Archive for the 'M&A' Category
March 1st, 2017 by Tom Minney
Doubt has been cast on the EUR29bn (£24.5bn) merger between London Stock Exchange Group plc and Deutsche Börse AG this week, after the European Commission demanded LSE must sell off its 60% stake in fixed-income trading platform MTS S.p.A. This is a part of LSE’s Italian business and an important clearing house for European government bonds, including Italian government debt.
The LSE says the EC is “unlikely to provide clearance” after it surprised the City and refused to comply with the demand. It said on Sunday that the request was “disproportionate”.
The deal had been announced a year ago as a “merger of equals” to create a mega-exchange capable of taking on the US exchanges. The European Commission could announce its verdict on 4 April.
LSE and Deutsche Börse had previously agreed to sell the French part of LSE’s clearing business, LCH, to satisfy competition concerns. Rival Euronext was the interested bidder. That may not go ahead.
LSE said that selling its stake in MTS would require approval from several European national regulators and hurt its wider Italian business, where MTS is classified as a “systemically important regulated business”. The LSE also owns Borsa Italiana, based in Milan.
In its statement, LSE said: “Taking all relevant factors into account, and acting in the best interests of shareholders, the LSE Board today concluded that it could not commit to the divestment of MTS.”
US exchanges, including Intercontinental Exchange, headquartered in Atlanta, may now start bidding for the LSE Group.
The 2 leading European exchanges had previously tried to merge in 2000 and 2005. In the current deal, Deutsche Börse, which operates Frankfurt Stock Exchange, will have a 54% stake in the enlarged business but the headquarters was forecast to stay in London. There were concerns post UK’s “Brexit” vote to leave the European Union that considerable volumes of clearing, especially securities denominated in euros, would move to Europe.
LSE and Deutsche Börse say the deal is still on, pending the European Commission verdict. Fees so far to City bankers, lawyers and public relations advisers have so far topped £300m, according to calculations on an announcement.
Deutsche Börse also operates the Luxembourg-based clearing house Clearstream and derivatives platform Eurex. It commented: “The parties will await the further assessment by the European commission and currently expect a decision by the European commission on the merger of Deutsche Börse and LSE by the end of March 2017.”
Paternoster Square with London Stock Exchange at right (credit: Wikipedia)
May 6th, 2014 by Tom Minney
[Sponsored] Benefit from a high-level focus on innovative project financing, private equity financing and M&A structuring for resource investment at the IFLR Africa Forum. It will focus on the laws, regulations and transactions surrounding Africa’s natural resources and provide strategies for managing governmental nationalism, raising finance for projects, infrastructure opportunities and M&A/PE transactions. It will also cover legal issues from discovery of the resources and extraction to transport and corporate acquisitions.
The International Financial Law Review conference is on 20 May at The Waldorf in central London. The 2012 and 2013 events each attracted over 250 participants and very positive feedback. Meet senior in-house counsel, heads of emerging markets and senior partners to maintain a strategic focus on African deals and new financial regulations. Attendees will include top banks, regulators and corporates from UK, Europe and Africa.
Benefits of attending:
• Learn how to structure international debt for African borrowers and make African project finance bankable
• Stabilize agreements with governments for the length of a concession and protect from renegotiation and new laws
• Compliance with international anti-corruption regimes
• Practical tips for mitigating risks in African infrastructure (includes rail, road and airports)
• Focus on oil and gas, including contracts, balancing government interests and profits, and update on the Nigerian Petroleum Industry Bill
• Debate private equity and M&A opportunities in Africa
• Hear about local capital markets providing domestic options
• Learn the importance of negotiating well on free carry, royalties and taxes
• 6 CPD/CLE points.
Confirmed speakers include Tim Odell (Citigroup), David Turley (Bank of New York Mellon), Ian Cogswell (Natixis), Daniel Whitehead (Citigroup), Amol Prabhu (Barclays), Brian Marcus (Standard Chartered Bank), Barthelemy Faye (Cleary Gottlieb Steen & Hamilton), Calvin Walker (Baker & McKenzie), Gavin Davies (Herbert Smith Freehills), Mouhamed Kebe (Geni & Khebe), Faizal Jusob (Couto, Graca & Associados), and David Ofosu-Dorte (AB & David).
International Financial Legal Review is the market-leading financial law publication for lawyers specializing in international finance and was first published in 1982.
In-house counsel, bank counsel, fund managers and academics attend for FREE. Private practice, consultants and service providers who are readers of AfricanCapitalMarketsNews save £200 for a special rate of £795 + VAT – QUOTE ACM20. To register your interest, contact Alicia Sprott on firstname.lastname@example.org or call +44 20 7779 8334.
July 8th, 2013 by Tom Minney
The total value of mergers and acquisitions deals in Africa by foreign investors was $183 billion over the ten years 2003-2012, up threefold on the previous decade, according to a story this week on Reuters. There were a total of 2,417 transactions, double the previous decade (up 109%). Britain was the largest investor with 437 deals worth $30.5bn.
The information is available in figures compiled by Freshfields Bruckhaus Deringer, an international law firm. Other major investors were France (141 deals worth $30.47bn) and China (49 deals worth $20.8bn). South Africa is the most active African investor in the continent outside of its domestic market and invested $6.2bn across 153 deals.
According to the Freshfields Bruckhaus Deringer press release: “International investors now account for half of the total value of African M&A, completing 255 deals worth $20.0bn out of a total of $39.5bn and 758 deals in 2012. This is up from $6.4bn and 122 deals in 2003.”
Most of the M&A action was in metals and mining, with 752 deals worth $33.9bn, followed by oil and gas (299 deals worth $29.6bn) and wireless telecoms (33 deals worth $25.4bn). Reuters quotes Bruce Embley, corporate partner at the law firm, who says the emphasis could be changing: “Extractives and mining opportunities have been big drivers of growth. However, consumer-related M&A could take the limelight as GDP per household continues to grow, the middle class in Africa expands and consumer demand rises.”
According to the press release: “Consumer-facing industries such as telecoms, retail and food and drink are beginning to rival natural resources with $58.0bn invested across 569 deals. The value of investment targeting consumer industries has doubled in the last ten years with $3.8bn across 71 deals invested in 2012 (up from $1.9bn and 33 deals in 2003).”
Top deal destinations over 2003-2012 were South Africa ($59.1bn of investment over 836 deals), Egypt ($46.5bn for 266 deals) and Nigeria ($22.1bn across 90 deals).
China overtook the USA as Africa’s largest trading partner in 2009, according to a U.S. Government Accountability Office report released in February. African economic growth is forecast at 4.8% in 2013 and 5.3% in 2014, according to the African Economic Outlook 2013 report released on 27 May. The growth will be fuelled by commodity exporters such as Nigeria, Ghana and Cote d’Ivoire, all in West Africa. The annual AEO report is produced the African Development Bank (AfDB), the OECD Development Centre, the Economic Commission for Africa (ECA) and the UN Development Programme (UNDP).
December 24th, 2012 by Tom Minney
Fortunes improved for investors in companies on the London Stock Exchange’s Alternative Investment Market (AIM) market, aimed at mid-capitalization or growth companies. Although the number of companies listed for trading on AIM has fallen every year since 2007, in 2012 the decline was only 4%, compared to a 16% decline in 2009 which was the fastest fall.
In addition, the reasons for companies leaving were mostly positive, according to a report on Reuters citing a report from Deloitte. Richard Thornhill, capital markets partner at Deloitte, is quoted as saying: “There are good reasons to be confident about the market in 2013.”
He said: “During the time of the financial crisis … the principal reasons why companies were leaving the list were negative. Either they no longer perceived that the market offered them value … or the economic climate forced them to de-list. The situation in 2012 has been very different, with the driving force behind companies leaving the list being transactions which have consistently realized value for shareholders.”
By the end of November 2012, 65 companies had been listed on AIM. Of these 44 had raised money and investors had seen an average gain of 26% since the listings. However, 113 companies had left AIM in the period, of which 41 were acquired, 17 were subject to reverse take-overs and 3 transferred to the LSE’s main market. Companies which were acquired received an average premium of 53% to the price at which the shares closed on the day before the acquisition, according to Reuters.
March 9th, 2012 by Tom Minney
Abraaj Capital, a leading private equity manager investing into Africa, Middle East, Asia and Turkey, recently announced the acquisition of Aureos Capital, a global private equity fund management group investing in small and medium-sized enterprises across Asia, Africa and Latin America.
The combined entity will have approximately US$ 7.5 billion in assets under management, presence in over 30 countries and 153 investments managed by a seasoned team of over 150 investment professionals with unmatched local expertise.
Aureos has operations in over 20 countries, US$ 1.3bn in funds under management and over 250 deals completed in the SME segment in the last 20 years. Its reputation is growing SMEs through combining local insight, extensive proprietary networks and presence. Abraaj’s $650 million SME platform is Riyada Enterprise Development (“RED”).
The transaction will create the world’s largest SME focused private equity group targeting SME investment opportunities across the high growth markets of Asia, Africa, Middle East and Latin America. Aureos and RED will benefit from synergies and operate under the single brand “Aureos”, but all Aureos and RED funds will continue according to their existing fund mandates and investment guidelines. The expanded Aureos platform will retain its inherent structure and team within the Abraaj Group.
Mustafa Abdel-Wadood, CEO of Abraaj Capital Limited said: “This is a very exciting opportunity for Abraaj Capital and enables us to further extend our leadership position in emerging markets. Aureos is a globally respected private equity firm with a dedicated team of investment professionals who have extensive experience and knowledge of the markets they invest in, with a geographical footprint totally complementary to Abraaj with no overlap. Both Abraaj Capital and Aureos are ‘home grown’ emerging markets private equity firms with a similar philosophy and shared values. This acquisition is an important step in our expansion into Latin America, South East Asia and Sub-Saharan Africa and a new chapter in the Abraaj Capital story”.
The proposed transaction has been strongly supported by Aureos’ core investors, including CDC the UK’s Development Finance Institution. Rod Evison, Managing Director, commented: “Aureos has been able to build its investment business on a track record of careful and market-orientated investment in SMEs, so today’s announcement is good news for entrepreneurs in emerging markets. It will mean increased access to capital and local expertise for businesses to help them grow and reach their potential”.
The acquisition, which is subject to necessary approvals from the relevant authorities and one group of fund investors, is expected to be completed in the first quarter of 2012.
Abraaj Capital group was formed in 2002 and is headquartered in Dubai. It has raised over $7bn and distributed around $3bn to investors. It employs over 170 and has a presence in Riyadh, Istanbul, Cairo, Singapore, Mumbai, London, Karachi, Beirut, Ramallah, Amman, Casablanca, Algiers and Tunis. The group has helped accelerate and facilitate the growth of over 50 companies in 15 countries in the region, in attractive and fundamental sectors such as healthcare, education, energy, aviation and logistics. It manages 8 funds: 4 private equity Funds, Riyada Enterprise Development (a Fund dedicated to small and medium enterprises in the Middle East), Kantara (a Fund dedicated to small and midcap enterprises in North Africa), ASAS (an income-generating, real estate Fund) and a 2004 vintage real estate Fund. The Abraaj Capital group currently has over $6bn of assets under management. In 2011, Abraaj Capital was ranked the largest private equity firm in emerging markets worldwide by Private Equity International. In addition, Abraaj Capital has won many regional and international awards, including the ‘Middle Eastern Private Equity Firm of the Year’ for six consecutive years, awarded by Private Equity International.
Aureos was established in 2001 and has increased its funds under management to $1.3bn and extended its geographical footprint to over 50 emerging markets covering Asia, Africa and Latin America, by establishing 17 regional private equity funds. It has 25 offices worldwide, over 90 investment professionals. Investors in Aureos funds include institutional investors, bilateral and multilateral development finance institutions, pension funds, sovereign wealth funds, fund of funds, family offices and foundations and high net worth individuals.
March 6th, 2012 by Tom Minney
London-based alternative asset manager Duet Group and Vasari, a company with a track record of growing businesses including beverage businesses, announced recently in a press release (covered here, for instance) they had made the largest private equity investment in Ethiopia so far. However, the release does not indicate the size of the deal but says Duet has have injected equity into newly-formed Duet Beverages Africa Ltd with Vasari as “industrial partner” to make “a significant investment” into Dashen Brewery Pvt Ltd Co.
In the Dashen transaction they have joined forces with TIRET Group, a local endowment fund with political links, to expand Dashen’s capacity and distribution facilities. They claim the brewery has 20% market share. Ethiopia has Africa’s second biggest population at nearly 90 million, increasing by 2.5m people a year. According to the release, brewing has been growing by 25% a year for the last 5 years. It is set to be one of hte fastest-growing economies in Africa in coming years after many years of fast growth.
Duet had also tried to bid in previous brewery deals as foreign investors snapped up privatizing breweries at premium prices. Heineken and Diageo have both made large brewery investments, while Castell Group is doing well with the St George brand and SABMiller (South African Breweries) had bought into a popular mineral water company.
Henry Gabay, co-founder and co-chairman of Duet Group, said: “The economic performance of Ethiopia over the last eight years has been nothing short of outstanding. We are very excited about consumer-driven businesses in the country. We have been very impressed by what has been achieved at Dashen. We believe Duet and Vasari will add tremendous value for the next growth phase of the Company. We are also proud of having the TIRET Group as a partner, with whom we will evaluate other opportunities in various sectors.”
The deal was led by Saad Aouad, CIO of Duet Africa Private Equity, Demissie A. Demissie, Managing Director of Duet Ethiopia, Afsane Jetha, Director at Duet Africa Private Equity and Neil J. Everitt, Managing Partner at Duet Beverages Africa. Norton Rose LLP and PwC have also advised on this transaction.
Bereket Simon, Board Chairman of the TIRET Group and head of the Government Communications Affairs Office (GCAO) or government spokesperson, commented: “In the last 8 years, Ethiopia has successfully enacted 5-year plans designed to foster a business environment in which businesses are able to successfully operate; Dashen’s ability to attract, Duet Group and Vasari demonstrates this. This transaction marks only the beginning of Ethiopia’s bright future in terms of attracting more FDIs”.
Duet Group describes itself as “a UK-based asset management firm with over $2.7 billion of assets under management” (www.duetgroup.net). The release describes Vasari, led by Vivian Imerman, as having “a long track record of growing and transforming businesses in a wide range of situations and environments. Vivian began by building corporations in South Africa, and later broadened his geographical focus to Europe, Asia and South America. Vivian’s achievements include the transformation of Del Monte and Whyte & Mackay.”
February 24th, 2012 by Tom Minney
The spate of mega-mergers and competition among the world’s biggest exchanges continues, despite the move by European regulators to ban Deutsche Börse (DB) and NYSE Euronext (NYX) from forming the world’s biggest exchange. Both are stepping up activities in selling exchange technology and looking at other new directions.
According to a report in the Wall Street Journal, both see their independent futures driven by selling technology and market services to other exchanges and traders, in competition to other exchange technology providers CME Group Inc., Nasdaq OMX Group Inc and London Stock Exchange Group PLC (LSE) – the last two have systems running in more than one African exchanges. DB systems are in use in exchanges in Ireland, Slovakia and Austria, and markets in Japan, Qatar and Poland use NYX technology.
NYX has said it plans to more than double annual revenue from its technology arm to $1 billion by 2015. DB said it would create a new information-technology and data unit to extol the virtues of German engineering by consolidating its existing services in supplying price data and other market information into a new unit that will also export the systems that run the German company’s stock and derivatives markets. Together the businesses last year contributed about €92 million ($120.4m) of DB’s €2.3 bn in revenue. Chief Executive Reto Francioni said: “In the process, we can bolster our technology leadership, strengthen customer relations and pack a more powerful punch overall.”
The article comments: “The world’s major exchange operators have in recent years viewed the sale of technology services and data as a growth driver, mitigating the ups and down of trading fees. Selling the hardware that powers trading and back-office services is also a useful path for tapping growth in emerging markets. Russ Chrusciel, head of derivatives risk-management services for trading technology company SunGard, is quoted saying: “Exchanges today at their core are technology companies. What used to be a crowd of several hundred people on a trading floor has turned into a conglomeration of buildings, servers and technology architecture.”
Stock exchanges market capitalization (source Bloomberg)
LME in the target zone
By today (24 Feb), key metal traders were starting to voice objections to the planned sale of the London Metal Exchange. NYX is said to be on the list of potential bidders who also include CME Group, Hong Kong Exchanges and Clearing Ltd and the InterContinental Exchange. According to a Reuters story, Stefan Boel, board member of Aurubis, Europe’s largest copper producer, said: “”People are getting blinded by the dollars and euros which they can make out of it. It’s all about the valuations of the LME and possible profits. But we’re forgetting the fundamental fact that the LME was set up as a body for price discovery and risk protection for the non-ferrous metal industry. It has a true industrial purpose.” LME contracts allow participants at many stages of the metal-supply chain, including miners, smelters, fabricators, merchants and consumers, to hedge against price risk. It differs from other futures exchanges because of its unique prompt-date structure.
There is also a report that NYX is considering a bid for the LCH Clearnet clearing house. The LSE is also in talks on buying a controlling stake in LCH. LCH is the go-between buyers and sellers and ensures a deal goes ahead if one of the parties fails to pay.
The Economist magazine, commenting before the Euro ruling on the DB-NYX merger, gave some interesting insights into the dynamics of exchange mergers and liquidity: “But there are reasons to think that the deal could be beneficial to investors. Exchanges are platforms on which buyers and sellers can meet, so a lower number of exchanges, which increases the potential for buyer-seller matches, can be better than a fragmented system. In addition, making all trades on one exchange could lower investors’ costs. This is because some assets (gold and equities, say) tend to be negatively correlated, so risks offset each other somewhat. An investor wagering that both gold and equities will go up should need to provide less collateral if a single exchange is used. Economists advising the exchanges estimate investors could reduce collateral-posting by €3 bn ($3.9 bn), a likely annual cost saving of roughly €300m.
“Nor would a merger necessarily mean increases in trading charges. The biggest investors are vital to the exchanges (the five largest NYSE clients make over 20% of total trades). These investors could move to non-European venues if charges rise, or they could set up their own platforms to deal with each other. And since costs of entry are not prohibitive, plenty of other established exchanges could be tempted into Europe if venues there started to look very profitable. The threats of switching or entry should keep prices to large investors competitive. And since regulators would take a dim view of any price discrimination, small investors should be protected from high charges, too.”
Eroding Spain’s national exchange
Several rival trading ventures, the latest being NYX, are offering price promotion on Spanish stocks. Bolsas y Mercados Espanoles (BME), Spain’s incumbent exchange, is the last of Europe’s large bourses to retain a near-monopoly in the trading of its national stocks, and the others are gaining momentum in efforts to break the stranglehold. Bats Chi-X Europe, the region’s largest alternative platform, has had an extended price promotion in the most-liquid Spanish stocks.
The success of the NYSE Arca Europe platform and others in Spain have been hindered by the failure of Spanish regulators and the BME to fully embrace the EU’s markets in financial instruments directive (Mifid – 2007), which allowed share trading to take place away from national stock exchanges. Mifid has boosted the rise of several alternative platforms and a dramatic fall in the share of trading conducted by markets including the LSE, NYX and DB.
February 4th, 2012 by Tom Minney
PLUS Markets (www.plusmarketsgroup.com), a British-regulated investment exchange for trading the shares of small companies, has put itself up for sale on 3 Feb. According to a press release, the company says it has spent 2 years investing heavily in repositioning itself as a trading solutions services provider alongside its roots as a stock exchange.
The Board of Directors says it is “well positioned strategically to exploit commercially the opportunities offered by significant changes in the regulatory and technological environment”. The Board has decided to conduct a formal sale process “in order to identify appropriate potential partners for the Company or major strategic investors”. It calls on potential offerors for the entire issued and to be issued share capital to contact their adviser, Wyvern Partners (www.wyvernpartners.com, Anthony Gahan +44 207 355 9857).
Plus Markets Group plc describes itself on its website as a “next-generation” stock exchange and a market operator under the European Union Markets in Financial Instruments Directive (MiFID) on Recognised Investment Exchanges (RIE). It operates a regulated market and multilateral trading facility (MTF). PLUS is the holding company for the PLUS Stock Exchange (PLUS-SX) and the PLUS Derivatives Exchange (PLUS-DX).
As an RIE, PLUS-SX can provide trading and listing services in the full range of financial instruments including cash, equities, derivatives, bonds and commodities. It provides cash trading and listing for UK and international companies with a range of markets through fully listed and growth markets to access capital. PLUS-DX offers derivatives and technology services and plans to offer short-to medium-term interest-rate related products. “We have designed PLUS-DX’s services to meet the changing regulatory and commercial landscape.”
PLUS Trading Solutions (“PLUS-TS”) responds to the growing demand from market participants to segregate or create their own matching systems and delivers a competitive, fully managed matching and surveillance service, designed to help firms satisfy new regulatory requirements. The group brings “product innovation and competitive pricing to market participants by operating a low cost base RIE. PLUS offers a neutral trading environment, wholly independent of any market user.”
The Board of PLUS adds: “scale and international reach will become increasingly relevant for interaction with exchanges, investment banks and other trading entities.”
According to a story on Reuters, the company reported a loss of GBP5.8m ($9.2m) on revenue of GBP3m in 2010, its sixth consecutive loss-making year. PLUS grew out of Ofex, an exchange for British small-cap stocks that required less regulation than the London Stock Exchange or AIM. The share price was at 1 penny.
“The Board believes that it is in the best interests of the Company to seek a partner which will help it achieve the scale and reach required to maximise value to stakeholders.”
October 27th, 2011 by Tom Minney
Private equity managers (“General Partners” or GPs) have been able to exit some of their investments, spurred by good valuations, global private equity funds entering Africa and more interest from international companies. According to a story on excellent private equity website, www.privateequityafrica.com, data from research house Preqin (www.preqin.com) says that reported exits this year are worth $1.2 billion “as company values finally recover to reasonable levels despite uncertainty in the broader global economy.”
This compares with $79 million sold in the whole of 2010, according to Preqin data.
Here are some of the exits listed, plus a couple of others we added, which may not be included in Preqin’s data for various reasons. For more details take a look at www.privateequityafrica.com and other sites:
• Sweden’s Electrolux bought Egypt-based white goods manufacturing company Olympic Group Financial Invetment SAE for $404m, including a 52% stake previously owned by Egypt’s Paradise Capital Holding for Financial Investments SAE. The deal started in October 2010, and the price changed a bit during the revolution. Electrolux followed with a mandatory offer to other shareholders. A 2010 statement by Paradise Capital said the new funds would be put into other businesses: “Expanding the existing Paradise Capital business activities will help the Sallam Family realize its declared mission statement “80K by 2020” (to provide 80,000 jobs by the year 2020 in Egypt).”
• Mark Shuttleworth’s HBD Venture Capital sold its stake in South Africa-based mobile payment company Fundamo to Visa in a $110m trade deal.
• South Africa’s Ethos Private Equity Fund V sold a 70% stake in South Africa-based sporting goods company Holdsport (formerly Moresport), raising approximately $137m (R930m) through a pre-placement after a book-build by UBS. Holdsport listed on the Johannesburg securities exchange JSE Ltd in July, its first retail listing since 2004. According to reports, Ethos paid R681 million to acquire the retailer, including its debt, in a 2006 buyout with management, who retain their interest.
• Oil company Kosmos Energy Ltd raised $594m (more than expected) when it listed on New York Stock Exchange in May in an IPO, it had been backed by private equity firms Blackstone Group and Warburg Pincus.
• Aureos’ $381m Africa Fund achieved its first exit in February when it sold its stake in Nigeria-based biscuit maker Deli Foods to Tiger Brands, after holding the company for only 3 years. Tiger Brands paid a total of R275m ($35m) for the company. Aureos said it gained “solid” returns. In a press release, Ravi Sharma, partner for Aureos West Africa added: “Aureos’s involvement with Deli Foods has been about taking the company to the next stage in its development. As well as growing the company to the extent that it has been able to attract an international buyer, we are also proud that the improvements that we have made in health, safety and environmental procedures will bring significant benefits to the strong workforce, as well as the wider community in this part of Lagos.”
• Blackstar Group SE (linked to Blackstar Investors plc in UK) announced that it had reaped a 72% internal rate of return (IRR) in sterling and 4x returns on its sale of a 54% stake (shareholding and shareholder loans) in Ferro Industrial Products, after less than 3 years of holding the asset (it was acquired in January 2009 for GBP4.8m ($7.7m), according to a press release). The investor sold its stake in the company to Investec and Ferro management for R220m (about $30m at the time).
Other deals reportedly in the making include plans by Ethos and Actis to sell stakes in South Africa’s Savcio Holdings, an equipment repair company. This year’s arrival into African private equity Carlyle Group was understood to be one of the players looking at the company, estimated at $500m in value, according to reports General Electric and Siemens AG are also keen.
Look at the www.privateequityafrica.com for more and to subscribe to the October issue of the Private Equity Africa quarterly printed journal.
October 6th, 2011 by Tom Minney
Media report that Renaissance Capital (www.rencap.com), a unit of Russian investment bank Renaissance Group, is drawing closer to a takeover of one of Zimbabwe’s largest stock-broking firms, Lynton Edwards Securities (www.lynton-edwards.com – LES). This could upset small brokerage firms for whom Rencap has been a key source of business from foreign investors that dominate the Zimbabwe market.
According to the report in Zimbabwe’s Financial Gazette, RenCap has approached the Competition and Tariffs Commission (CTC) seeking regulatory approval for the acquisition of LES. It says CTC assistant director in charge of competition, Ben Chinhengo, confirmed that the commission was scrutinising a proposed transaction, describing it as a merger between the two companies: “The commission is currently examining the merger. It takes up to 90 days and we are within that scope.” The report quoted a stockbroker as saying the market rumour is that the transaction is nearing completion.
“No intention to acquire”
However, the report also notes that both LES and Rencap have declined to confirm the transaction, and Rencap is an important source of business for many local stockbrokers. It quoted LES managing director, Murray Lynton-Edwards, saying:”We were in talks 3 years ago but nothing was concluded.” Renaissance Group’s head of Zimbabwe and Zambia operations, Robert Reid, denied it: “We enjoy a very strong relationship with local brokers. We value those relationships and we are always talking to them and that is how we have set up ourselves in Zimbabwe. At the moment we have no intention to acquire any local broker or, to seek to grow our equities business organically by applying for a licence.”
RenCap is a leading independent investment bank operating in Russia, the Commonwealth of Independent States, Central and Eastern Europe, Africa, Asia and other high-opportunity emerging and frontier markets. It has spread its business across several securities traders and some smaller stockbroking firms fear it will direct all its business towards LES. It started investment banking in Africa in 2006, committing over US$5 billion in capital-raising and financial advisory transactions.
LES was formed in 2004 and has over the years grown to become one of the biggest players on the country’s capital markets, competing closely with Imara Edwards Securities and one of the few profit-making brokerage firms on the ZSE. Stockbrokers charge 1% brokerage fees on every transaction. One source quoted said the value of the transaction would be about US$1 million.
LES has reportedly been RenCap’s preferred broking firm and a takeover would mean that RenCap would minimise its cost of trading on the ZSE and create possible dominance by LES on all foreign investor deals. LES would also benefit by having a much stronger capital base for future deals.
Rencap in Zimbabwe
Official statistics show that the ZSE is largely driven by foreign investors, whose participation continues to rise steadily: 22% in January, 53% in March and peaking at 71% in May.
Renaissance Partners, RenCap’s principal investment unit, is a major shareholder in Bubye River Conservancy, Africa’s largest privately-held wildlife conservancy, encompassing 324,000 hectares in southeast Zimbabwe. It is located in the Lowveld, 60km from the South African border, straddling the Bubye River. RenCap has also invested in a 290-hectare urban development project in Zimbabwe and has board representation in CBZ Bank, the country’s largest commercial bank by both assets and lending.
The group provided financial advisory in Essar Africa Holdings Limited’s US$750m acquisition of Zimbabwe Iron and Steel Company, now NewZim Steel.
Rencap’s Reid said: “We are hosting on a weekly basis, the biggest corporates from Russia, India, China and other parts of Africa. Clearly, one of the key questions they ask is what is going on with indigenisation. Those that are interested in investing here understand that there is a need for some form of local empowerment, but the challenge has always been in the implementation of these policies. It is not unique to Zimbabwe; South Africa has been trying to formulate and implement BEE (black economic empowerment) policies since the 1990s.”