Rockwood finalises Tsebo and Safripol deals worth R9.4 billion

Andrew Dewar, Managing Partner and CEO of Rockwood.

Rockwood Private Equity has finalised the sale of its facilities management business Tsebo and its plastic business Safripol in transactions with aggregate gross exit proceeds of R9.4 billion. The deals rank among the largest exits ever achieved by a private equity fund in South Africa.

In August 2016, Rockwood Private Equity, Thebe Investment Corporation and management shareholders announced the successful sale of plastics manufacturer, Safripol, to KAP Industrial Holdings, a JSE Top 100 company, for an equity value of R4.1 billion. The transaction was the largest reported private equity exit in recent years and one of the largest reported private equity transactions in South African history. Safripol exports products directly and indirectly to more than seven African countries with exports sales expected to triple to 30% of turnover by 2020.

Just a month later, during September 2016, Rockwood announced an agreement to sell its interest in the Tsebo Group to Euronext listed Wendel Group for an attributable enterprise value of R5.35 billion. Tsebo is a leading pan-African facilities services provider operating across 23 countries and with annual revenues of about R6.5 billion.

Both the Safripol and Tsebo deals were subject to certain conditions, including customary regulatory approvals, all of which have now all been obtained.

Rockwood Managing Partner and CEO Andrew Dewar said: “We are proud to say that, in terms of gross proceeds, these are among the largest exits ever done by a private equity fund in South Africa. The returns from these two assets since acquisition in 2006 and 2007 respectively have been significant. The aggregate internal rate of return achieved was in excess of 23%, outperforming the JSE All share IRR for 2007-2016 (9.6%). The money back return was over 6.5 times.

“South Africa remains a really great country for private equity and superb outcomes are achievable with the right business, strategy, management team, black economic empowerment (BEE) partners and fund manager - irrespective of economic cycles and political changes,” said Dewar.

Tsebo was acquired by Rockwood in 2007 in a secondary buy-out. Rockwood partnered with management and facilitated the investment of two BEE partners, Nozala Investments and Lereko Investments. In South Africa it improved from a Level 3 B-BBEE rated company to the first company in its sector to achieve a Level 1 B-BBEE rating under the new BEE codes.

Safripol was established in 1972 as a joint venture between Hoechst and Sentrachem; purchased in 1999 by Dow Chemicals; and in 2006 sold to Rockwood and certain members of the management team. Rockwood introduced Thebe Investment Corporation as the empowerment partner in 2007. Safripol manufactures polypropylene and high-density polyethylene, used to manufacture an extensive range of industrial and consumer plastic products.

Dewar said: “The sale of Safripol represents years of hard work by an outstanding management team and is a fitting completion to the original acquisition. Thebe has been an ideal partner and we are very grateful for their team's insights and active contribution to the company."

In relation to the transactions Dewar said: “Our management teams, BEE partners and banking partners also all benefited significantly from the Safripol and Tsebo transactions. The two companies achieved significant job creation, with the number of employees between the companies increasing from 10,000 to 34,000 over the past 10 years.”

Rockwood acquired Tsebo and Safripol before the global financial crisis and as a result it had to hold on to them for longer than is normal in private equity to fully implement its strategy and to compensate for the impact of the crisis. The firm found that the quality of the assets made selling them in the current economic environment marginally easier than it initially anticipated, but the sales process still required significant input and effort from the team and its advisors.

“Key to our success is the stability of our senior leadership team, all of whom were employed by Barclays Africa and were involved in the acquisition of our portfolio,” said Dewar. Rockwood was established in 2013 after Barclays Africa sold its private equity interests to the investment team and two international private equity investors in the largest secondary transaction in South Africa.

Rockwood is focused on the sub-Saharan market with a specific emphasis on control or near-control positons in market-leading companies, with enterprise values of between R300 million to R1 billion and good cash flows. The companies are all headquartered in South Africa with good African growth opportunities.