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Capitalworks Buyout Fund Hunts for South Africa Acquisitions

Aug. 15 (Bloomberg) -- Capitalworks Ltd., a Johannesburg-based private equity firm, is looking for a further eight acquisitions over the next two to three years after raising 2.7 billion rand ($270 million) for its second South African fund.

Capitalworks completed two deals in June after teaming up with other buyout firms and managers at Murray & Roberts Holdings Ltd. to purchase four units of South Africa’s second-biggest builder by market value, Chairman Chad Smart said in an Aug. 13 interview. The businesses cost 1.3 billion rand.

“Fund II is very focused in South Africa with entrepreneurs,” Smart, 40, said. “It will take two to three years to spend the money and it’s exciting, but the work only begins now. Infrastructure is going to be an important theme.”

Smart, who started Capitalworks in 2006 after leaving South Africa’s largest private-equity company, Brait SE, said the firm took six months to raise money for the new fund from mainly U.S. and European investors. Mark Mobius, who oversees $53 billion in emerging markets, said last month that he may consider private equity investments to tap growth in Africa as the continent attracts about $25 billion of funds from buyout firms, including Actis Capital LLP and Carlyle Group LP.

South Africa’s biggest state-owned companies, power utility Eskom Holdings SOC Ltd. and ports and rail operator Transnet SOC Ltd., are spending 800 billion rand over the next five years to improve infrastructure in the continent’s biggest economy.

Fund Returns

Capitalworks, which has 5 billion rand under management, also has a fully invested African fund, which counts the Nigerian business of MTN Group Ltd., Africa’s largest wireless operator, among its investments.

“We have no intention of raising another fund right now,” said Smart. “In the rest of Africa, the depth isn’t always there in financial markets and trade players, while in South Africa we’re blessed with broad sector bases.”

Returns in South African private equity have outperformed the FTSE/JSE Africa All Share Index on a five and 10-year basis, according to a first-quarter report produced by the South African Venture Capital Association and research company Riscura. The pooled internal rate of return on five- and 10-year funds was 12 percent and 22.1 percent respectively, compared with 6.7 percent and 13.5 percent for the benchmark index, the report showed. The all-share gauge, which is the broadest measure of stocks in the country, climbed to a record yesterday.

While Smart declined to disclose the returns on Capitalworks’ first South African fund, he said it ranked in the top quartile globally for funds set up in 2008. That fund invested in scrap metal exporter New Reclamation Group (Pty) Ltd., cement maker Pronto Readymix and Rhodes Food Group.

To contact the reporter on this story: Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editor responsible for this story: Dale Crofts at dcrofts@bloomberg.net

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