Private Equity Exits Stack Up as South Africa Economy Wilts

  • Old Mutual sees `very active' market for asset sales
  • Ethos predicts disposals may be delayed by rand weakness

Private equity companies are preparing to exit stakes in South African businesses even as the country’s economy teeters on the edge of a recession, threatening to reduce potential returns from the sales.

Brait SE, Actis LLP and Old Mutual’s buyout unit are among firms seeking to dispose of assets to repay investors as funds near the end of their agreed terms. It also comes after South Africa’s main equities benchmark tumbled almost 8 percent over the past 12 months and following a 26 percent weakening in the currency.

“It’s going to be very active over the next two years because some chunky assets are going to change hands,” Jacci Myburgh, the head of Old Mutual Private Equity, said in an interview in Cape Town. “We do need stable markets and a meeting of minds between buyers and sellers for exits to be effected, but private equity firms don’t have absolute discretion either on when to exit their investments.”

Old Mutual is in “well-advanced” talks to sell a share of one of its holdings, he said, declining to be specific. The buyout company owns an interest in Consol Glass Ltd. and a share in cinema-chain owner Primedia Ltd. among its 10 billion rand ($639 million) in assets. Brait will sell its stake in Consol Glass and Primedia over the next two years, Brait Chief Executive Officer John Gnodde said on Feb. 11.

Old Mutual also has investments dating from 2008 in Idwala Industrial Holdings, a lime producer partly owned by Ethos Private Equity Ltd., and travel management company Tourvest Investment Corp. The economy will probably expand 0.9 percent this year, the slowest pace since the 2009 recession, according to government forecasts.

Sale Delays

Shaun Zagnoev, a partner at Ethos, said as much as 40 percent of disposals that had been planned for this year may be delayed because of weak currencies and the reduced ability of companies to forecast with accuracy because of the economy. The Johannesburg-based company has an investment in the House of Busby, a distributor of fashion brands such as Guess, Aldo and Nine West, dating from 2008.

“Only those companies that are able to weather the storm with confidence are likely to continue with any exit plans that were previously being considered,” said Zagnoev, who manages the $800 million Ethos Fund VI. “All marginal exits are definitely going to be put on hold.”

The weakening of the rand, which hurts returns converted to hard currency, means that divestments probably won’t reach levels seen in the fourth-quarter of 2014, when they jumped to the highest since at least 2007, said Natalie Kolbe, an investment principal at London-based Actis LLP’s unit in Johannesburg.

‘Ripe for Exit’

Kolbe declined to comment on asset sales planned by Actis, which has $7.6 billion under management. The company in 2008 invested in electrical engineering company Actom Ltd., in Nigerian gas producer Seven Energy International Ltd. in 2007, and in Mineral Deposits Ltd., a mineral sands miner in Senegal, in 2005.

“The push on exits is that private equity businesses made a lot of investments in 2007-8 before the crisis” which weren’t sold in the aftermath, Kolbe said. “Businesses were hit for a while and then they had to show a couple of years’ growth. So they’re now really ripe for exit.”

(An earlier version of this story was corrected to reflect the right gender of the person quoted in the fourth paragraph.)

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