South Africa: Alexander Forbes adds more Rainbow to its mix
An intricately woven set of transactions will result in one of Africa’s richest men owning a sizeable portion of Alexander Forbes through his investment holding company.
Patrice Motsepe’s African Rainbow Capital (ARC) is on the cusp of becoming Alexander Forbes’ anchor shareholder, pending a series of regulatory approvals.
In the first transaction, African Rainbow Capital will:
- buy 193 million shares from Mercer Africa; and
- pay R1bn ($68m) to acquire the shares.
Mercer Africa is disposing more than 442.8 million ordinary shares in Alexander Forbes, which represent 34.4% equity in the company. The official explanation is that Mercer Africa “routinely evaluates investments… and has decided to sell all of its equity stake”.
The acquisition of the 193 million shares will raise African Rainbow Capital’s stake in Alexander Forbes to 28.6%. Alexander Forbes will, in turn, repurchase and cancel the remaining balance of 208 million shares from Mercer Africa. The company has described the latter transaction as a specific share repurchase.
Both transactions require requisite approvals.
The third transaction involves African Rainbow Capital exchanging the shares it already holds in Alexander Forbes for a stake in Alexander Forbes Group Holdings. The parties have termed this transaction a “flip-up” agreement.
Once the acquisition and the specific share repurchase are concluded, African Rainbow Capital will hold 33.9% and Mercer Africa 4.5% in Alexander Forbes.
What’s in the deal
In a note to the market, Alexander Forbes stressed the acquisition and the specific share repurchase are neither inter-conditional nor dependent on each other.
In 2016, the year of its founding and when it first forged ties with Alexander Forbes, African Rainbow Capital inked the agreement which would allow it to swap its shares in Alexander Forbes for equity in Alexander Forbes Group Holdings.
In 2017, the company’s shareholders gave the arrangement their seal of approval.
Alexander Forbes Group Holdings is listed on the Johannesburg Stock Exchange, while Alexander Forbes is not.
Alexander Forbes is the main unit of Alexander Forbes Group Holdings. Alexander Forbes takes care of the rest of Africa and international operations within the financial services group.
When it first entered the market in 2016, African Rainbow Capital’s leadership stated the diversified investment group’s focus was on Africa.
Later in 2016, African Rainbow Capital bought a 10% stake in Alexander Forbes for R753m ($51m).
Since its entry into the market, African Rainbow Capital has grown its diversified equity portfolio to include:
- TymeBank, South Africa’s first digital bank, which has a retail and business offering; and
- Rain, the mobile data start-up co-founded by former FNB CEO Michael Jordaan;
Business as usual with Mercer
Despite the pending changes in shareholding, Alexander Forbes and Mercer Africa’s relationship will continue. This is in order “to allow the company’s clients access to financial strategies that provide access to top global asset managers, including continuing to enjoy a portfolio of integrated solutions with leading intellectual capital at a competitive price”.
In the past five years, Alexander Forbes and Mercer Africa “have shared several strategic business initiatives… providing opportunities to both companies and market-leading consulting and solutions to clients”.
The strategic alliance between Alexander Forbes and Mercer Africa, including current commercial agreements and associated service and product offerings, will not be unaffected.
“Alexander Forbes and Mercer Africa will continue to work together across Africa, including through Arrive, the joint Pan-African benefits solution. Through Arrive, clients will continue to have access to healthcare, and the opportunity to standardise benefits across countries,” the company assured the market.
Bottom line: Motsepe’s plan with African Rainbow Capital is create a diversified equity vehicle to benefit from the untapped opportunities in the region. If the deals go through, this asset-hungry firm will have taken another step towards that.