Opportunities arise from noncore asset disposals

29th October 2021

By: Darren Parker

Creamer Media Contributing Editor Online

     

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The strain caused by Covid-19 has encouraged larger companies to focus on balance sheet management and sell off noncore assets to ease their debt burdens, says private equity firm Agile Capital CEO Tshego Sefolo.

He tells Engineering News that disposing of noncore assets has created several opportunities in the South African market: “We have seen a number of consolidation opportunities in different industries, which have mainly resulted in acquisition opportunities for our existing portfolio companies”.

Although Agile Capital’s investment mandate is to invest in South African businesses, it is also interested in businesses that have operations in the rest of Africa.

Investment in companies outside South Africa is made indirectly through its portfolio companies, such as Provantage Media Group, an out-of-home media company with operations in East and West Africa, as well as in the Middle East.

“The out-of-home media space talks to the growing middle class and the need for consumer-related brands to market their goods to this growing community. Industrial products and energy are feeding into some of the large infrastructure projects in Africa, as we know that the continent still has significant infrastructure requirements,” he explains.

He adds that Africa has strong growth prospects – particularly in consumer-related sectors.

“The development goals of the continent present opportunities for private companies to contribute to this development in a manner that can create value for all stakeholders.”

To this end, Sefolo says Agile Capital has noted opportunities in the industrial products space, with companies supplying to the mining and construction sectors, as well as energy-related businesses supplying product into the rest of Africa.

“Each market in Africa is different and it’s important for South African businesses to understand the nuances of each country. We have seen that having the right partners on the ground in the different countries on the continent is an important success factor, helping with understanding and navigating each environment.”

He says the African Continental Free Trade Agreement should bring with it opportunities for easier trade and better flow of goods across the continent.

“South Africa has some great brands that can take advantage of these opportunities,” but Sefolo adds that the current low growth in the economic environment is a challenge that has been exacerbated by the pandemic.

“Many businesses have experienced a contraction in earnings over the past year, which has made deal-making a challenge, particularly in terms of valuing businesses, which has slowed down many deal processes.”

Sefolo notes that, as a result of the pandemic, many private equity firms have spent the past year being more inward-focused than before, providing support to their current portfolio companies during the pandemic.

In some cases, this has resulted in restructuring processes, while in other cases, additional capital had to be invested to assist portfolio companies where required.

“This has resulted in less activity around investing in new opportunities over the past year. Although impacted to differing degrees, we have seen our portfolio companies recovering well and we are confident that next year will provide a better environment for new investment opportunities,” Sefolo concludes.

Edited by Zandile Mavuso
Creamer Media Senior Deputy Editor: Features

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