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ARCHIVE
Deadline
for completion of CGT valuations extended
Lance Williams, i capital advisers
1 October 2003
The
South African Revenue Services has extended the deadline for
the completion of CGT valuations. The new deadline for the
completion of valuations is 30 September 2004.
Originally CGT valuations had to be completed by all taxpayers
by 30 September 2003, and dependent on the quantum of the
asset so valued, lodged with SARS with the taxpayers’
first tax return after 30 September 2003. The extension
of the deadline was granted by SARS in response to numerous
requests by taxpayers and professional firms undertaking
CGT valuations. The filing procedure for CGT valuations
already undertaken has not been clarified by SARS.
i
capital suggests that taxpayers that have not yet had CGT
valuations undertaken of assets which may need such valuations,
to have valuations done as soon as possible to take advantage
to this extension and avoid the situation which arose in
September 2003, arising in 2004. Should any advice be required
on the above, or on an opinion on whether or not a CGT valuation
of a particular asset would be necessary, contact can be
made with Lance Williams at i capital.
Market
conditions have led to a consolidation of the Private Equity
industry - Rowan Williams, i capital fund managers
12 September 2003
The private equity market is an extension
to the equity capital markets and as such has not been immune
to the recent tough conditions in equity markets. On the
contrary, as private equity is considered to riskier than
listed equities, the swings in the equity capital markets
tend to be magnified in the private equity market. The recent
bear market has thus had a significant impact on the private
equity industry. The difficult conditions, including depressed
prices and low liquidity, has resulted in a large fallout
in the industry. The latest casualty is one of the largest
players, Gensec private equity with its five funds, which
is being wound down following the announcement of the restructuring
of Gensec Bank by Sanlam. This follows a long list of investment
banks that have exited the market in the recent past including
Corpcapital, Cadiz, African Harvest and a host of smaller
players that have been swallowed by larger players.
"The
industry has seen a number of players enter and subsequently
exit over the last five years. Niche investment banks were
attracted to the industry when equity markets were buoyant,
dealflow was strong and new listings were popular",
says Rowan Williams of i capital fund managers. "Players
with relatively little experience or appreciation of the
dynamics of the industry attempted to replicate the success
of the long established players. However, they were entering
the market when prices were inflated and the bubble was
about to burst. When the new entrants incurred significant
capital losses after a downturn in the markets, they wound-up
or sold their private equity operations and exited the industry",
continues Williams. Williams believes that players that
have been able to weather the storm over the last five years
and generate a positive return for their investors over
this period are well placed to take advantage of the improving
outlook for equity markets and in turn private equity. With
interest rates declining and the outlook for growth improving,
equity valuations and PE multiples are beginning to rise
and liquidity is returning to the markets.
Once
such player that has managed to weather the storm is i capital
fund managers. "We entered the market in mid 1999 with
our first fund, the i capital Growth Fund I, focusing on
intellectual capital based companies. Although the equity
markets had already started declining in South Africa, the
TMT bubble was still expanding in overseas markets. In the
earlier days we used to turn down scores of early stage
ventures or overpriced deals touted by unrealistic entrepreneurs.
Now we don't even see these opportunities anymore. The investment
opportunities we are coming across are reasonably priced
and have a solid track record. We have managed to generate
positive returns in excess of the small cap index over the
last five years and this is set to increase as the market
improves", says Williams. Williams believes that the
conditions are now ideal for an investor to allocate capital
to private equity. By investing early in the cycle, investors
can get in when prices are only beginning to rise and then
realize their investments when equity valuations have risen
substantially. "The forecast risk adjusted returns
in private equity are at their most attractive they have
been for some time at the moment and the smart money should
begin to flow where the best returns can be obtained"
concludes Williams.
CGT
Valuation Deadline for certain types of assets is the
30 September 2003
CGT
Valuation Deadline for certain types of assets is 30 September
2003 The deadline for market based valuations of private
businesses for Capital Gains Tax ("CGT") is looming
As
a result of the introduction of CGT in South Africa, with
effect from 1 October 2001, the South African Revenue Service
has given all tax payers the opportunity to value unlisted
equities as at this date. As CGT is only levied on capital
gains made from 1 October 2001 onwards, the CGT legislation
made provision for taxpayers to value of all their assets
held as at 1 October 2001, to give effect to the intention
to only tax those capital gains that will arise after 1
October 2001. However, the opportunity to value unlisted
equities and other similar types of assets as at 1 October
2001 for CGT purposes is not available indefinitely, on
the contrary, taxpayers only have until 30 September 2003
to value these types of assets.
So,
while there are several valuation methods available to taxpayers
to value their assets held as at 1 October 2001, not all
of these methods will be available going forward due to
time limits imposed by the legislation. The one specific
valuation methodology that taxpayers have only until 30
September 2003 to take advantage of is the establishment
of the market value of an asset that did not have a independently
quoted or defined market value as at 1 October 2001. Typical
types of such assets include shares in unlisted companies,
trademarks, brands and other intangible assets.
Thus
should a taxpayer wish to have all the valuation methods
available when it comes the time to determine the value
of an asset as at 1 October 2001 for CGT purposes, the taxpayer
must ensure that it has had a market value valuation done
on that particular asset by latest 30 September 2003.
It
may not seem obvious to a taxpayer why or when they would
need to use a market value as at 1 October 2001 for the
value of that asset. However when a so called "CGT
event" occurs, the taxpayer may wish they had the opportunity
to use the market value as the value of that asset.
The
most common CGT event is the disposal of an asset, and on
disposal a taxpayer will need to calculate whether a gain
or loss has been made. Should a gain be made, a portion
of that gain may be taxable. If that asset was owned by
the taxpayer prior to 1 October 2001, only that portion
of that gain that arose after 1 October 2001 is taxable.
Obviously one way to calculate how much of the gain was
made before and after 1 October 2001 is to have a value
of that asset as at 1 October 2001. However in order to
use this as the method to determine the split of a capital
gain made pre and post 1 October 2003, the taxpayer is required
to have a formal CGT valuation of that asset, undertaken
before 30 September 2003. Further if the asset is valued
over R10 million as at 1 October 2001, that formal CGT valuation
must also have been submitted to SARS with the taxpayer's
next tax return following 30 September 2003. The threshold
for the submission of a valuation of an intangible asset,
such as goodwill, is much lower at a level of R1 million.
In
the absence of having undertaken a CGT valuation of an asset
at 1 October 2001, the only two other methods available
to a taxpayer to determine how much of the gain occurred
pre a post 1 October 2001 is the straight line method which
allocates the gain over the time periods the asset was held
pre and post 1 October 2001 or the 20% rule. The 20% rule
assumes that the value of the asset disposed of was 20%
of the disposal value and hence the remaining 80% of the
proceeds is assumed to be the gain from 1 October 2001 to
disposal date. This full 80% gain is then subject to CGT.
The
advantage of having a CGT valuation as an available valuation
methodology is that when a taxpayer realises a capital gain,
the taxpayer has this valuation as an additional option
open to them to value the asset as at that date. The taxpayer
is not obliged to use this market valuation as the value,
but can choose the most advantageous method to value an
asset as at 1 October 2002.
Thus
if a taxpayer wants to be in a position to select the most
favourable valuation methodology to value an asset as at
1 October 2001, they must ensure that they have undertaken
a formal CGT market valuation of that asset prior to 30
September 2003.
Anyone
can undertake such a valuation, even the taxpayer themselves.
However a taxpayer may wish get an independent party skilled
in the valuation of these types of assets to undertake the
valuation on its behalf.
i
capital advisers has undertaken a number of CGT market valuations
for third party taxpayers and is in a position to advise
a taxpayer on any aspect of CGT and the potential requirement
for a CGT market valuation of an asset.
For
further information with respect of a CGT market valuations
please call Lance Williams of i capital advisers on 011
784 2230.
Current
market conditions depress liquidity in Private Equity
- Rowan Williams, director, i capital fund managers
26 March 2003
The
current uncertainty prevailing in international capital
markets and economies is having a negative effect on deal
volumes in private equity. This is despite the low market
valuations creating an attractive investment environment
for private equity investors.
Conventional
wisdom would suggest that the current depressed market conditions
and low valuations present an ideal investment opportunity
for private equity players. On paper this is correct, however,
the prevailing low equity valuations are also depressing
deal flow as sellers hold back on doing a deal, hoping for
higher valuations when the markets rebound. "Equity
valuations in South Africa are currently being depressed
by the current uncertainty prevailing in international stock
markets and the concerns of the robustness of the global
economy, notwithstanding the positive outlook for the South
African economy. This can be seen by the low multiples at
which shares are trading at on the JSE Securities Exchange",
says Rowan Williams, director of private equity fund managers,
i capital fund managers. "This is creating a valuation
mismatch in the private equity market. Private equity players
are making reference to stock market valuations when evaluating
unlisted transactions. In many cases these valuations are
below the values at which shareholders of private companies
are prepared to transact. Entrepreneurs believe that they
can achieve higher valuations for their businesses once
the market rebounds," continues Williams. Savvy entrepreneurs
and corporates are hanging on to their businesses, using
debt to fund expansion or using mechanisms such as share
buybacks to create liquidity for private shareholders. This
has resulted in an impasse between private equity investors
and private company vendors, resulting in a reduction in
deal volumes. This is evidenced by the drop in merger and
acquisition activity in 2002, as reported in the latest
corporate finance industry surveys and the KMPG SAVCA survey.
Says
Williams, "There may be an argument for private equity
investors to consider paying closer to fair value for businesses,
which may then appear to be good value once the capital
markets rebound, which will go some way to bridging the
valuation gap.". Certain private equity investors seem
to have adopted this route and are still making investments,
albeit at a slight premium to the current listed market
valuations. Other private equity players are seeing the
lower valuations of listed companies as an investment opportunity
and are participating by either investing directly in listed
companies or participating in delisting companies from the
stock market. In 2002 79 companies delisted from the JSE
Securities exchange and in 2001 81 companies delisted, with
a number of the delistings being funded by private equity
funders. A recent article in the Financial Mail highlighted
the current delisting trend and the opportunities this presents
for private equity players. However, many of the recent
delistings have attracted criticism from minority shareholders
and analysts, who argue that majority investors and private
equity players are obtaining good assets at low valuations.
Says Williams, "This trend of increased shareholder
activism may have the effect of slowing down the delisting
trend, further reducing the current level of deal flow and
the rate of private equity investing."
Despite
this current valuation impasse in the private equity market,
Williams is upbeat about deal flow prospects in the medium
term. "Once the market begins to turn, as it invariably
will, there will be a lot of pent-up demand for equity capital
funding that will be released into the market and private
equity players should begin to experience increasing deal
flow, probably towards the second half of this year."
The
current state of the Corporate Finance market and how to
add value in this market
Business Day Survey Corporate Finance 13
March 2003
The
South African corporate finance market has not escaped the
downturn that has hit the international merger and acquisition
industry. Recent figures show a substantial decrease in
activity, especially in value. The decrease in activity
is clearly affected negatively by lower asset values, with
many people overlooking the role valuations play to the
buoyancy of the market place. Corporate Finance fees are
often based on transaction size, and as equity values have
declined considerably over the last few years, especially
internationally, so have fees. In addition the absolute
number of deals has fallen resulting in a "double whammy"
to corporate financiers.
So
where does this leave the market place for corporate finance
advisors? For a start it certainly has become more competitive,
as the same number of advisors chase fewer and fewer deals.
As a result many participants have withdrawn from the advisory
market completely while others have reduced there cost bases.
Smaller
players are having to exploit niches and areas where they
can add maximum value to effectively compete against the
larger local players. This needs to seen in the current
context of delistings and lack of interest in small to medium
sized listed companies, an area where typically the smaller
players have been active. An area where i capital believes
there is a niche is advising larger companies on smaller
transactions. These transactions typically fall below the
level which require notification in terms of the JSE Securities
Exchange listing requirements. Additionally they often fall
below the radar screens of the larger local investment banks,
however at the same time require competent advice and execution.
This has become increasingly important in the current environment
of heightened awareness and compliance with corporate governance
and justification of acquisitions or disposals.
The
outlook for corporate finance is most probably a bit brighter
in South Africa than the developed world. South Africa appears
to have escaped most of the scandals involving investment
banks using research to win lucrative mandates. Additionally
stock market valuations never really reached the heights
of the US, UK and Europe and thus have a substantially firmer
foundation. However does all of this mean that an uptick
in corporate activity is around the corner? Two differentiating
factors that South Africa does have in its favour is a drive
towards increased black empowerment activity which should
drive deal flow as well as the ability to reduce interest
rates and stimulate capital market activity. Developed markets
do not have these issues in there favour. Most market players
are looking forward to an improved second half of 2003,
as interest rates are reduced as the inflation outlook improves.
The strength of the rand has reaffirmed this optimism, but
as the current market conditions continue corporate financiers
will have to wait and see if the much hoped for improvement
actually occurs.
27
February 2003 Lance Williams Director i capital advisers
Ké
Concepts raises growth capital from the i capital Growth
Fund I 21
January 2003, Sandton
The
i capital Growth Fund I, the private equity fund managed
and controlled by niche investment house i capital, has
acquired a 31% stake in Ké Concepts (Pty) Ltd, via
a cash injection.
Ké
Concepts is a Johannesburg based developer of contract and
debtor management software solutions. The company was established
in 1998 by Miles Hern, Gary Green, Edwin Tam and Gareth
Jane. The complementary skills of this founding team led
to the development of the company's flagship software product,
CreditEase. This product has been specifically developed
and designed for organizations operating within the financial
services sector to automate the installment credit process.
CreditEase is tailored to meet the needs of individual clients
who currently include many of the mid-tier micro-lending
organizations in Southern Africa and a number of the local
asset based finance companies. Ké Concepts works
closely with industry partners including Solit, a provider
of e-business and enterprise solutions, in order to enhance
its overall service offering to clients and provide an end
to end software solution.
Ké
Concepts will use the investment to accelerate its growth,
says CEO Miles Hern. "Our company has grown rapidly
over the last four years, but we have reached the point
where we need to grow to the next level. i capital's investment
and value-added involvement in our company will allow us
to do this." Immediate steps to be taken by Ké
Concepts include investment in R&D to produce Web-enabled
versions of its software applications, a broadening of its
scope into the office automation market, and the development
of international distribution channels for its products,
including Africa. Says Hern, " This investment will
allow us to extend our portfolio of products and provide
customers with further value-added services, to accelerate
our global plans, attract and retain the right staff, and
ultimately create value for all stakeholders." i capital
fund managers director Rowan Williams says his company was
attracted to Ké Concepts because of its entrepreneurial
nature, its focus and the depth of management. "Miles
and the team have quickly built a niche independent software
player that has enormous upside potential. With this investment
they can accelerate their development and over the next
three years build a significant company." Lindsay Haines,
an associate director of i capital will join the board of
Ké Concepts.
i
capital is a niche investment house 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.
Ké Concepts is the Fund's eighth investment. "In
looking for companies in which to invest, we target companies
with experienced management teams that are established with
a profitable trading record and a well defined industry focus.
In addition we invest in businesses where there is the ability
for i capital to add significant value," says Williams.
"Ké Concepts met all these criteria", concludes
Williams.
More
information about Ké Concepts can be found on www.ke.co.za,
or by sending e-mail to info@ke.co.za or by contacting Gary
Green at telephone (011) 807-7600 Additional information
about i capital is available on www.icapital.co.za or by
e-mail from rowan.williams@icapital.co.za or by contacting
Rowan Williams on telephone 011 784 2230.
i
capital buys stake in Ke' Concepts
Business
Day, Tuesday 21 January 2003
Private
Equity fund i capital has acquired a 31% stake in Ke' Concepts,
a Johannesburg-based developer of contract and debtor management
software. The value of the deal was not disclosed. Ke' Concepts
CEO Miles Hern said the company would use the cash to fund
its growth. Lesley Stones
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