Deal Making Opportunities Ahead

While businesses are still struggling to get back on their feet and regain some sense of normality, the third wave of Covid-19 infections is upon us and the challenge of lockdown restrictions still remains. The slow rate of the vaccine roll- out means that this pandemic is likely to be with us for some time. There is however a glimmer of hope when we look at how countries which are at the forefront of vaccination have progressed. Unfortunately in SA, this has resulted in most businesses adopting a rather cautious approach when making decisions, most opting for a cash conservation approach to preserve much needed liquidity.
What we have witnessed is that, due to a variety of reasons, whether to preserve balance sheets or to alleviate pressure from lenders, corporates have embarked on the sale of non-core assets. Whilst all of this bodes well for deal making, the question remains, what is the long-term impact of the pandemic on these businesses and how does one price that into a transaction?
Deal makers are currently experiencing a very interesting challenge in deciding what assets to invest in. Whilst one can never lose capital by not doing or concluding a deal, an opportunity like this may not present itself again and certainly not in this manner.
From an Agile perspective, we remain true to our first principle: To identify a business which has a defendable business case, irrespective of the current prevailing context. The simple question we always ask is “what is your ticket to the game” and it remains relevant. This quickly enables us to identify and differentiate long term sustainable businesses from those which are not.
Our confidence is regularly rewarded. Our partners remain poised for slow steady growth.

UniQ Benefit Solutions

Deals 2021 - New beginning

UniQ Benefit Solutions, previously known as Adcorp Support Services, was acquired from Adcorp Limited. UniQ has two divisions: Funeral Management Services (“FMS”) and AFS Employee Benefits (“AFS”). FMS, the larger of the two divisions, is a niche outsourced service provider to the long-term insurance industry which provides body repatriation and value-added services, such as emergency medical, funeral, legal and trauma support. Founded in 1997, FMS prides itself on the quality service it is able to provide clients through very difficult times.
AFS acts as a broker to provide tailored employee benefit solutions, including retirement benefits, medical and risk benefits. Agile partnered with RMB Corvest and the management team to acquire 100% of the business through a management buy- out which was concluded in March 2021. We are excited to start this new journey with this dynamic management team.

Our Eye on the Future

Globally, over 95% of enterprises are SMMEs. They employ 60 – 70% of the working population while generating a large share of new jobs in Organisation for Economic Co- Operation and Development (OECD) countries. These figures are mentioned in an online report on SMEs by the World Bank. This highlights the importance of entrepreneurship in driving a greater percentage of the population to become economically active.
The question that the private sector, including private equity, should be asking is how can we become more intentional about the development of entrepreneurship?
Private equity firms in SA are typically not just passive investors but also provide portfolio companies with strategic input and contribute to business development. In a McKinsey Report, the phrase “active performance partners” is used to highlight how closely PE firms should work with management teams to create sustainable value. We believe this unique collaborative partnership can create value in businesses, bringing diverse expertise on board to further unlock new opportunities and leverage off the business networks that Agile has established over 10 years.
Involving a PE partner offers entrepreneurs an alliance that is equally invested in the transformation and scalability of the business. This helps businesses in achieving sustained organic and inorganic growth, which in turn increases investor confidence in SA businesses. The majority of the investee company respondents of the SAVCA 2020 Private Equity and Venture Capital Impact Survey reported benefits from their venture capital and private equity partnerships.
The survey found that these partnerships aided in increasing the speed and success of innovation in their businesses, increased inorganic growth through acquisition, improved transformation in the majority of the elements of the B-BBEE scorecard and improved governance. Furthermore, respondents reported an average 22% increase in headcount in their SA operations and a strong financial performance.
There is still a lot of work to be done. Opportunities exist for every stakeholder to identify ways to support local entrepreneurship. Creating and nurturing mutually beneficial economic relationships could be a game changer for the overall SA economy.

Opportunities in the water sector

Water has increasingly become the focus of environmental and humanitarian agencies with education and preservation being a key area of attention. With this in mind, the environmental monitoring, testing and reporting services that the Aquatico group provides to the mining, farming and consumer industries plays a critical role in maintaining the integrity of South Africa’s water. Its technology enabled services include the sampling and analysis and feedback regarding water from mining wastewater, boreholes, dams, and other sources.
The 2030 Water Resources Group, a multi-donor trust fund hosted by the World Bank Group through its research, estimates that without intervention, South Africa will have a 17% water deficit by 2030. It predicts that South Africa will have to resolve tough trade-offs between agriculture, key industrial activities such as mining, power generation and manufacturing, as well as the requirements of large and growing urban centres.
Trade & Industrial Policy Strategies (TIPS) published a working paper last year titled Water and Sanitation in South Africa’s Post-Lockdown Economic Recovery Stimulus. Besides the obvious impact on health, inequality and poverty, there are possibilities through this sector to stimulate industrial development and employment creation. Understanding the potential environmental impact of industrial activities on the water quality in the surrounding areas is essential in protecting the sustainability of our limited groundwater resources.

This allows industries to take appropriate steps to minimise negative outcomes.
Opportunities abound for businesses in the urban water space, and they are substantial. In addition to protecting the resources we have, the Water Institute of Southern Africa highlighted a number of these opportunities which include replacing aging infrastructure, desalination and alternative sanitation. Local civil engineering firms, water equipment OEMs, along with component manufacturers, could be perfectly positioned to leverage these opportunities and drive economic growth and job creation.
The water sector, including the testing services performed by companies such as Aquatico, lends itself to investment opportunities while also driving change in the water and sanitation conditions for all South Africans.

PMG transforming the billboard industry

Agile Capital celebrated a decade-long partnership with Provantage Media Group (PMG) earlier this year, and in September 2021 it will be five years since PMG and Outdoor Network announced the merger of their Out of Home (OOH) media operations.
Outdoor Network’s transformation journey started in 2016. This all counts for nothing without a sustained commitment to driving meaningful empowerment throughout the organisation – and beyond. Subsequently, the business has differentiated itself from its competitors in the market, by becoming the largest South African-owned Level 1 B-BBEE Out of Home media owner.

Mzukisi Deliwe, Deputy CEO: PMG says that major brands and media agencies continue supporting billboard companies which lack genuine interest in transformation. Several sizeable billboard companies have little to no black ownership.
In the latest Outdoor Auditors (April 2021) report, figures show that only three billboard companies in the top 15 are majority black owned. This means that a mere 1,551 billboards (18%) among the top 15 billboard companies have majority black ownership.
It’s worth mentioning that competition in the billboard industry is fierce and transformation remains challenging. Supplier development and preferential procurement are similarly areas where transformation remains neglected, creating barriers to entry for new participants.
A real difference also rests on the South African corporate sector being willing to invest in proudly South African organisations who are transformed or in the processes of transforming and willing to impart knowledge.
PMG is fully committed to sharing skills, knowledge and expertise with black owned SMMEs across the OOH industry. This will make a significant impact on suppliers and a difference to the OOH media industry as a whole.

In closing

We find it reassuring that despite the pandemic, private equity remains a positive strategy to boost business. As with all economic cycles there are peaks and troughs and the recovery from the present challenges may take little longer.
We remain committed to investing in South Africa. We believe that there are opportunities within a number of sectors and we aim to continue building our portfolio. We continue to look for the right investment partners, and to being an integral part of growing and building these businesses.
We look forward to exploring a host of new investment opportunities.

Regards Liz Kolobe

Related Posts


AGILE CAPITAL EQUITY FUNDS

Focused on businesses with a solid record, tangible growth prospects and strong management teams.

Find out more
Call : +27 (0) 10 476 0690

info@agilecapital.co.za