M&A Community – 17 Oct 2018
With a R750 million war chest, Agile Capital has ambitions of building more clout in the private equity market.
It’s no secret that the global private-equity market has commanded a bad reputation for many years.
Private equity firms have been criticised for saddling companies they invest in with crippling debt only to sell their assets, embark on job cuts and take out massive profits. But this is not the playbook of private equity firm Agile Capital.
For starters, unlike its private equity peers, Agile has a long-term investment horizon and doesn’t have a prescriptive exit period on its investments.
It views the management of companies it invests in as equal partners instead of vehicles of driving profits and returns. And Agile is unapologetic about prioritising investments in companies boasting strong Black Economic Empowerment credentials.
Agile, which means “to build” in Setswana, was launched in 2015 by passionate and highly-skilled business partners Tshego Sefolo and Londeka Shezi. Agile, through its private equity funds, targets investments across diverse sectors.
Its portfolio of investments includes gaming consortium Goldrush, mining and energy management group Bluhm Burton Engineering and environmental remediation business Spilltech – just to mention a few.
Agile is readying to deploy capital worth R750 million in investments over the next few years. This doesn’t mean it will conclude deals for the sake of building scale, but it will be discerning about its investment opportunities. Tshego spoke to M&A Africa about Agile’s exciting investment opportunities.
M&A Africa: Is the domestic market robust in terms of the pipeline of investment opportunities?
Tshego: We are seeing a lot of mergers and acquisitions (M&A) opportunities coming our way. However, the execution of transactions is challenging. The trading environment is tough, and, in this context, the pricing of assets is still high.
M&A Africa: So, despite a tough trading environment, sellers are not realistic with their pricing?
Tshego: Yes. When we run our valuation models, we spend time trying to get our heads around value and the earnings potential of a business. There is a lot of money that is looking for good assets in the market. And whenever there are good assets, we find that there is an overwhelming number of potential buyers that can consummate a transaction. As a result, good assets are hotly contested, and prices are driven up.
M&A Africa: How does Agile ensure that it doesn’t overpay for bad businesses in a hotly contested market?
Tshego: We are not going to do deals for the sake of doing deals. For us, pricing is critical and making sure we put money into robust businesses with tangible prospects. We must back jockeys that we believe can deliver on our investment mandate. There must be a strong management team. If it doesn’t meet those requirements, then we are not going to do a deal.
M&A Africa: Where does Agile see investment opportunities?
Tshego: The healthcare industry is presenting some unique and niche opportunities. Healthcare is a big topic as there is a desperate need to make healthcare openly accessible to everyone.
There are assets in construction that we can potentially acquire at reasonable prices. But you must have a long-term view on the sector. The underlying assets are solid and have done well in the past years. We think there can be good value generated once businesses are rationalised and costs are contained.
M&A Africa: There are risks in the domestic construction sector. Is Agile taking a long-term view on the sector?
Tshego: We are short-term focused from an investment point of view, but we are long-term optimistic. We understand that in some assets we will have to take some short-term pain to the extent that things turnaround and capital starts flowing to the economy. And that’s when we will become profitable.
M&A Africa: Is Agile looking beyond South Africa for investment opportunities?
Tshego: There are opportunities and significant development further north outside of South Africa especially in the mining sector. We are starting to see what I call green shoots, but it is not shooting the lights out yet. We are starting to see some mining projects and investment potentials that look attractive in places like Ghana, the Democratic Republic of Congo, Mozambique and Namibia.
M&A Africa: How do you go about finding deals?
Tshego: We are in the market talking to a lot of players and stakeholders. But the interesting trend is that a lot of people are now moving towards auction-type processes to maximise value. While there is a place for an auction process, it’s not a one-size-fits-all approach. There are some assets where you’d rather engage in a bilateral discussion with a potential seller and make sure you command value.
M&A Africa: And what are Agile’s priorities in the medium-to-long term?
Tshego: We need to deploy our R750 million capital in the right sectors. Unlike traditional private equity players, we don’t have a finite investment horizon. During tough market conditions, our priority will be capital preservation. This entails making sure that the businesses we are invested in are adequately positioned, have the right balance sheet structures, have the right funding and management teams.
Deals that Agile Capital concluded in 2017 and 2018
Acquisition of Equity in Feedem Group (South African provider of outsourced services)
Investment in SA Biomedical (leading distributor of surgical medical devices and equipment)
Investment in Acquatico Laboratories ( South African water testing business)
Increased shareholding to 51% in The Provest Group (underground mining and shortcreting)