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SDT
Financial Software Solutions raises expansion capital from the
i capital Growth Fund I Pretoria, South Africa.
19
November 2001
The
i capital Growth Fund I, a private equity fund managed and controlled
by i capital (Pty) Ltd, has acquired 20% of SDT Financial Software
Solutions (Pty) Ltd, a specialist developer of retail financial
services software solutions based in Pretoria, via a capital injection.
The investment, effective 1 September 2001, will allow SDT to
further strengthen its position in the South African market for
retail financial services software solutions and to expand its
existing product suite into other areas of financial services.
SDT
Financial Software Solutions develops generic software systems
for complex requirements in the retail financial services industry
and turns concepts into workable, profitable solutions. The SDT
product suite consists of a range of software systems including:
SDT Life, a life insurance administration system, SDT GreenKey,
a life insurance point-of-sale system; SDT Loans, a loans administration
system; SDT Feemanager, a fee and commission management system;
and SDT PortfolioManager, an internet based management tool for
financial services organisations. SDT's clients include Regent
Insurance, Saambou Life, Anchor Life, Saambou Namibia and Thutukani.
"We
are very excited to enter the next phase of SDT's growth",
says Freda du Toit, executive director of SDT. "i capital
brings more than capital to SDT and has in-depth financial and
strategic skills, complementing our own product development and
marketing capabilities. This combination is crucial if we are
to succeed in the fast changing financial services environment,"
du Toit continues.
i
capital is a niche investment company which focuses on private
equity fund management and corporate finance advisory services.
Through the i capital Growth Fund I, i capital provides growth
capital to companies with a high intellectual capital component.
SDT Financial Software Solution is the Fund's sixth investment.
"SDT
has a strong track record, a growing client base, experienced
management and a strong position in its chosen niche markets and
is now entering an exciting phase of its development" says
Rowan Williams, director of i capital. "SDT recently made
a major breakthrough by making its first sale in Australia and
expects further expansion into offshore markets," Williams
comments. Rowan Williams will be joining the SDT board to provide
input on strategic and financial issues.
More
information about SDT Financial Software Solutions can be found
on www.sdt.co.za, or by sending e-mail to freda@sdt.co.za or telephone
(012) 347-4945 Additional information about i capital is available
on www.icapital.co.za or by e-mail from rowan.williams@icapital.co.za
or telephone 011 784 2230.
i
capital backed MIP Holdings ranked 30th in Deloittes Technology
Fast 50 Survey
i
capital fund managers, Johannesburg, 1 November 2001
With
a total turnover growth of 155% over the last 3 years, MIP was
recently ranked as one of the fastest growing Technology companies
in South Africa by Deloittes in its recent Technology Fast 50
survey. The i capital Growth Fund I, i capital's private equity
fund, acquired a 30% interest in MIP in August 1998 via a capital
injection to help fund MIP's rapid growth and offshore expansion.
The capital was used to develop MIP's highly successful Astra
software product and to assist with penetration into offshore
markets.
MIP
Holdings is an IT solutions house strategically focused on two
key operational areas: software application development and open
source support tools and services. MIP's software application
development division delivers mission-critical business administration
systems for the financial services, healthcare, insurance, pension
fund and property management industries. MIP's open source support
tools and services focus on the delivery of rapid application
development tools for e-commerce and web-enablement.
Says
Rowan Williams, head of private equity at i capital, "When
we originally approached MIP regarding funding using private equity
capital, we were very excited by the growth potential for MIP.
Our decision to invest has paid off as MIP has effectively utilized
the capital injection to accelerate its strong growth and penetrate
offshore markets." With a number of offshore clients, a third
of MIP's revenues are now hard currency based, and this is expected
to increase as offshore sales grow with MIP's recent agreement
with Progress Software Corporation. MIP recently achieved a major
breakthrough when its Astra framework product was selected over
30 other independent software vendors to form the basis for Nasdaq
listed Progress Software Corporation's open source Internet Component
Framework. As part of its offshore expansion, MIP recently opened
a branch in Denmark to market its Atragen and Astrafin products.
The
success of MIP demonstrates South African technology companies'
ability to develop world-class software from a South African cost
and skills base.
Private
equity as a funding alternative for private business
Rowan
Williams, i capital fund managers (Pty) Ltd
Private
equity has grown rapidly in South Africa over the last few years
to become an important alternative source of funding for private
businesses. Private equity funds play an important role in funding
businesses as entrepreneurs and private business can gain access
to capital without having to be exposed to the public scrutiny and
volatility of stock markets, or to become heavily indebted and personally
exposed to a bank. This allows the company to be properly capitalized
and to flexibly execute its medium term strategy for growth.
Private
equity plays another important role in funding private businesses
by significantly increasing the chances of success for a growing
business. A private equity fund manager will generally sift through
over 50 investment opportunities before investing in one, ensuring
that a full evaluation and due diligence is done on the investment,
and the right opportunity is being backed. However, the fund managers'
involvement does not end there as the fund manager takes an active
role in managing the private equity investment, ensuring that
the portfolio company continues to grow, is well managed and that
corporate governance is adhered to. In this way, private equity
funding is often a more appropriate equity funding mechanism for
smaller companies than the public stock market or even debt finance.
A study in the UK found that 40% of the companies that came to
the London Stock Exchange had private equity funding. This demonstrates
that private equity is to a much greater extent used as a source
of capital prior to a company coming to the stock market via a
listing. It is expected that this trend will occur in South Africa
as private equity becomes a more recognized asset class and continues
to be accepted as a funding mechanism for private business.
i
capital, a Johannesburg based independent private equity fund
manager, focuses on the value-added role of private equity capital
and differentiates itself by being actively involved in managing
its portfolio company investments. Says Rowan Williams, a director
of i capital, "Entrepreneurial firms often grown very rapidly
without putting the processes to continue to manage the business
as it grows to the next level. We assist the companies our Fund
invests in with specific value-added initiatives in the areas
of strategic focus, operational efficiency, organisational design
and financial structuring to ensure that the company can grow
to the next level." i capital focuses on investments with
a high level of intellectual capital content that have a sustainable
competitive advantage. The company has had significant success
in adding value to its portfolio of five investments and is actively
negotiating a number of other investment opportunities.
Private
equity will is increasingly playing a more important role in funding
private businesses in South Africa. Says Williams; "entrepreneurs
now have a viable alternative to funding their business, whilst
at the same time gaining access to a committed partner and shareholder
that is motivated to see the company succeed."
The
state of the Investment Banking Market
Lance
Williams, director, i capital advisers, 4 June 2001
Investment banks, both local and international, are reporting
reduced profits and levels of activity. The first lay-offs have
been announced in the large international investment banks. Even
in South Africa, where skills are considered to be scarce, some
of the marginal participants in the industry are withdrawing from
the market, with a resultant effect of retrenching those staff
employed in their investment banking divisions.
All
of this is the effect of reduced activity in the market place.
With the substantial correction in stock prices internationally,
especially in the TMT (technology, media and telecom) sectors,
equity capital markets are experiencing tougher times. Coupled
with this phenomenon is the fact that most investment banks are
reporting losses from their on-balance sheet investing activities.
These have been caused by the downturn in stock prices. Investment
banks are more circumspect when entering into new transactions,
with an associated knock on effect on capital raising. Additionally
volatile equity prices are causing divergent views on value making
transactions more difficult to successfully complete.
All
of these factors point to continued subdued and reduced activity
in the market place. However some participants are viewing this
in a positive light, with the elimination of the marginal participants
from the industry that entered in the heady times, bringing a
return to normality and a more stable market place which is positive
in the long run.
Preparing
for Capital Gains Tax
Lance
Williams, director i capital advisers, 26 January 2001
Taxpayers, and specifically those taxpayers who hold stakes in
unlisted companies, will need to consider carefully the valuation
of the shares they hold in these unlisted companies on the implementation
date for capital gains tax being 1 October 2001. There are three
methods by which a taxpayer can value such an asset as at 1 October
2001. Each taxpayer should consider which method will optimise
the taxpayers tax position.
The
first alternative is to obtain a valuation of such an asset. If
taxpayers opt for this route, the valuation must be lodged before
1 October 2003, i.e. within 2 years of the set implementation
date for capital gains tax.
The
second alternative is to use the 20% of proceeds valuation methodology.
This method deems 20% of the proceeds of the sale of an asset
to be the base cost of the asset sold after 1 October 2001 but
purchased prior to this date. This method limits the maximum portion
of a sale that can be considered as a capital gain to 80% of the
proceeds.
The
third option is the time-based apportionment method, whereby the
time period the asset disposed of was held before and after the
implementation date up to the disposal date is taken into account
in determining the value of the asset as at 1 October 2001.
Challenges
facing the Corporate and Merchant Banking Industry and the opportunities
that arise out of these challenges
Lance
Williams, director - i capital advisers, 27 May 2001
Participants in the corporate banking industry report a mixed
outlook for the future of the industry in South Africa. With the
reintegration of South Africa into global capital markets have
come several challenges never seen before in the domestic market.
Says Lance Williams, who is in charge of corporate finance at
i capital, "these challenges have been felt in the South
African market over the last few years, with some players adopting
and thriving and others falling by the wayside."
Some
of the changes and challenges that have influenced and continue
to influence our markets have been as a result of internal structural
change and some as a result of global reintegration and change.
The most significant internal change has been to the South African
competition legislation. South Africa and the participants in
the mainstream economy experienced a shift from a benign Competition
Law framework to an extremely robust framework. This shift has
resulted in a lot of uncertainty in the market amongst corporates
as a string of high profile transactions were blocked by the authorities
in the year 2000. The resultant effect being that corporates are
loathe to undertake certain transactions for fear them being rejected
by the Competition authorities. This has had a significant effect
on the level of domestic merger and acquisition activity. The
competition authorities recently recognised some of the shortcomings
in the legislation by increasing the thresholds for compulsory
filing of transactions for clearance but the effect of the new
legislation is still being felt in the market place.
"A
direct influence of the reintegration of South Africa has been
that of globalisation," says Williams. As barriers fall and
borders become less and less relevant, South Africa is being exposed
to competition globally. Two direct effects of this on merchant
and investment banking have been the aggressive entrance of many
foreign banks into South Africa and the advent of the offshore
listing of some of South Africa's largest companies. Foreign investment
banks account for, by far, the majority of the corporate advisory
work by value and share of daily trade on the Johannesburg Securities
Exchange (JSE).
Foreign
listings of companies such as Anglo American, Old Mutual, SAB
and Didata, have had the effect of moving much of these companies
merger and acquisition activity offshore, reducing the size and
volumes in South Africa. Recent surveys have unfortunately not
reflected this phenomenon in their findings, provided a skewed
picture of the volume of transactions actually happening in South
Africa.
A
further local change has been that to the JSE listing rules. The
higher thresholds for listing and prohibition of listing of newly
formed groups on the Main Board will affect the smaller players
who concentrated on this business. Additionally the role of sponsors
has been expanded and given higher levels of responsibility.
The
global melt down in so called Technology-Media-Telecom (TMT) shares
has negatively influenced share prices on the JSE. Generally depressed
equity prices and so equity capital markets are negative for merger
and acquisition activity. Depressed share prices will make it
harder to do transactions in the future.
Thus
where does this leave corporate and merchant banks operating in
South Africa and what are the perceived opportunities in the local
market. The large international and domestic investment banks
are hoping to get a slice of the privatisation business that is
still due to come. This is evidenced by the large number of bidders
there were for the mandate to advise the government on the proposed
listing of Telkom.
Certain
niche markets also exist in the South African market place. One
area that still is experiencing some activity is that of cross
border transactions both in and out of South Africa. Large international
companies still retain large interests in South Africa, with those
players who haven't yet got a presence often looking to establish
such a presence by means of acquiring a local company operating
in their industry. Additionally with the gradual dismantling of
exchange controls South African companies are also looking to
establish a presence in foreign markets. Players how focus on
these areas will be able to retain a good level of business into
the future. "Thus those players who adapt best to the challenges
faced by the market place will survive current market conditions
and will hope to ride the next wave when it eventually comes round"
says Williams. Submitted by: Lance Williams Director i capital
A local corporate advisory and private equity fund management
company.
Doing
deals with the most chance of success
Lance
Williams, director - i capital advisers, 13 May 2001
A lot has been written about the number and high percentage of
transactions that don't produce value for the respective shareholders
of the companies involved in the transaction. If this is the case
then why do companies still undertake transactions on such a regular
basis? It could be argued that companies undertaking transactions
today are looking to obtain much more value than they did in the
past out of these transactions. Whichever way you look at it,
the market is skeptical about mergers and acquisitions, but is
receptive to some deals more than to others.
Mergers
and acquisitions should only be undertaken if they make sense,
if they serve to further the strategic aims of the business. Looking
back at past mergers and acquisitions, it is clear that some transactions
serve some kind of strategies better than others.
Generally
it is regarded that the market prefers transactions that are expansionist
in nature, serving to boost the acquirers market share, adding
new geographical regions to its sales or by adding more distribution
channels for its products. Less favoured are transformative transactions
which move companies into new lines of business or remove parts
of the groups existing portfolio of business. However even within
these two types of transactions, expansionist and transformative,
the market appears to prefer one kind of transaction structure
over another.
The
market seems to prefer transactions structured as acquisitions
rather than mergers or sales. The market also seems to not react
as favourably to joint ventures and alliances as to acquisitions
or mergers. It would appear that the markets preference of expansionist
transactions is due to the perception that potential synergies
from these deals are usually better because they bring similar
assets together. Thus transformative deals most probably require
more aggressive motivation and explanation to the market place
as well as a higher degree to scrutiny to ensure that they succeed.
Acquirers however do need to beware of what is known as "winner's
curse", paying such a large premium to acquire outright control
of a business, such that the potential benefits of the acquisition
are overshadowed by this large premium.
The
above market reaction to transactions is certainly not conclusive.
There are many exceptions to the above. Many successful acquirers
have followed the above, but have had to work hard at integrating
even expansionist acquisitions. Management today need to scrutinise
potential transactions even more rigoursly to be able to convince
the market of the deals virtues and to ensure that the transaction
will enhance the combined entities strategic goals and vision.
i
capital Growth Fund I acquires 33% of Trispen Technologies (Pty)
Ltd Sandton South Africa.
12
March 2001
The i capital Growth Fund I, a private equity fund managed and
controlled by i capital (Pty) Ltd, has acquired 33% of Trispen
Technologies (Pty) Ltd, a specialist developer and manufacturer
of secure Virtual Private Networking (VPN) software and hardware
based in Irene, Pretoria. The investment via a capital injection,
effective 1 March 2001, will allow Trispen to further strengthen
its position in the South African market for secure VPN products
and spearhead the company's entry into the European market.
Trispen
Technologies develops and manufactures products that enable the
networked economy. Its IP-Granite product range allows corporations
to use public networks such as the Internet securely by encrypting
traffic flowing across the network. The products are often used
between remote offices to build highly secure 'virtual' networks
over the Internet, without resorting to dedicated networking infrastructure.
The
IP-Granite product suite consists of software packages for workstations,
servers and gateways, and a hardware device or "VPN Appliance"
that provides a turnkey solution for securing traffic between
network sites. To complement the product suite, Trispen recently
introduced a sophisticated central policy manager. The Central
manager uses a repository for managing networks consisting of
up to a thousand VPN devices, and then publishes these policies
to the individual devices.
Trispen
markets the IP-Granite products through a partner channel. South
African resellers of the IP_Granite range include security systems
integrator Nanoteq and security solution provider Netcom Solutions.
Trispen is also marketing the products in Germany through the
Bristol Group, a specialist distributor of information security
products.
i
capital is a niche financial service company which focuses on
private equity and corporate finance. Through its private equity
fund, the i capital Growth Fund I, i capital provides growth capital
to companies with a high intellectual capital component. Trispen
Technologies is the fifth investment of the fund.
"Trispen
has a focused strategy, world class products targeting a fast
growing market, and a management and technical team experienced
in the highly specialised field of network security" says
Rowan Williams, director of i capital. " Trispen is currently
supplying VPN gear for the largest IPSec-based VPN in South Africa
and has established a solid foothold in this market. We believe
that through our involvement Trispen's potential can be fully
realised," Williams comments.
Rowan
Williams will be joining the expanded Trispen board to assist
with strategy and provide guidance on financial issues. "We
are very excited to enter the next phase in Trispen's growth",
says Jaco Botha, Managing Director of Trispen Technologies. "i
capital brings a wealth of financial and strategic marketing knowledge,
complementing our own product development capabilities. This combination
is crucial if we are to succeed with our European expansion plans,"
Botha concludes.
More
information about Trispen Technologies can be found on www.trispen.com,
or by sending e-mail to info@trispen.com. Additional information
about i capital is available on www.icapital.co.za or by e-mail
from rowan.williams@icapital.co.za.
Recent
changes to the Competition Act should impact positively on Merger
and Acquisition activity in South Africa
Lance
Williams, director, i capital advisers, 7 March 2001
The Minister of Trade and Industry recently announced amendments
to the Competition Act that should impact positively on merger
and acquisition activity in South Africa. It is widely accepted
that the significantly revised Competition Legislation introduced
in September 1999 has had a significant impact on merger and acquisition
activity in South Africa with some high profile transactions being
blocked by the Competition authorities. "The recent amendments
to the Competition legislation are aimed at correcting various
shortcomings that have emerged", says Lance Williams of i
capital advisers, a niche corporate advisory company operating
in Johannesburg.
The
changes cover four main areas being: the jurisdiction of the Competition
Act; structures, functions or powers of the Competition Commission,
Competition Tribunal and Competition Appeal Court; procedures;
and miscellaneous changes.
The
changes to the procedures to the Act have an affect on advisors
and companies undertaking transactions. "The amendments introduce
a new category of 'small mergers', defined as transactions where
the target firm, the firm being acquired, is less than R30 million
in asset size or turnover or the combined target and acquiring
firm has an asset value or turnover of less than R200 million,"
says Lance Williams.
The
amendments give the Competition Commission the authority to review
mergers below the minimum thresholds at any time within six months
of the merger if it appears that the merger may substantially
prevent or lessen competition or cannot be justified on public
interest grounds. Whereas previously, if a merger fell below the
minimum threshold merger notification was not required, on the
basis of the amendments, the parties to a merger will now have
to consider the risk of intervention by the Competition Commission.
If the parties to a potential merger assess the risks of an anti-competitive
result or a material negative impact on public interest as being
high, then the amendments do provide for voluntarily notification
of a small merger.
The
increase of the thresholds is welcomed, as it will reduce the
current requirement for notification of smaller mergers that would
not have a significant impact on competition. This should hopefully
reduce the volume of reviews undertaken by the Competition Commission,
and resulting in improved response times to transactions submitted
to the Competition Commission.
The
timing of when the Competition Commission is required to respond
to parties who have submitted a transaction has been amended.
"These changes have created some misconception that the response
times have been dramatically reduced" says Williams. "This
is in fact not the case as the response times have merely been
amended from days to business days." The number of days was
reduced accordingly but has had a negligible effect on the response
timing of the Competition Commission to those parties who have
filed transactions for clearance.
Another
significant change is the amendment to the filing fees. The filing
fees, which previously ranged from R5 000 to R500 000, have been
changed to a filing fee of R75 000 for all intermediate mergers
(above R30 million in turnover or asset value or above a combined
size of R200 million) and R250 000 for large mergers (above R100
million in turnover or asset value or above a combined size of
R3.5 billion). This change should address the previous position
whereby large companies acquiring any sized firm would almost
always be subject to the maximum filing fee of R500 000 regardless
of the size of the firm acquired.
"It
is viewed that the recent amendments to the Competition Act should
alleviate some of the regulations and costs faced with undertaking
a transaction and assist in stimulating M&A activity in South
Africa," concludes Lance Williams.
The
role of private equity and LBO's in Merger and Acquisition activity
Lance
Williams, director, i capital advisers, 7 March 2001
The South African stock market as a whole has generally been depressed
for a sustained period of time with the boom times of the 1997
and the first half of 1998 having long been forgotten. The low
equity ratings and resultant valuations coupled with the increased
regulatory environment have had a negative effect on merger and
acquisition activity in 2000 with the Johannesburg Securities
Exchange shedding more than 30 listings in 2000. The medium and
smaller sized listed entities no longer have highly valued and
highly liquid paper with which to make acquisitions or raise capital
to make acquisitions. Also the flat to negative share prices have
put a halt to the high profile black empowerment transactions
of the past which relied on special purpose vehicles and rising
share prices.
As
a result many listed companies have found themselves listed without
the associated benefits of being a publicly listed company. Additionally
listing to facilitate black empowerment transactions is also no
longer viable or attractive. "This has seen a trend of public
to private transactions, whereby listed companies are taken private,
which is expected to increase" says Lance Williams of i capital
advisers. "In many instances the cost of capital on the stock
market has risen to such an extent that private equity or levered
buy out capital is a lower cost source of capital." Additionally,
when a company is unlisted it doesn't have the associated costs
of supporting a listing, which can result in attractive cost savings
when taking a business private. Recently the market has seen a
number of public to private transactions with many more directors
of listed companies considering this option.
Another
benefit of private equity is the liquidity it creates for shareholders.
More often than not the smaller to medium sized listed companies
have experienced a dramatic reduction in the number of its shares
traded. Shareholders with meaningful stakes who wish sell often
find that there are little to no buyers. A delisting though a
leveraged buy out or offer from a consortium involving a private
equity funds allows these shareholders to dispose of their entire
stakes in these businesses.
Leveraged
finance is also starting to become an important part of black
empowerment transactions, whereby leverage via debt is utilised
to enable black management or entrepreneurs to obtain control
of smaller to medium sized businesses. This model for black empowerment
is arguably more sustainable than those models of the past, with
the performance of the business and individuals in the business
directly determining the wealth creation for the new shareholders.
Several of these transactions have been successfully put together.
As a result of the obstacles that many listed companies face and
the benefits of a listing being questioned in a difficult economic
environment, merger and acquisition activity in the area of private
businesses is set to increase. There will be a greater balance
of M&A activity occurring between the realm of private businesses
and that of listed entities.
"A
definite sign of this is the pick up i capital advisers has experienced
in M&A activity occurring between unlisted entities, often
with a cross border component to it", states Lance Williams.
Companies prefer to undertake transactions without necessarily
being listed. Companies that have either been delisted or are
unlisted are still looking to grow by means of acquisition or
by merger and are finding the valuations of their unlisted counterparts
attractive enough to warrant this as viable option for growth.
The
Importance of Post Deal Value Creation
Rowan
Williams, director i capital fund managers, 11 February 2001
One of the most important areas of private equity finance is post
deal value creation. This, indeed, is where the most value is
generated. Post deal value creation is an area that Johannesburg-based
private equity fund management firm i capital specializes in.
Established
two years ago, it's 25% owned by the Liberty Group and its main
principals are large insurance groups wishing to invest in private
business in SA. The firm focuses largely on intellectual capital
where assets are not necessarily reflected on the balance sheet,
but are leveraged through the skills and resources of the businesses
it invests in. i capital also has its own private equity fund,
namely i capital Growth Fund I. Executive director, Rowan Williams,
says, "We look to how we can create value with the portfolio
company and how there can be interaction with the investee after
the deal has taken place".
The
post-deal value creation starts in the deal-making process, mainly
the negotiations and the valuation of the business. It can be
done in a number of ways, using a formal framework for analysis
and understanding how value might be added. Issues that would
typically be looked at include getting the strategic perspective
right, understanding the marketplace, understanding the competitive
environment and especially the competitive advantages, and the
financial aspects. Important factors would also be the quality
of management, financial controls, structuring the balance sheet,
and using equity incentivisation.
Williams
says, "We also look at the operations of the business, and
this is all done through the due diligence process. We would,
for example, look to eliminating unnecessary costs, the pricing
of products and services, and the optimizing of these". Organizationally,
he adds, a young entrepreneurial company often neglects to create
formal organizational structures and formal communication lines.
Outsiders can often better deal with this because they are not
emotionally involved in the business. Important in achieving all
this is having a good mix of skills in the private equity team.
"In the past private equity players would mainly have had
financial people - which is extremely important in the deal-making
side of the business. However, increasingly there is a tendency
towards a multi-disciplinary approach that would include management
skills, business experience and technical expertise. The approach
now is to be far more holistic.
"Sometimes
in the bigger deals, due diligence teams will deploy both internal
and external resources, for example bringing in additional marketing
and organizational expertise. Areas of opportunity will be identified
and the focus in the first six months is likely to be very intensive".
Williams says i capital's experience is that this multi-disciplinary
approach has been well accepted by management teams. It's clearly
understood that the purpose is to take the business that has been
invested in to a higher level, formalizing it, giving it greater
capacity to grow, and all this without destroying the entrepreneurial
spirit.
Perspective
from a smaller player
Lance
Williams, director i capital advisers, 26 January 2001
The investment banking sector has experienced a prolonged period
of change and upheaval in the last few years, aggravated by the
poor state of South Africa's capital markets. Additionally the
regulatory environment in which investment bankers operate has
changed significantly in the last few years and is set to experience
further changes. "The general perception is thus that the
environment for investment banking is poor", says Lance Williams
a director of i capital. The question most on people's minds is
how this has impacted on the players in the market place and how
will these players continue to survive. The most likely to survive
and prosper are those participants who deliver and maintain an
uncompromising commitment to the highest level of advice and service.
It
is recognised that the South African business landscape has become
a lot tougher, having to stand up to international scrutiny and
a host of new regulations getting South Africa in line with international
norms and standards. The South African market experienced a proliferation
of corporate advisory outfits and private equity investors in
1997 and 1998. This resulted in the market place becoming extremely
crowded with many of the players chasing after the same business
and investments. The changes outlined above have resulted in a
substantial amount of fallout in the investment banking sector.
Those players who are still in operation today have been able
to either adapt to a new, harder environment or already offered
a service that prepared them for a more difficult operating environment.
Most
South African investment banks that started operations in the
last few years have found it extremely difficult to break into
the market and compete effectively with the established South
African investment banks and larger international banks operating
in South Africa. "What clients are looking for on the large
transactions is an integrated service", says David Smollan
a director of i capital. This means having an advisory capacity
as well as a strong equity and capital market capacity to facilitate
successful capital raising if necessary.
What
has developed is a two-tier market, the top tier being serviced
by the large international banks and established local investment
banks. Niche players who have positioned themselves to offer quality
advice and service on smaller transactions and can add value to
the investments they make service the other tier. Those participants
in between have suffered from the large overheads associated with
operating an investment bank and have experienced sharp falls
in profitability. The result has been a recent spate of consolidations,
mergers and failures among local investment banks.
Thus
in today's difficult environment the need exists more than ever
to add value when advising on a transaction or making an investment.
In order to compete effectively in your chosen market this means
being able to provide for the needs of your clients. The top tier
participants largely ignore smaller transactions. However an increased
level of regulation has increased the required level of advice
and standards that a corporate advisor needs to deliver when advising
a corporate client on a transaction, large or small. On the investing
side, there is a definite need to add demonstrable value to investments
in which an investment bank or private equity investor may make
from time to time, partly due to the reduced appetite for new
listings on the JSE Securities Exchange. This has further been
exacerbated by the recent changes in the listing rules of the
JSE Securities Exchange.
"When
we started i capital in October 1998, we positioned ourselves
as a quality player offering the highest level of advice and service",
says Lance Williams. This stance has enabled the company's two
principal business lines, corporate advisory services and private
equity fund management to grow steadily over the past 2 years,
notwithstanding the slowdown in the areas in which it operates.
i
capital has been able to capitalise on the current trends and
market conditions and to develop a niche in the market place.
The company's approach enables it to offer a higher level of expertise
on smaller transactions involving larger companies who are familiar
with obtaining a high level of service and expertise on the bigger
transactions they undertake. i capital has also integrated a strategy
discipline with corporate advisory and private equity investment
skills to provide a holistic approach to the investment decision
making progress. "This enables us to add value to all our
private equity investments", says Rowan Williams, a director
of i capital.
The
directors of i capital are Lance Williams, Rowan Williams and
David Smollan, who have all been with the group since its inception
in late 1998.
