Old Mutual Private-Equity Invests in Luxury Consumer Businesses

  • Asset manager plans two 300m-rand purchases by end of year
  • Investor sells shares in Ecobank through Nigerian stock market

Old Mutual Plc’s private-equity unit plans to buy stakes in two consumer-facing companies this month, betting that high-end spending will remain strong even as a mining slump puts pressure or South Africa’s economy.

The country’s largest insurer agreed last week to invest 300 million rand ($23 million) in one consumer company and plans to make a similar-sized purchase this month, Jacci Myburgh, head of private equity at the asset manager, said on Monday without naming the businesses. The purchases will mean that the 4 billion-rand Fund IV will reach the halfway point in investing its capital.

“The higher-end consumer is a better place to be, maybe over the next two or three years,” Myburgh said in a phone interview from Cape Town. “Given where the mining industry is, and the knock-on effect on manufacturing, you might see some job losses coming through and we think that will impact some areas of the middle-class consumer more than the higher-end.”

South Africa’s mining companies are shedding thousands of jobs as commodity prices slide. The country’s private-equity investors are turning to investments in retailers and financial services as improvements in education and infrastructure reduce poverty and boost consumer spending. Old Mutual’s Fund IV has 1.3 billion rand invested in companies such as cinema chain owner Primedia, investment company 10X and Tiger Automotive, a tire and battery supplier.

Old Mutual sold its stake in Lagos, Nigeria-listed Ecobank Transnational Ltd. to close its Fund III. Nedbank, controlled by the insurer, holds about 20 percent of Ecobank.

“We saw the bank had re-rated a little bit over the past while and we’re not sure there’s much more to come from that in the short term,” he said. “There are issues around Nigeria with the oil price and the currency as well.”

Growth in Brazil and Mexico may produce buying opportunities in a year or two, James Regout, manager of 6.1 billion rand across three Old Mutual international private equity funds of funds, said on the same call.

The investor is planning to sell its remaining five assets in the 2.8 billion-rand Fund II by the end of next year, Myburgh said. The fund will perform “reasonably well” considering it started before the 2008 financial crisis, he said.

Targets for potential investments typically have high prices and muted expectations for growth, Myburgh said. Investing in healthcare is appealing for its defensive nature and education is also interesting to the team, he said.

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