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Private Equity takes aim at gaps

Published: 15 June 2010

Private equity may be the whipping boy in the international media at the moment, but it's an investment vehicle that could turn out being the saving grace for medium-sized business growth in Africa. Some funds are noticing the potential early.

Trinitas Private Equity tells I-Net Bridge it has concluded its first investment of approximately R50 million in Le-Sel Research, a large Midrand-based contract manufacturing concern that produces personal care products and cosmetics for the likes of Woolworths, Avroy Shlain, Alberto Culver, Unilever, Johnson & Johnson and Aspen.

The life-blood of an emerging economy is small to medium business - but ironically this is often an area of the market that is neglected. SA's manufacturing sector, for example, has been left floundering in the wake of the financial crisis. Stewart Jennings, president of the National Association of Automotive Components & Allied Manufacturers, says the industry was left reeling, with lower interest rates not being passed on as well as would have been expected. And this is an industry desperate for capital to expand.

And there is going to be more scope to do deals going forward due to pent-up demand according to top global private equity player Sachin Date from Enrst & Young there is "dry powder" in excess of $500 billion. This comes after the global recession hit the industry quite hard, with money not being spent in any big numbers in the past 18-24 months.

At its first closing in March this year, Trinitas had raised R430 million of commitments from five local institutional investors. Its investment mandate lets Trinitas invest anything from R50 million to R150 million into a transaction. Its mandate is quite interesting as it is not going for volatile business offerings which make sense as it is structuring over a 3-7 year period. This is a little longer than the traditional timelines, but makes sense given the area of the market it is penetrating. It is not an industry specific fund but its mandate precludes it from investing in mining and other cyclical business.

Le-Sel, for example, meets the criteria as it is the largest local contract manufacturer in the liquids and aerosol segment of this market and is not cyclical in nature - people will always buy its products no matter the market conditions.

The shareholders in the fund management company are their three directors, Sasfin and the black women's empowerment group Peotona, which owns a 25 percent share. John Stipinovich, Andrew Hall and Soteris Theorides, the directors are highly experienced and have a 10-year track record of working together.

Le-Sel's balance sheet will now be re-structured and it will be better geared to take advantage of the growth prospects ahead - the key reason why private equity is a useful ploy to get small family owned businesses like this into the mainstream. All across Africa, businesses can benefit from models like this. And it comes at a time when increased banking regulations are likely to make it even harder to get hold of money for smaller businesses as banks will need to hold more funds on their books and would thus lend even less out.

Source: Business Report online

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