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Ethos plans $1.5bn fundraising

The South African buyout firm is considering raising the largest ever solely African buyout fund less than two years since raising a $750m fund.

Ethos is preparing to go to limited partners and is considering a fundraising target of around $1.5 billion (€952 million).

The fund will likely top Pamodzi’s $1.3 billion resources-focussed fund, raised last year.

Garry Boyd, a partner at Ethos, said: “We’re not yet in the formal fundraising process, although our current fund is in a pretty advanced stage of investment. Our last fund was $750 million and we’re probably targetting double that size.” He said it was still a very early stage in the firm’s plans and it was looking to contact investors in the second half of this year.

The mandate for the fund will be to invest about 70 percent in South Africa and 30 percent for elsewhere in Africa. The firm is spreading its focus across Africa, having made its first investment outside Africa in Oceanic Bank, a Nigerian financial institution, this year. 
Boyd is confident that his firm can go to investors having taken a prudent approach to investment during the buyout boom. “None of our deals have used bank debt at frothy EBITDA multiple levels ensuring there’s a sensible relationship between the price that we paid and our operating performance. We’ve always had a fetish about consistency.”

Boyd believes South Africa faces the current financial crisis from a stronger position than earlier shock waves to the economy. “If I compare the present situation to the 1998 crisis [where macroeconomic problems in Russia and Asia rocked emerging markets], it had a much worse effect on our economy. Also the internet bubble was a worse hit. We are in a tough interest rate cycle, but not as bad as either of those events. The slowdown in performance has been much more muted so far. No one’s expecting it to get as drastically bad as it was in either of those events.”

He said his firm continued to see deals and it expected to execute some large transactions in the near term.

Despite the firm’s ongoing investment the firm recently abandoned its consortium bid for Gold Reef, a South African casino company, for $1.3 billion (€943 million), after the country’s securities regulation panel investigated the bid process. The deal had been held up by the investigation, and the South African securities regulation panel had said it would not have approved the deal had it known the full extent of the facts. The panel did not force the Ethos consortium to abandon its bid, Bill Ashmore, a partner at Ethos said.  

“It was definitely going to lengthen the time and we couldn’t see how long it would take to get five different provincial gaming board approvals,” Ashmore said.