PSG Africa targeting consumer-facing companies for private equity deals

The PSG Group is one of South Africa’s most successful investment companies. Founded in 1995 by entrepreneur Jannie Mouton, the PSG Group has stakes in South Africa’s Capitec Bank, Pioneer Foods, and Distell, to name a few. The company said in its 2012 annual report that if you bought 100,000 South African rands worth of PSG shares in November 1995 and reinvested the dividends, it would be worth approximately 136 million rands today.

Traditionally PSG has only been focused on companies in South Africa. It has now, however, started to actively look for opportunities in the rest of the continent.

PSG Africa was created as a vehicle for the group to make private equity investments into companies either operating in the rest of the continent, or those with exposure to the region. How we made it in Africa’s Jaco Maritz spoke to Michiel le Roux, investment executive at PSG Africa, to find out more about the company’s investment strategy.

Which sectors is PSG Africa currently targeting for its investments?

The reason why the continent is changing is because of the growing consumer. The middle class is growing and the consumer is gaining more purchasing power. We are interested in any industry with direct exposure to the growing African consumer. We believe in the growth story of the one billion Africans – the middle class is becoming bigger, African consumers are becoming more brand conscious, and there is a change in spending patterns. We are looking across the board at any consumer-facing industry; this can include health care, education, technology and retail.

Can you give us some insight into your investment criteria?

We are looking at private companies, not listed companies. We are looking to deploy anything upwards of US$10 million all the way up to about $50 million per investment. We are pretty much aligned with the broader PSG Group’s investment philosophy of taking a significant minority, or a majority stake in any investment we make. It has to be a significant stake, so that it gives us influence on the board level.

Are you finding many suitable companies that fit into these criteria?

There are lots of companies out there. It differs from country to country whether the transaction size we are trying to do is feasible. If you look for example at Kenya, there is a large range of companies that fall exactly within our mandate. If you look at a country like Malawi, maybe there aren’t that many. What is happening at the moment, is there are quite a few funds that are looking to do transactions in this consumer space. So there are probably more funds going around chasing deals, and not that many deals closing. But we’ve come across several companies and there are great opportunities out there.

Have you made any investments to date?

We have made one investment into a company that provides outsourced merchandising, sales and distribution services for FMCG principals located in Botswana called CA Sales. CA Sales is a market leader in its industry in Botswana, and we are growing the group into other parts of the continent so that we can offer clients Africa-wide reach for their distribution.

How would you describe the competition for these private equity deals in Africa? For example, if you are considering to invest in a company, is there a good chance that someone else is also looking at them?

It is hard to generalise, and again it differs from country to country. To get back to Kenya, there is a lot of money from the UK in Kenya. But then if you look at a place like Zimbabwe, there is a dearth of capital at the moment. So I think the dynamic changes from country to country. We see a lot of opportunities in places like Zambia, Botswana, Mozambique – our neighbouring countries where as South Africans we have a competitive advantage with our knowledge, contacts and relationships.