Johannesburg-based private equity firm Ethos Private Equity is listing EPE Capital Partners (Ethos Capital) on the main board of the Johannesburg Stock Exchange, aiming to raise R2 billion (€126 million; $139 million) to invest in Ethos Private Equity funds, according to a statement.
Ethos Capital plans to issue up to 200 million A ordinary shares to “selected and institutional investors”. It has already received aggregate commitments of around R1 billion from investors including Ethos Private Equity, who will acquire 1 percent of the A ordinary shares on listing and will commit around 1 percent of commitments to underlying Ethos funds.
In the statement, Ethos Capital chief executive Peter Hayward-Butt said 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 Ethos Private Equity”.
Ethos Capital will make primary commitments to upcoming Ethos fund, will acquire LP stakes in exiting Ethos funds, make direct investments alongside Ethos fund, and make temporary investments in a portfolio of low-risk, liquid debt instruments – including South African government bonds – for cash management purposes.
Ethos intends to begin fundraising for Ethos Fund VII during the second half of 2016 or early 2017 and will target between R8 billion and R10 billion, it said. Ethos Capital will invest in this fund, and also intends to invest R600 million in secondaries, namely in Ethos Fund VI, which closed on R8.4 billion and is approaching the end of its investment cycle.
Investors in Fund VI include Massachusetts Pension Reserves Investment Management Board, Old Mutual Investment Group, International Finance Corporation and HarbourVest Partners, according to PEI Research & Analytics.
Ethos Capital will also invest in the recently-launched Ethos Mid Market Fund I, a black-owned vehicle which is targeting R2.5 billion to R3 billion. The fund will target companies with an enterprise value of between R500 million and R1.5 billion, focusing on transactions in South Africa and select sub-Saharan African countries, where up to 25 percent of the fund’s committed capital may be invested.
Ethos has also acquired a high yield and mezzanine credit platform and intends to launch a mezzanine debt fund to focus on transactions in South Africa and select sub-Saharan African countries, in which Ethos Capital will invest.
Ethos Capital said it is following an over-commitment strategy to limit potential cash drag, and that its current commitments exceed the proceeds that will be raised under the listing. It said it will use the net proceeds of the offer, any realisations from its investments and a R500-750 million debt facility to meet its commitments as and when they become due. There is also the potential to raise further capital from shareholders in the future.
Since its launch in 1984 Ethos Private Equity has made 104 acquisitions, 91 of which have been realised, delivering a gross realised internal rate of return of 37.4 percent and a 3.4x return, it said.
Ethos Private Equity chief executive Stuart MacKenzie said that in the last five years Ethos has been shifting from a pure-play private equity model to a diversified alternative asset manager.
“The Ethos Capital listing, coupled with the launch of new Ethos funds, enables the market to access a broad suite of actively-managed funds,” he said.
“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.”
Rand Merchant Bank is acting as the financial adviser, global coordinator, bookrunner and JSE sponsor in relation to the listing.