Ethos Capital intends to list its issued A ordinary share capital on the main board of the JSE.

The listing would be subject to market conditions and the requisite approvals by the JSE. Rand Merchant Bank, a division of First Rand Bank, is acting as the financial adviser, sole global coordinator, bookrunner and JSE sponsor in relation to the listing. 

Ethos will list as an investment entity in the ‘Financials – Speciality Finance’ sector of the JSE and will offer investors long-term capital appreciation by directly and indirectly investing in a diversified portfolio of unlisted investments managed by investment adviser Ethos Private Equity (EPE), the largest private equity firm in sub-Saharan Africa.

The company aims to raise up to R2-billion and plans to issue up to 200-million A ordinary shares to selected and institutional investors in terms of a private placement.

Commitments of about R1.08-billion in aggregate have been received from selected investors, including EPE.

The main purpose of the offer and the listing is to raise capital to enable Ethos to implement its investment strategy and to provide a liquid access point to enable public market investors to obtain an exposure to a diversified pool of unlisted assets and participate in Ethos’s long-term growth prospects.

“We are progressing our plans to list Ethos on the JSE. The listing will provide the market with a unique opportunity to invest in a diverse pool of unlisted small to medium-sized companies in funds managed by EPE, the largest private equity player in sub-Saharan Africa,” Ethos CEO Peter Hayward-Butt said in a statement on Monday.

He pointed out that EPE’s historical performance has “consistently outperformed the listed benchmarks with 57% of its 91 realised investments having returned greater than three times the original invested capital, and 93% of realised investments having returned greater than twice the capital invested”.

The net proceeds from the listing are expected to be invested in several investment strategies. These include primary investments – commitments to various funds to be raised and managed by EPE during their respective fund-raising processes; secondary investments – acquisitions of existing limited partner interests in existing Ethos funds; and direct investments – acquisitions of interests in underlying investee companies alongside Ethos funds to the extent that the Ethos funds require coinvestors in the underlying investee companies.

It also includes temporary investments – investments in a portfolio of low-risk, liquid debt instruments, including South African government bonds and other similar, low-risk, liquid instruments for cash management purposes.

EPE CEO Stuart MacKenzie noted that the company had been investing in its franchise over the past five years, “with a view to shifting Ethos’ strategic vision from a single-product, pure-play private equity model to become a diversified alternative asset manager”. 

The Ethos listing, coupled with the launch of new Ethos funds, enables the market to access a broad suite of actively managed funds, he added.

“It is important to appreciate that we are not seeking to change our business model but rather to broaden both the opportunity set we can invest in and the universe of investors that can access the funds we manage.  We will continue to raise capital from our existing investor base who will invest in our funds alongside Ethos Capital,” MacKenzie said.

MARKET FUNDS
With the current Ethos buyout fund (Ethos Fund VI) approaching the end of its investment cycle and with a diversified portfolio, EPE intends to start the capital raising process for Ethos Fund VII during the second half of this year, or in early 2017.

Similar to the Ethos Fund VI, the objective of Ethos Fund VII is to invest in private companies with market-leading positions, an identifiable competitive advantage, strong cash flows and significant growth potential. The fund will target companies with an enterprise value of between R1.5-billion and R7-billion, with investments of between R450-million and R1-billion in each opportunity.

EPE also recently launched the Ethos Mid Market Fund I and is in the process of raising capital for this fund. The Ethos Mid Market Fund I is a black-owned private equity vehicle, which will invest in companies with an enterprise value of between R500-million and R1.5-billion and which will seek to invest between R100-million and R350-million in each opportunity.

The focus of the Ethos Mid Market Fund I will be on private equity investments in the mid-market space, coinvesting as the broad-based black economic-empowerment (BBBEE) partner alongside other Ethos funds in certain transactions and benefiting from facilitated BBBEE transactions with companies requiring a long-term BBBEE partner that has capital to meet growth requirements.

Ethos Private Equity has acquired a high-yield and mezzanine credit platform and intends to launch a closed-end mezzanine debt fund dedicated to providing mezzanine and quasi-equity financing solutions to companies in Southern Africa to meet their intermediate capital funding requirements.

On completion of the offer, Ethos Capital intends to make an initial commitment to Ethos Mid Market Fund I, Ethos Fund VII and Ethos Mezzanine Fund I. Further, Ethos Capital is expected to make a secondary investment in Ethos Fund VI.

As the proceeds raised under the offer will be less than Ethos’s commitments, the company will use the net proceeds of the offer, any realisations from its investments and access to a debt facility from time to time, in accordance with its investment strategy and investment pipeline, to meet these commitments – as and when they become due.

Although not currently contemplated, it is possible that Ethos will raise further capital from shareholders in the future, if the appropriate investment opportunities arise. 

Hayward-Butt added that Ethos has been set up to provide investors with the opportunity to build a long-term investment relationship with EPE.

“Significant care has been taken to ensure that the interests of Ethos shareholders and those of EPE are aligned for the long-term and to ensure that there are no “fees on fees” in the structure. To strengthen the alignment of interests, EPE will acquire 5% of the A shares over time,” Hayward-Butt said.