South Africa is grappling with a host of well-documented challenges (i.e. high interest rates, elevated inflation levels, high unemployment rates, etc.). However, times are seemingly changing, and businesses need to reconsider their strategies, reinvent themselves and focus on core parts of their operations to potentially take advantage of possible available opportunities yet to come. Mergers and Acquisitions (M&A), mainly spearheaded by Private Equity firms, is a key instrument, mainly through divestitures and management buyouts, that companies can use to position themselves for growth, focus on core operations and ultimately navigate South Africa’s competitive and challenging economic landscape.

Central to the divestiture trend among prominent South African corporates is the rise in interest rates. The South African Reserve Bank (“SARB”) raised the repurchase rate (repo rate) over the course of 2023 to levels not seen for over 20 years in an effort to combat increasing inflation. However, the recent decision by the SARB to keep the repo rate unchanged has been viewed positively, with expectations of continued cooling inflation and potential rate cuts in the near future. The repo rate cuts could create a more favorable environment for increased M&A activity and enable South African businesses to operate more effectively. 

Higher interest rates are driving up shareholder required returns and in response larger diversified corporations are slowly sloughing off businesses that do not form part of core operations. While motives for divestiture vary, selling non-core assets sharpens a business’s focus by returning emphasis to core operations, improving the company’s capital structure, and ultimately increasing shareholder value and returns.  

Private Equity firms can play a pivotal role in these transactions. While challenges remain, a reputable Private Equity firm can be a valuable resource that a divested company’s management team can leverage to assist the company in growing and possibly entering other verticals in its market. 

Despite the current uncertainty at home and abroad, the appetite for mergers and acquisitions in South Africa remains positive. We are currently seeing a healthy appetite for M&A activity in the logistics, insurance, consumer goods and services, and renewable energy sectors. In addition, there has also been interest from international organisations who see South Africa as a ‘jumping off point’ for the rest of Africa, witnessed through recent transactions between Pioneer and Pepsi and the sale of BevCo to Varun Beverages.

Many Private Equity firms like ourselves at Agile Capital, participate in M&A transactions through traditional buyouts and buy-ins, buy-and-build platforms, and black economic empowerment transactions, through partnering with other Private Equity firms in the market or solely through Agile Capital Fund four.

In conclusion, despite South Africa’s economic challenges, the current environment presents significant opportunities for businesses to realign their strategies and focus on core operations. The stabilisation of interest rates and the resulting potential for lower rates create a favourable climate for increased M&A activity, primarily through divestitures. Private Equity firms, with their resources and expertise, are well-positioned to facilitate these transactions, thereby supporting businesses in achieving growth and enhancing shareholder value.

Berry Astrapak is a specialised manufacturer of an extensive range of rigid moulded, and thermoformed plastic packaging products serving the African market. The Group has manufacturing operations in Gauteng, Western Cape and Kwa-Zulu Natal and focuses on innovation-led growth in plastic packaging.

Astrapak’s growth has included the acquisition of the business in June 2017 by the RPC Group which then spent several developing years as RPC Astrapak (Pty) Ltd.  Due to the nature of the business, manufacturing capabilities and good supply chain, the Berry Global Group, Inc. subsequently completed the acquisition of RPC Group Plc in June 2019.

Astrapak services a number of industries from personal care products, food services right through to the automotive market. The organisation is well positioned to grow top-line sales to take advantage of African market opportunities.  Some reports indicate that the Africa Packaging Market size is currently estimated at USD43 billion and is expected to reach USD52 billion by 2029.  This is attributed to the increasing number of young consumers in Africa particularly, intensifying the demand for consumer goods. It is also worth noting that sustainability within the packaging industry has become a significant selling point.

“We pursue opportunities across diverse sectors,” explains Liz Kolobe, Partner: Agile Capital. “We seek to invest in businesses which have a sound strategy for growth with solid operational track records and solid management teams for long term partnerships.  Berry Astrapak is well established and we look forward to continuing the journey of growth with the business.”

“Agile Capital was a good cultural fit for us, we see them as part of a strategic edge for the business,” says Craig Matthews, Managing Director: Berry Astrapak. One of the cornerstones of the Group’s B-BBEE strategy is to partner with appropriate companies for specific initiatives which fits neatly with Agile’s philosophy that the right BEE partner provides more than just credentials within a given transaction.

“Our experienced executive team brings diverse skills to this partnership and we view this transaction as a remarkable opportunity to make a substantial contribution to the South African business landscape”, concludes Kolobe. 

“We foresee growth in the sector through localisation of parts and expect that demand for new vehicles will increase as the global economy recovers,” says Agile Capital principal Liz Kolobe.
The most notable driver for the local automotive sector is, in the popular coined phrase, ‘localisation and transformation’.

“Increasing the level of manufacturing in South Africa will have knock-on effects for the adjacent industries, which can only benefit the economy,” she adds.
Agile Capital aims to invest in businesses supplying products and services to original-equipment manufacturers or the associated tier-one, -two or -three suppliers because it expects localisation targets to create growth opportunities for these businesses – either through increasing their product ranges or product volumes.

Kolobe says the company is positioned to partner with the owners of these businesses and entrepreneurs to grow their businesses for the long term and is actively seeking such opportunities.
Its current investment in a local automotive adhesive manufacturer, and previous investments in reputable automotive aftermarket suppliers, has enabled Agile to garner knowledge of the sector, which it will use when investing more in the sector.

Growing the Workforce
“The main benefit of localisation is the positive impact it will have on South African manufacturing companies, which will create jobs,” Kolobe points out.
She says localisation should result in better returns for investors if they support the “right businesses”.

Further, there is likely to be investment in infrastructure to allow for the efficient flow of such goods, which, in turn, will benefit other industries.
Kolobe suggests the automotive industry will likely experience an influx of knowledge and skills into the country, and potentially new technologies, consequently increasing its competitiveness in the global market.

Additionally, localisation may also increase the resilience of South African supply chains by reducing reliance on foreign suppliers, making these less vulnerable to international supply chain challenges.
However, these benefits depend on creating an environment that encourages such investment and the flow of skills, as well as stabilising aspects such as electricity supply and labour relations.
“Transformation is a South African imperative, and Agile Capital believes that meaningful transformation, outside of ownership, will assist in developing smaller companies within the supply chain, giving them opportunities to participate meaningfully,” says Kolobe.
As a long-term investor, Agile Capital aims to invest in companies with a solid track record, tangible growth prospects and strong management teams, and to partner with the management teams to build sustainable businesses that achieve their growth aspirations.
“Growing the companies we invest in will have a positive impact on the sector and the South African economy,” she concludes.

Black-owned private equity investment firm Agile Capital focuses on investments that drive sustainable development and have a demonstrable track record of growth and investment returns, with Agile Capital principal Elizabeth Kolobe noting that, unlike its rivals, it does not have exit timing pressure and has around R850-million in committed capital available and ready to invest.

Kolobe indicates that there is growth potential in KwaZulu-Natal (KZN) and that Agile has noted various investment opportunities, given the port infrastructure and plans by State-owned Transnet National Ports Authority to redevelop the Point Precinct in the Durban port to expand its automotive terminal, thereby contributing towards access to export products and, subsequently, security of supply, while enabling economic growth. 

She notes that funds will be made available to companies throughout South Africa that fit Agile’s investment criteria and owing to its diverse portfolio criteria, it only considers investments in smaller companies if they fit within an existing portfolio company. 

Though there is potential for investments in KZN, Kolobe says Agile does not necessarily segment investments according to areas in which they operate, but looks out for suitable investments.

The firm currently has 15 companies in its portfolio, one of those being Hewitt and Associates (H+A), a global design and manufacturing company. H+A is a KZN- based company which became a subsidiary of Provantage, one of Agile’s portfolio companies in 2022. 

Kolobe states that investing in  its investee companies has yielded successful partnerships, with these companies looking for strategic partners to add value to their businesses, as well as improve their empowerment credentials, which is important in the South African context.

Not only has growth in its investee companies brought about the creation of new job opportunities for more people and opportunities for skills development through employee training, and the expansion in supply chain as suppliers increase their revenues – this also has a knock-on effect on the province’s gross domestic product, and that of the country.

Agile is interested in various sectors including the automotive and manufacturing industries and across the value chain, including suppliers to large original-equipment manufacturers (OEMs) in South Africa as part of a drive to localise production of parts. 

“We see growth in the South African automotive sector. There has been significant investment by multinational OEMs in production in the country and various economic programmes are geared towards encouraging localisation and transformation.”

“Further, the majority of vehicles manufactured and/or assembled in South Africa are exported which bodes well for the industry. We are looking for investments in companies which supply the automotive sector.”

Kolobe adds that Agile Capital is also currently invested in adhesive supplier Henkel South Africa which supplies into the automotive OEMs.

The firm also has interests in the healthcare, property and service industries, with one investment in healthcare being medical device distributor the SA Biomedical Group. Although headquartered in Cape Town, with another office in Johannesburg, SA Biomedical is in the process of opening a depot in KZN.

“We have had good experiences in the services sectors. We find that these businesses are scalable and do not have significant capital expenditure requirements. Having customers in the right sectors allowed these businesses to weather the storm of the Covid-19 pandemic despite the challenges faced,” Kolobe says.

Agile Capital’s “deep commitment” to empowering others extends to investing in projects that make a direct social impact in communities, through its foundation.

“Previously, we were involved in the Henkel Shaping Futures initiative. This programme was suspended owing to the Covid-19 pandemic. Our most recent foundation initiatives have been supporting Pimville Primary school by providing school shoes and supporting an early childhood development centre in the Western Cape.” 

However, being in the investment industry is not without its unique challenges, considering the country’s economic climate.

“It is clear that the Covid-19 pandemic has had a negative impact on many businesses. This resulted in subdued performance in some years and subsequent recovery, which makes it challenging to determine the sustainable level of profitability for these businesses. In some cases businesses have re-based and thus valuations must reflect the new sustainable level of business. This has posed a challenge in terms of valuing businesses, but as we move further away from severely impacted years, this does get easier,” Kolobe comments.

The company made a significant investment into the industrial cleaning and hazardous spill specialist SpillTech in 2014 owing to its attractive posture in the environmental remediation sector, its solid leadership, good prospects for growth and the necessity of its niche services. SpillTech acquired Durban based environmental impairment underwriter Envirosure in 2018. Envirosure provides insurance to customers transporting hazardous goods and potential pollutants, the storage of fuels, chemicals, and other potential contaminants. The insurance also covers costs incurred during clean-up and rehabilitation in the event of an environmental accident. 

Séché South Africa, which also includes waste management company Interwaste, acquired SpillTech in 2021 from Agile and the other shareholders. Agile has subsequently reinvestec in Seche South Africa which consists of SpillTech, Interwaste and Envirosure. 
SpillTech is based in KZN with 19 branches spread across the country providing a 24 hour service, ranging from hazardous waste management, site decontamination to maritime depollution.

“We like the services sector because it gives you the flexibility to either scale up or scale down fairly quickly in response to fluctuations in economic activity,” says CEO and founder Tshego Sefolo, a chartered accountant by training who was among the first black private equity professionals in SA. “That’s one thing Covid taught us — you need to be in businesses that allow you to either flex upwards or downwards in step with changes in the economic cycle.”
Many of those pandemic-driven lessons would have been learnt through the likes of Excellerate Services, the property and facilities management firm in which Agile has a stake via its third fund. It also resonates nicely with the firm’s name, which interestingly Sefolo says is pronounced ach-hee-leh, a Setswana word thatmeans “to build”.
“To build you also have to be agile,” he says.
Feedem, another of Agile’s portfolio companies, which provides catering, cleaning and hygiene services across SA, is exactly the sort of company the firm is looking to invest in as it builds out its fourth fund. The business manages more than 250 sites where it serves 50,000 meals a day and employs more than 3,000 people, ranging from dietitians, chefs and human capital specialists to hygiene experts.

“Those sort of soft services are exactly what we’re looking for,” says Liz Kolobe, a business science graduate from the University of Cape Town who also holds a CA (SA) designation, and is Agile’s principal transactor who participates across the deal cycle from origination to execution and sits on the boards of several of its investee companies.
“By soft services we mean areas like cleaning, catering, hygiene and waste management, pest control — the facilities management activities that aren’t integrated into the physical premises or buildings of our clients.”
One area where Agile feels it has significant exposure is mining, a sector where the firm has built up investments such as ProVest, a specialist supplier of shotcreting (the process of insulating shaft walls by cement spraying). Aquatico, a water testing and laboratory services provider, also serves the mining industry though its services are also applicable in industrial and other sectors. Agile also holds investments in BBE Group, a specialist mine ventilation and refrigeration engineering firm, as well as BBEnergy, providing energy, water and analytics services to the mining sector, among others.
“We find that in the mining sector the benefits of the commodity boom don’t always trickle downwards as much as one might think,” says Sefolo. “The mines tend to take a somewhat commoditised view of service providers.”
One area Sefolo regards as non-negotiable for potential investment targets is the quality of the underlying business model. While he echoes the experience of many investors in mentioning the effect of the Covid-19 pandemic, which left private equity firms with a veritable smorgasbord of distressed entities looking to exchange equity for capital, he says Agile only made one investment during that time.
“We looked at a few potential investments during and after Covid-19, but to be honest we weren’t satisfied with the underlying quality of the businesses relative to the price expectations,” he says. “That’s something you have to have in a business before you invest in it, otherwise you’re just setting yourself up for failure.”
In terms of cheque size, Agile looks to deploy between R75m and R150m in capital per investment, while its ideal target size is a company with an enterprise value of R300m-R1bn. Its preference is to take either significant minority or controlling stakes in target firms while partnering with management teams, but thanks to its capital support from RMB, it does not have the same exit pressure that causes most private equity firms to remain invested for no longer than five- to seven-year cycles.
“That’s where having a partner like RMB is so helpful,” says Sefolo. “We don’t have that gun to our head from investors, which means we can remain invested for far longer than your typical private equity partner.”

Agile Capital CEO Tshego Sefolo explains that outsourced mining services plays a critical role in the mining industry. Therefore, the company aims to invest in businesses that can facilitate long-term growth in the industry and provide quality expertise for mining companies.

Outsourced mining services enables mining houses to focus on their core competencies and gain access to specialist skills and expertise in areas outside of their traditional ambit.

Sefolo says outsourced services are becoming more critical, owing to the cost of mining, which its a key consideration for the mining houses as this has direct impact on profitability and bottom line performance.

Agile Capital has invested in several businesses in the outsourced mining services sector such as mining and construction services provider Provest, which provides underground blasting and cementation, as well as in engineering consultancy firm BBE Consulting, which is “arguably the largest independent ventilation projects and consultation in South Africa”.

The company has also invested in environmental consultants company Aquatico, which specialises in water testing solution for the industry.

Sefolo explains that, as an astute investor in the market, Agile Capital ensures that its businesses are adequately capitalised to meet their strategic objectives.

The company works closely with management teams to ensure that it builds “world-class” businesses predicated on good governance and focused solutions.

“The businesses we invest in also boast significant empowerment credentials when compared with their peers because we drive that initiative aggressively,” he adds.

Further, the recent increase in commodity prices is likely to result in growth and investment opportunities in the mining industry.

However, such opportunities depend on major players and South African mining houses’ willingness to ensure that the outsourced mining services sector remains commercially compelling. Stakeholder and mining houses should evaluate the benefits of growth in the sector as understanding these benefits can encourage stakeholders and mining houses’ willingness and interest in the sector.

Failure to do this will be detrimental to the industry’s long-term growth, with the sustainability of industries, and businesses within those industries, also a key consideration, particularly in South Africa, notes Sefolo.

Agile Capital has invested in diverse segments of the South African economy. The company is continuously looking for investment opportunities, including in the mining services industry, where there is a compelling investment case.

Sefolo concludes that the company is well positioned to generate long-term sustainable earnings and equity returns.

Agile Capital, a black-owned private equity firm headed by Tshego Sefolo, has raised R900m in capital to invest in diverse sectors in companies with a solid presence in their industries. It’s already established three funds of almost R1.4bn across sectors such as the engineering and automotive industries. Sefolo talks to Business Day about its new fund.

You’re disbursing R900m for new investment opportunities. How were the funds raised?

Article published by Business Day Live

The African continent, as an emerging and relatively underdeveloped market, displays a significant lag in investment, particularly in primary sectors such as infrastructure. This presents a unique opportunity for investors with a focused approach wanting to generate superior returns, says private-equity business Agile CapitalCEO Tshego Sefolo.

However, he notes that research and development (R&D) initiatives to gauge investment safety, trade and investment opportunities and associated legislation, as well as bureaucracy, are critical for business in Africa, as these provide a framework for investment in the various markets on the continent.

“One of the issues that becomes apparent for an investor is that African countries are not homogenous and present country-specific risks, such as political or financial risks. In some instances, safety R&D, ensuring that there is proper legislation in the country to safeguard investors, is required. This is something that we are passionate about and continue to support where possible,” notes Sefolo.

The most challenging issue regarding investing in the continent is mitigating investment risk in markets where a business does not have any geographic presence as an investor. “You cannot manage investments by remote control. You need to be involved or, alternatively, partner with trusted associates”.

Despite the current challenging economic environment, Agile Capital continues to see growth in some sectors of the economy on the African continent, including in energy and environmental management services.

“With a disciplined approach to investing, investors can still generate superior returns. This, however, needs to be accompanied by a robust risk management approach, coupled with Agile management teams who are able to navigate tough trading environments in a competitive landscape,” Sefolo maintains.

Agile Capital, as a diversified investment company has, of late, invested aggressively in the specialised environmental management sector. “With increased consciousness towards the environment, this will prove to be compelling,” he outlines.

Also, the company is exploring a number of other investments, particularly in the services sector. Sefolo notes that such businesses, if well positioned, could be significantly scaled up to become more dominant players in the various markets.

“We are aggressively looking for investment opportunities through our recently raised R500-million, which is a private-equity fund. Owing to this, we are able to conclude investments in diversified sectors in the economy. Our approach is to invest in business with good growth potential, coupled with a demonstrable record of outperformance,” he concludes.

Zico Capital (Pty) Ltd (“Zico Capital”), a Johannesburg based investment company, has acquired a 25% interest in Innovation Group SA, a leading provider of outsourced solutions. The business is a subsidiary of UK-listed multinational The Innovation Group plc (LSE: TIG.L).

The Innovation Group is a global provider of business process outsourcing and software solutions to the insurance, fleet, automotive and property industries. “As an established subsidiary of The Innovation Group, Innovation Group SA offers an excellent investment opportunity. We have seen significant growth in the business process outsourcing environment globally and in South Africa, driven by the need to maintain and control costs by major clients,” says Chief Executive Officer, Tshego Sefolo.

Innovation Group SA renders all of its operations from Johannesburg and has established a wide customer base spanning across different markets. Customers include motor manufacturers; blue chip finance institutions; motor dealerships; insurers and brokers; and manufacturers of electronic goods and appliances. “The performance of Innovation Group SA must be viewed in the context of the markets in which it exists and operates.

We believe that there will be a continued increase in cost-effective business process outsourcing in these markets, which will drive growth and returns for Innovation Group SA as it offers clients innovative and efficient solutions,” says Sefolo.

“Africa is Open for Business”

This is the strong message the continent has been sending to the world for quite some time now, despite an ongoing climate of many associated risks and challenges. The many boom towns springing up from Nigeria to the Congo are testament to Africa’s growing urbanisation in resource-rich areas.

Demand for food through air-conditioners is being driven by development. However, development requires integrated growth on many fronts: economic, political, scientific and technological. This is the challenge that most African countries are facing, including the region’s largest growing economy, Nigeria.