
South Africa
Household Goods
25 million
Acquisition of a high-growth furniture retail
business with a particular focus on the lowerand middle-income market.
Total:
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Transaction
Size US$
460 million
Description
Conclusion
Summary of Terms
Capricorn is raising a new Fund managed by Capricorn Private Equity
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Fund size
US$ 300 million
Mandate
Going private opportunities in South Africa and sub-Saharan
Africa
Term
10 years, with an option to extend
Structure
Limited liability partnership incorporated offshore
Target returns
25% nominal per annum
Target transaction size
Equity investments of between US$ 25 million and US$ 40 million
Next Steps
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Capricorn is available for follow-up discussions and presentations, or to introduce additional
members of the Capricorn management team
Due diligence can be performed on both the Fund and the Management Company at our
offices in Johannesburg or London
Private placement memorandum and draft partnership agreement available Q1 2008
Appendix 1
Selected Case Studies
Case Study – African Bank
Transaction Summary
Baobab Solid Growth
Investment Date: July 1994
Sector: Financial Services
Invested Capital: R6 million ($2 million)
Realised value: R3,300 million ($515 million)
IRR: 208%
Description
Baobab Solid Growth was formed in 1994 with initial capital of R6 million ($2 million). The company was listed on JSE Securities
Exchange (“JSE”) as an investment company controlled indirectly by the Hollard Group in 1995.
During the course of the next four years, Baobab began a process of consolidating the then fragmented micro-finance sector in South
Africa, a process that saw the company change its name from Baobab Solid Growth to Theta Group Limited in 1997. The various
acquisitions took the share price from R3.50 per share ($0.96 per share) to an effective R240.00 per share ($66.00 per share) over a four
year period.
In 1999 Hollard Group sold its remaining 40% stake in Theta Group Limited to New Africa Investments Limited (“NAIL”) for R3,300 million
($%15 million). In the same year Theta Group was renamed African Bank Investments Limited, which remains listed to this day.
Hollard was able to achieve a multiple of 35 times its investment in Baobab. The IRR on the transaction was 208%.
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Case Study – Clientele Life
Transaction Summary
Clientele Life
Investment Date: June 1997
Sector: Insurance
Invested Capital: R187 million ($41 million)
IRR: 51%
Description
Clientele Life was acquired by the Hollard Group in 1997 for R187 million ($41 million). Clientele Life is a stand-alone life insurer which
markets through TV advertising, telesales and a multilevel marketing operation. It was the first brokerage to use this marketing method in
South Africa. Once purchased, Clientele was reversed into the Crusader Insurance listed shell, which had been acquired for this
purpose. This provided Clientele with the platform and license to grow rapidly in the direct life insurance market. Clientele now earns
approximately R100m ($14 million) pre taxation profit per annum.
Clientele has accumulated substantial expertise in database management and cross-selling, providing a strong platform for future growth.
CVI currently owns ±80% of the shares in Clientele.
Based on market prices as at June 2007, Capricorn has realized a multiple of 13.0x on its investment in Clientele. The IRR of the
transaction is 51%.
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Case Study – Eurosteel
Transaction Summary
Eurosteel Holdings
Investment Date: March 2006
Sector: Steel
Invested Capital: R37 million ($6 million)
IRR: 100%
Description
Eurosteel Holdings is the second largest stainless steel distributor in South Africa and has significant activities in aluminium distribution
and downstream steel processing. Capricorn acquired an indirect 14% stake in Eurosteel in March 2006 when it facilitated a BEE
transaction for the Company, whereby the Isitali Consortium acquired a 35% stake in Eurosteel. Capricorn owns 40% of the Isitali
Consortium. Capricorn made a further direct investment of 10% in Eurosteel in August 2006. Capricorn’s total investment in Eurosteel is
R37 million ($6 million). Capricorn plays an active role in supporting Eurosteel management in strategy development, corporate finance,
organisational development and operational strategy.
Eurosteels’ turnover for the year ending February 2007 was R727 million ($100 million) with profits after tax of R68 million ($9.5 million).
Capricorn remains invested in Eurosteel, and based on Director’s valuations as at June 2007, Capricorn has realized a multiple of 1.8x
times capital invested, and an IRR of 143%.
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Contacts
Andrew Hunt
Capricorn Private Equity
Phone: +27 (0)11 666 0747
Mobile: +27 (0)82 777 1025
Email: [email protected]
Sean Meyersfeld
Capricorn Private Equity
Phone: +27 (0)11 666 0746
Mobile: +27 (0)82 901 7630
Email: [email protected]
Disclaimer
This document has been prepared by Capricorn Private Equity (“Capricorn”) based on publicly available information. No independent
verification of such information has been made by Capricorn.
Neither Capricorn nor their respective subsidiaries and affiliates, or any of their respective directors, officers, agents, advisers or
employees makes any representation or warranty, expressed or implied, nor shall any of them have any responsibility or liabilities
whatsoever in respect of the accuracy or completeness of, or omissions from, this presentation. Accordingly, no responsibility or liability is
accepted, and any and all responsibility and liability is expressly disclaimed, by Capricorn and their respective directors, officers, agents,
advisers and employees for any errors, misstatements, misrepresentations or omissions in this presentation and or any information or
opinion contained therein.
This document does not constitute an offer to sell or the solicitation of an offer to purchase or subscribe for any investment, nor shall it
form the basis of any contract or financial advice.
No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic,
mechanical, photocopying, recording, or otherwise, without the prior written permission of Capricorn.
Capricorn Capital Partners (Pty) Ltd is incorporated in South Africa, registration number 2002/031449/07
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