South Africa underwent dramatic changes after to the fall of apartheid and the country’s subsequent re-integration into the world economy. During South Africa’s isolation, local companies were unable to invest overseas, and accordingly financed non-core businesses to diversify return/risk. As sanctions lifted and the economy opened up, domestic companies unbundled tangential assets to focus on core areas. Entrepreneurial growth increased to take advantage of these new business opportunities, as did liquidity in the public markets to finance their activities.
IFC, the investment arm of the World Bank, engaged Innovative Ventures to define the strategy for a new venture capital fund to participate in South Africa’s economic restructuring and advance social development as black managers began acquiring business and equity ownership.
Innovative Ventures accomplishments include:
- Rationalized the strategy for the South African ‘Succession Fund’, and its purchase of minority stakes in white-owned businesses by black managers. Target opportunities include management buy-outs in privatizations, unbundling of assets from state-owned enterprises and large corporations, management buy-ins and expansions of existing businesses.
- Established the fund’s capitalization at US$30MM based financing needs of target transactions. Conducted due diligence on transactions and their values to demonstrate the financial merit of the strategy; sectors include retailing, restaurant chains, medical clinics (buy/build), distribution, fast moving consumer goods, food/beverage and transport services as examples. Transactions of $500k-$1.5MM with reserves for follow-on investments.
- Assessed the regulatory, legal and tax effects on deal structures, minority shareholder rights and lender liabilities, liquidation strategies through ESOPs, IPOs, M&As, sale to 3rd parties and repatriation of returns. Defined the offshore and domestic fund management structure that provided limited liability and tax neutrality to institutional co-investors with IFC and Innovative Ventures.
- Identified, screened, and recommended Capital Partners, a S. African PE investor as the local fund manager.
Most exciting is the creation of a $5MM technical assistance (TA) training fund to support the costs of developing tomorrow’s pool of black venture managers. The TA fund institutionalizes the social objectives of the Fund by upgrading the skills of black managers, so they participate in the decision making process of investee companies and are net contributors to its prosperity. Investment risk is not of color, but of adding new managers and layers of management to support the high rate of enterprise growth needed to attract VC.
“Consider Innovative Ventures as your investment advisor and partner in planning and executing international private equity schemes. We can help you avoid the learning curve costs that skilled investors inadvertently incur when executing new investment programs.”