Vantage Capital becomes Africa's largest mezzanine fund manager

Vantage Capital, one of South Africa’s leading black empowerment groups, has launched its second mezzanine fund and is expecting commitments of between R2 billion to R3 billion, making Vantage Capital the largest mezzanine fund manager in Africa.

The launch of its second fund follows the successful investment of Vantage Capital’s R1 billion first fund in just twelve months.

Mutle Mogase, the chairman of Vantage Capital, says the second fund has once again attracted a diverse range of institutional investors. “A number of the institutional investors in the first fund have already indicated that they will participate in our second fund. We expect to raise R500 million to R1 billion at the first closing and to have total commitments of between R2 billion to R3 billion by the time we finally close the fund by the end of 2009.”

Mogase says the second fund will target investments in both South Africa and throughout the continent. “Some two-thirds of the fund will be targeted for the South Africa market with the remaining one third for investments in Africa, with a particular focus on North Africa.”

Mogase says Vantage is considering opening an office in London or Paris to service the North African market and is developing relationships with all the key African funds to ensure Vantage is the mezzanine financier of choice for large African transactions.

“Growth in African private equity has been very strong, with 50% year-on-year increases according to the African Venture Capital Association. Our decision to look at deals in Africa is a reflection of the expanding role private equity has in Africa and the substantial deal opportunities that exist on the continent.”

Mogase says the Netherlands Development Finance Company (FMO) is planning to provide over R100 million for the second fund. In addition Vantage Capital will be raising funds from a number of other European developments banks, private institutional investors and possibly sovereign wealth funds.

“We have received an overwhelming reception to our new fund from both our existing institutional investors as well as potential new partners. The success we have achieved with the first fund, where our involvement was solicited in eight of the ten biggest private equity deals in South Africa last year, has resulted in many investors expressing interest in being involved in the second fund.”

Mogase says that based on private equity funds under management in South Africa and in the rest of Africa of over R110 billion, the growth potential of mezzanine funds is enormous. “African mezzanine could easily triple or quadruple in size over the next couple years in order to achieve asset penetration ratios that are comparable to more developed markets.”

Arthur Arnold, CEO of the FMO, says the company intends to participate in Vantage Capital’s second fund based on the successful performance of the first fund.

“Vantage Capital has shown with its first fund that it has the ability to raise finance and also successfully invest the fund. This is a remarkable feature, especially when you consider the short timeframe in which they both raised and then fully invested the fund.”

Arnold says he believes Vantage Capital is in a unique position to make a substantial impact on the access to finance with its second fund.

“Our focus is to partner with companies like Vantage Capital to develop innovative mezzanine financing mechanisms for mid-market companies which do not enjoy the same access to finance as that enjoyed by large corporates. We believe Vantage Capital and its team are playing an important role in developing this asset class in both South Africa and the wider African continent.”

Mogase says Vantage Capital will continue to focus on providing capital to the mid-size market. “Just because we have raised a larger fund it does not mean we will ignore the mid-market. We believe this market is critically important as it not only fulfills many of our investor’s development requirements but it is also a market which provides strong returns and allows us to entrench our position as the continents leading mezzanine fund.”

Vantage Capital will target transactions looking for expansion capital, management buy-out and buy-ins, black economic empowerment deals, replacement capital and re-leveraging or refinancing.

Its investment criteria included:

• An established, stable market;
• A strong competitive position;
• A good history of cash generation;
• A flexible cost structure; and
• Pricing power.

“Vantage Capital’s deal flow is not dependent on highly competitive auction-type processes. Its key competitive advantages are its flexibility, speed and skills set,” Mogase says.