BEE investment group concludes landmark R130m cross-border transaction

Black Economic Empowerment (BEE) investment group Jala Capital and Innovation Group today revealed details of a ground breaking foreign-funded empowerment transaction.

The R130 million deal involves the purchase of an interest in Innovation Group (Pty) Ltd, the South African subsidiary of Innovation Group plc, a London listed global business process outsourcing operation with annual turnover of 80 million. Innovation Group's clients in South Africa include blue-chip companies such as Toyota SA, Jaguar and Absa.

The deal has been financed by a Barclays Bank loan, out of London, secured by an Innovation Group plc guarantee. The transaction is not being done at a discount to net asset value.

Salala Lesela, Jala Capital's CEO, says that deal will see a newly created Special Purpose Vehicle, Intuthuko Investments, purchase a 25% + 1 share stake in the company from Innovation  Group Holdings, which is 100% owned by Innovation Group plc.

Intuthuko's equity is owned by Jala Capital (22,2%) and Innovation Group Employee Incentive Share Scheme (77,8%).

All 800 staff of Innovation Group, both black and white, will be equal beneficiaries of the share scheme.

"There's a lot of talk about the cost of BEE transactions to South African companies," says Glen Mollink, Innovation Group South Africa COO.

"Although we recognise the costs associated with BEE, we are seeing an incredible opportunity to grow our penetration into the public sector and get to grips with true broad based empowerment, which we believe is the foundation from which our company will prosper and allow our staff to truly become stakeholders in the business."

Mollink stresses that it was critical to Innovation Group to avoid a top level empowerment deal that focused only on shareholding by investors.

"We have placed ourselves in the position to empower all staff in the company by focusing heavily on the Employment Equity and Skills Development dimensions of the DTI's BEE scorecard. This has lead to a situation where the majority of our staff is black.

"We're really proud of the fact that the creation of Intuthuko impacts positively on every member of Innovation Group, and is underpinned by a strong relationship with a BEE investor able to bring clear value to the company, from the word go. We are motivating staff to ensure an efficient and productive organisation that is able to maximise profits on an ongoing basis."

Jala Capital is led by Salala Lesela, Pumulani Ncube, Ron Gault, Kumaran Padayachee; all leading figures in the South African economy.

Investec has a 25,1% stake in Jala, with the balance owned by the founding members:

* Ron Gault, the chairman, headed JP Morgan in South Africa;
* Kumaran Padayachee, CEO of Spartan Technology Holdings;
* Salala Lesela, the CEO, who boasts local and international experience in financial services, FMCG, retail networks and performance-based interventions; and
* Pumulani Ncube, who boasts extensive institutional experience with Grant Thornton, Mettle, RMB and ABSA.

Lesela explains that Jala's strategic partnership with Investec allows Investec to participate as a minority investor in Jala deals while Jala enjoys access to capital and to working capital from Investec for viable commercial projects.

"The Innovation Group deal forms part of Jala's wider strategic intent to purchase stakes in companies operating in specific sectors, and to drive growth in these companies through the development of black operational and management skills."

Lesela points out that Jala's potential to add value to Innovation is a key aspect of the deal.

"We have the business acumen and expertise to be a highly valued Innovation Group partner in terms of skills development and business relationships."

The deal focuses on the broad-based aspect of empowerment. Lesela emphasises that by ensuring ownership of the company across all staff levels and from all backgrounds, an extra dimension of employee motivation is being introduced.

Jala has structured the transaction with this in mind, says Lesela. Hence the structure is designed to ensure that financial benefits are available to staff after the trust has met its obligations.

Lesela is confident that the transaction will play a significant role in placing Jala on the empowerment mergers and acquisitions map.

"This is the first of many similar deals. Watch this space."