AFTER a period of introspection, the PSG Group – the R15bn Stellenbosch-based investment house – looks ready to go on the offensive again. In June the company – regarded as one of the most adventurous (and one if the most successful) investors in SA – managed to raise R920m in a quick book-build exercise. PSG could have raised well over R1.1bn, but turned away investors that pitched too low for the new shares on offer.
Still, the buy-in – mainly by institutional investors (including the powerful Public Investment Corporation) – suggests the market still wholeheartedly backs the intuitive investment skills of PSG chairman Jannie Mouton and his team.
The development also probably means that PSG’s period of self-examination in ‘Project Internal Focus’ – instituted in late 2012 – is over, and the company is now looking outward to fresh investment opportunities and reinforcing growth prospects in existing investments. The new capital raised represents a chunky 5% of the company’s market capitalisation, and gives PSG a formidable war chest for fortify its existing investments and possibly seek out new ventures for its PSG Private Equity arm.
PSG is currently the controlling shareholder in fast growing private education venture Curro Holdings, agri-business investor Zeder (which is the biggest shareholder in Pioneer Foods,) mass banking initiative Capitec and financial services company PSG Konsult.
Through PSG Private Equity the company owns another array of mainly small (but promising) investments in Impak (distance learning,) Poynting (communication technology,) CSG (outsourced services,) Energy Partners (energy saving services) and CA Sales (an African fast moving consumer goods distributor.)
PSG CEO Piet Mouton said the book build ensured PSG had available funding for when opportunities emerged. “We want to be ready when such negotiations have to take place.”
He explained that after having followed its rights in the Curro rights issue, PSG had R330m in cash and near cash.
“Coupled with limited capacity for further gearing given our internal targets, we felt that we needed more equity capital to support further attractive growth opportunities at specifically Curro, Zeder Investments and PSG Private Equity.”
Mouton stressed that both Capitec and PSG Konsult – which listed on the JSE recently without raising new capital - are well capitalised and did not need further capital at present. It seems the chances of PSG looking to build a new growth silo outside its current investments are fairly remote.
It is quite conceivable that both Curro – which aims to have more than 80 schools operating by 2020 – and Zeder – which has lately started pushing into Africa – might need additional funding. Presumably PSG would want to back these high growth ventures to the hilt – especially if growth opportunities require the companies to pursue further rights issues to raise fresh capital.
Curro has shown a willingness to buy existing schools, and one might speculate the chances of the company snagging a really big private school brand is not that remote.
Zeder is currently embroiled in buying out unlisted Agri Voedsel, which holds a big shareholding in Pioneer Foods as its only investment. Zeder is using its shares as currency, but the company may have to fork out cash if it intends buying out minority shareholders in its other unlisted investments, like fruit marketing group Capespan or farming community retailer Kaap Agri.
The smart money, though, suggests PSG will use the bulk of the R920m to fortify its holdings in a couple of promising ventures in its privet equity division. It seems likely that the significant minority shareholding PSG Private Equity holds in CSG will be bumped up significantly. CSG offers outsourced services and specialist facilities management services to mining and construction companies in SA and other African countries. CSG earns a high margin for its services and is highly cash generative, while not being hugely capital intensive. In other words the company is perfect fodder for PSG.
The other likely recipient of PSG capital could be Poynting, a communications specialist that is latching onto cellular service applications over and above its traditional antennae business. PSG has already provided two tranches of funding in the past eight months, and may well be prepared to swop fresh capital for more equity if Poynting’s newer endeavours find traction.
PSG Private Equity has also branched into a start-up financial services business in Namibia recently, and it would not be surprising to see these Stellenbosch boys looking north across SA’s borders for further opportunities to get in on the ground floor.
By Jenni McCann