Bidvest Can Tap $1 Billion for Deals Outside South Africa

JOHANNESBURG (Capital Markets in Africa) – Bidvest Group Ltd. is seeking deals outside its South African home market and could borrow as much as $1 billion for acquisitions after it spun off its food-services unit last year, its chief executive officer said.

Lindsay Ralphs, the CEO, is plotting Bidvest’s next phase of growth after the Johannesburg-based company listed Bid Corp Ltd., which is about 40 percent larger by market capitalization at 80 billion rand ($6 billion). Now operating a mix of mostly South African businesses ranging from cleaning, security and freight-services to car rental and plumbing supplies, Bidvest sees its scope for local acquisitions as limited, the CEO said.

There are a “couple of processes taking place” related to potential acquisitions, with expansion in the U.K. a possibility, Ralphs, 61, said in an interview at Bloomberg’s Johannesburg office on Tuesday. Any deal would be in an industry in which Bidvest already operates and the company would want to be a major competitor in any new market, he said.

“It probably reduces down to three, four or five significant industries that are simple and sometimes even below the radar,” said Ralphs. Money would be borrowed outside South Africa, with overseas purchases serving to hedge against volatility in the rand, he said. The currency lost 45 percent of its value against the dollar in the three years through 2015 before gaining 13 percent last year.

Other South African companies are expanding in international markets to counter an unpredictable local currency and 2016 economic growth that the central bank said was likely to have been the slowest in seven years. Clothing retailer The Foschini Group Ltd. and investment company Brait SE have bought firms in the U.K., while Bid Corp and auto-to-logistics firmImperial Holdings Ltd. have substantial foreign operations.

The Bid Corp spinoff has been a success for the new Bidvest, Ralphs said. Previously, cash generated by the company was largely put toward growing the food-services unit. The split frees up funds for growing the remaining businesses. Bidvest may also tap cash through the disposal of non-core assets, such as its Namibian fishing unit.

Ralphs replaced Brian Joffe, who founded the company in 1988 and retired as CEO when Bid Corp was separated in May. Joffe remains a non-executive director of Bidvest and is chairman of Bid Corp.

After adjusting historical pricing to reflect the spinoff, Bidvest has gained 63 percent in the past 12 months, according to data compiled by Bloomberg, making it the third-best performer on the FTSE/JSE Top40 Index and the top non-mining stock. Without the historical adjustment, Bidvest has declined 49 percent.

Ralphs sees a potential upturn in a few of Bidvest’s markets, including prospects for improved demand for cars and of commodities such as corn. The shares fell 0.3 percent to 168.99 rand as of 11:54 a.m. in Johannesburg on Wednesday, valuing the company at 56.7 billion rand.

Some non-core assets, such as its properties, are strategic to the company and Bidvest wouldn’t readily sell those. It also probably makes sense for Bidvest to hold onto Adcock Ingram Holdings Ltd. for now, Ralphs said. Bidvest thwarted a takeover attempt of Adcock by CFR Pharmaceuticals SA of Chile in 2014 when it built a 34.5 percent stake in South Africa’s biggest maker of hospital products. It has since increased that to 37.5 percent.

While Bidvest “paid a lot” for Adcock, it doesn’t yet need money from a sale of the stake, Ralphs said. “Adcock used to be a gem many, many years ago and has the potential to become a gem again.”