ARC Ready for New Deals After Raising Alexander Forbes Stake

JOHANNESBURG (Capital Markets in Africa) – With cash in the bank and friends with deep pockets, African Rainbow Capital Investments Ltd. is well-positioned to find the resources it needs to fund its next deal.

“We can probably access a billion-and-a-half to 2 billion rand fairly quickly,” ARC co-Chief Executive Officer Johan van Zyl said by phone on Thursday. “You don’t have to have the money in the bank as long as you have access to someone else who is willing to help you. So we think we are in a good space.”

The investment-holding firm founded by South African billionaire Patrice Motsepe is buying 1 billion rand ($70 million) of shares in Alexander Forbes Group Holdings Ltd. from Mercer Africa Ltd. The transaction makes ARC the Johannesburg-based retirement-services provider’s largest shareholder and strengthens its portfolio of investments in financial service businesses from insurance and banking to investment management.

While no new deal is imminent, ARC does have much as 1 billion rand in cash should any opportunities come up, and can sell one or two businesses quickly, Van Zyl said. ARC’s stake in Alexander Forbes will increase to 34% after the transaction with Mercer from 14%, giving it deeper access to a cash-generative business and allowing the firm to meet its ambitions of providing financial services at a lower cost to low-income earners, he said.

Protect Business
Mercer did not want to exit the investment but had no choice because of the way the firm had to account for its South African business, said Alexander Forbes CEO Dawie de Villiers. As part of the deal, Alexander Forbes will repurchase a chunk of its shares from Mercer for about 1 billion rand, leaving the unit of Marsh & McLennan Cos. with a 4.5% stake.

Marsh & McLennan in April completed the biggest acquisition in its history with the purchase of Jardine Lloyd Thompson Group Plc for $5.6 billion. Alexander Forbes was among the last of the company’s investments where it didn’t hold a controlling stake, so opted to sell it, De Villiers said.

Given that Alexander Forbes stock is fairly illiquid, the group decided to “protect its business and existing shareholders” by avoiding the company falling into the hands of a competitor or private-equity partner, he said. The structure of the deal is “value accretive” as both ARC and Alexander Forbes are buying the shares at a discount to their market value, De Villiers said.

“For us to have a long term sustainable partner that believes in our strategy rather than people that want to trade our share is massively stabilizing,” he said. “And they believe in the long-term sustainability of the company.”

Shares in Alexander Forbes climbed 2.6% in Johannesburg on Thursday, extending gains over the past 12 months to 12%. ARC dropped 0.2%, down 18% over the past year.

Source: Bloomberg Business News