Absa Capital, one of South Africa’s leading investment banks, has welcomed the closing of the R25bn Edcon private equity buyout deal but says more leveraged finance deals in SA are likely.
Today is the scheme completion date which represents the closing of the transaction, the country’s biggest ever leveraged buy out. Shareholders will be paid out this week. Edcon shares were delisted from the JSE last week.
Barclays Capital and Absa Capital were mandated to arrange and underwrite the debt financing supporting the public-to-private acquisition of Edgars Consolidated Stores Limited (Edcon) by Bain Capital.
Stephen van Coller, Head of Primary Markets at Absa Capital, says the transaction is, in addition to being the largest ever South African LBO, the second largest ever acquisition (after Barclays’ acquisition of Absa).
“The transaction will be funded with a firmly committed financing package of long-term debt and equity.
“A large Barclays Capital and Absa Capital team have worked closely together to deliver this integrated financing package. The transaction is a high profile, cross product and geography, jumbo mandate which Barclays Capital and Absa Capital were uniquely placed to secure.”
Van Coller notes that he expects the momentum created by the Edcon deal to precipitate more private equity deals in the future.
“South African companies have very low levels of debt. Historically, they didn’t borrow because they didn’t have to. Hence South African companies have average net debt/equity ratios of 7% compared to 45% and 32% in Europe and the US respectively.”
Van Coller says that in SA today, large numbers of consumers have entered, and will continue to enter the mainstream economy for the first time.
“As a result, companies are looking at ways to of beefing up their capacity to meet this new demand and given the relative stability of interest rates and the rand, they considering leverage finance as a means of funding acquisitions and capital expenditure programmes.
“We’ll also see, through the use of leveraged finance, more BEE transactions, not for minority stakes, but majority control. This will enable the further transfer of meaningful economic participation to previously disadvantaged individuals.”
Note to the editor:
About Absa Capital
Absa Capital, a division of Absa Bank Limited (Absa) and affiliated to Barclays Capital, is a leading South African investment bank with global reach, offering clients financing, risk management and advisory solutions in a wide range of currencies and structures across the globe.