Zico on acquisition trail with growth in mind
ZICO Capital, the diversified investment holdings company, is on the prowl for acquisitions in SA and sub-Saharan Africa as it builds scale with the aim of becoming a significant black-owned investor on the continent.
The group has so far spent close to R350m, out of a cash pot of R500m, on acquisitions, and expects to exhaust the balance by year-end before considering raising up to R1bn to fund further growth, mostly through acquisitions.
MD Tshego Sefolo - who rejects accusations that founder and chairman Sandile Zungu has benefited from his close links with the government - insists the company's growth has been based "purely" on good business acumen.
He says the company has never flagged its empowerment credentials in its business dealings, and always insists on a partnership that is mutually beneficial.
"We employ a lot of graduate and experienced professionals, including accountants and engineers, and I think they would be not so happy to be told they have benefited from such alleged links," says the career private equity executive. "We have not received any favours."
Mr Sefolo says that five years from now, the company will have built scale in sectors such as automotive parts and accessories, services, outdoor media and advertising, energy and gas, construction and mining, and resources.
Zico is scouting for investments to exhaust the R500m private equity fund it raised from several institutional investors. But Mr Sefolo insists the cash is not burning a hole in Zico's balance sheet and it will not be rushed into spending it merely for the sake of announcing deals.
A flurry of acquisitions has characterised its growth, in which the company has partnered with investors such as RMB Corvest, a leading private equity fund that has plans to invest in medium-sized African companies.
Mr Sefolo estimates the value of its investments, since inception in 2002, now exceeds R600m.
Its most recent investment was an acquisition, together with RMB Corvest, of a 25% stake in Nigerian food company Vital Products for an undisclosed sum. It has also partnered with RMB Corvest to invest in Autozone, a local retailer and wholesaler of automotive parts and accessories acquired in 2010.
Apart from the acquisition of a stake in Vital Foods being Zico's first foray outside SA, it also represents a new thrust to build scale in selected markets in sub-Saharan Africa, says Mr Sefolo. SA also remains a key market for growth, he says, citing initiatives to consider investing in unnamed listed companies in the construction and electrical instrumentation sectors.
A fertiliser and chemical business is also being considered, he says, without giving a time frame when a deal will be concluded.
Early this year, Zico announced it had acquired a 44% stake in a local outdoor media and advertising company, Provantage, which Mr Sefolo says is rolling out the first airport-based news and advertising television feed in SA.
Zico also owns Outdoor Network, an outdoor media company operating in SA and at least four markets in Africa.
Its investment in Provantage is meant to exploit the synergies that ownership of stakes in both companies bring, he says. "We are launching, for the first time in SA, airport television, which will offer not only advertising but content like headline news and weather updates," says Mr Sefolo. "There is a plan to roll out up to 200 television screens at all the (local) airports."
Asked why Zico is keen on the construction sector, given its troubles, Mr Sefolo says there is light at the end of the tunnel for companies whose fortunes tumbled after the completion of projects related to the World Cup in 2010.
A dearth of new projects locally, combined with a slowdown in construction activity globally, led to JSE-listed construction majors such as Murray & Roberts taking drastic cost-cutting measures.
But Mr Sefolo says the company is taking a seven-to 10-year view of the construction sector, and believes the government's infrastructure projects - including the R300bn investment planned by state-owned logistics and freight company Transet - offers hope.
"There are also regional opportunities when you look at countries north of us," he says.
"The construction sector might not be doing well, but five years from now we see very significant growth coming through. So we are taking (up to) a seven-to 10-year view because construction always goes in cycles and we believe we are now at the bottom end and it can only go up."
Mr Sefolo says Zico has not closed the door on listing but it is not a strategic imperative.
"We are open to listing if the timing and conditions are right, but it's not something that is on our radar at present."
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