Here’s how to pitch to Khumovest Private Equity Fund I, which is offering up to R60 million for 25.1% shares in SMEs

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  • The Khumovest Private Equity Fund I plans to invest R500 million in small to medium-sized businesses – and is calling for proposals.
  • Their key focus is on growth – investing in supporting and developing established small and medium sized companies.

Khumovest is proud to announce the launch of the Khumovest Private Equity Fund I, which is a Private Equity Fund that is focussed on making equity capital investments into small and mid-cap companies operating within South Africa.

Khumovest was established in 2015 by Mr. Ratirelo Mothobi, CA(SA) and Mr. Thurstan Moodley, CFA and is a 100% black owned and managed financial services firm and a Level I contributor to Broad Based Black Economic Empowerment. Ratirelo and Thurstan each have in excess of 10 years of experience within the unlisted investment space, having previously managed private equity and private debt transactions.

The thesis of the Khumovest Private Equity Fund I is to provide equity capital to small and mid-cap companies that are in need of capital and strategic guidance to grow their businesses, thereby assisting our country in growing its economic base and reducing our stubbornly high unemployment rate. Within South Africa, like other economies across the world, small to medium sized companies are the engines that drive economic growth, employment, and inclusivity:

    Source: McKinsey & Company, July 2020

Given the importance of small to medium sized enterprises, the support of this segment of the market is vital to the economic success of our country. Ratirelo Mothobi (Managing Partner) noted: “Over the past few years, we’ve taken note of the difficulty that the owners of small to medium sized businesses have of raising investor capital, as capital continues to flow predominantly to large corporates. We intend to change this narrative, by supporting established small and medium sized companies, to allow these companies, to one day stand confidently among the giants of industry.”

Thurstan Moodley (Managing Partner) added: “In addition to providing risk capital, Khumovest is also a hands-on investor, as we assist portfolio companies with strategy formulation, business development, governance and transformation initiatives. We work alongside management and shareholder teams to take good South African businesses and make them world class.”

Khumovest made its first investment into the small and mid-cap segment during 2018, when Khumovest invested into a business that distributed hand and surface sanitizers to both retail and business clients. The Company required growth capital, to allow it to bring the manufacturing of its products in-house in order to service its client base more efficiently, as well as strategic guidance to further penetrate the market. Khumovest invested fresh equity capital into the business, which the business utilized to procure a production plant, as well as employ new staff to manage the now in-house production process. Khumovest further assisted the company to improve its governance process, by establishing a formalized board of directors, as well as assisting the company with the outsourcing of its financial and human resources function, which has allowed the management team to remain focused on driving sales and improving efficiencies. The Company is now a listed supplier to major retailers, as well as large business-to-business clients, within the healthcare and industrial sectors.

A key feature of the Fund is to invest alongside strong owner managed teams, that are aligned and incentivised to create long term real value in the businesses they own and manage. Importantly, the Fund is not a buyout fund and the Fund’s mandate is to focus on organic and sustainable earnings growth, rather than financial engineering that are akin to leveraged buyout transactions.

Here’s what you need to know about making a pitch:

According to Business Insider, Khumovest describes the fund as “generalist”. It won’t touch primary farming, primary mining, the arms trade, or companies that deal with dangerous materials. Beyond that, it is not too concerned about the sector a company is involved in, or geographic location.

Its priority sectors are:
  • Manufacturing
  • Industrials
  • Education
  • Technology
  • Financial Services
  • Healthcare
  • Agro-processing
  • Natural gas services
  • Fast-moving consumer goods
Company size is important

The definition of SME, in this case, is a full-time staff number of at least 10 but no more than 200, and earnings before interest, tax, depreciation, and amortisation (Ebitda) of between R10 million and R50 million.

Profitability matters

Khumovest says it is looking for a history of profitability, at least three years’ worth. It wants non-cyclical businesses that generate cashflow, and have “strong, yet underleveraged balance sheets”.

Check your client base and management team

The fund wants equity in companies with a “blue-chip client base” and “strong offtake agreements”. It will also look at the market need for the product or service you are flogging.

Internally, it wants to see strong management teams, ideally with a solid plan on how to use its money to fund growth and create new jobs.

Khumovest wants 25.1% of the company, and won’t pay more than R60 million.

Each cheque is due to be at least R20 million, and no more than R60 million. For that, the fund wants a significant minority stake, so at least 25% and no more than 49%. That will come with at least one non-executive position on the board for the fund.

Khumovest says it will look at exiting after five to seven years, preferably by way of management buy-out, or sale to a strategic of financial investor.

Your investment proposal should include:

  • The equity stake on the table, its price, and details on who is selling and why.
  • A company overview, with history, description of the products or services, detailed description of the business model, ownership structure, management overview, customer and supplier overview, and shareholding structure.
  • A financial overview with three to five years of financial statements, and an explanation of what drives revenues and costs.
  • Analysis of the competitive landscape – and your competitive advantage.
  • The growth strategy, and how Khumovest can help.
  • An investment thesis, which sells the deal.

Though not deal-breakers, the fund will give preference to proposals with financial projections for the next three to five years; evidence that environmental, social and governance (ESG) issues are considered in the business model; and that show a likelihood of sustainable jobs after the fund exits.

Additional, valuable, benefits

The fund is 100% black, so it can offer an immediate BBBEEE boost.

Khumovest promises to be a hands-on investor – helping with introductions, securing cheaper lines of credit, and bringing in specialist to sort out bottlenecks – but says it will “not stifle the management and shareholder teams that we invest alongside”

For those with an appetite to grow, it may also offer an acquisition pipeline.

“Khumovest is able to assist investee companies acquire supplementary businesses within their industries, which adds to the investee company market share growth,” it says. 

Business Insider reports that to date, Khumovest has successfully secured a R125 million commitment from the 27four Black Business Growth Fund and is currently seeking additional investor capital to reach the Fund’s target close of R500 million. Priyan Padayichie (Associate Partner) highlighted: “We are honoured and humbled to have secured a commitment from the 27four Black Business Growth Fund and believe that this funding commitment is a testament to our strategy and product offering, which is greatly needed in the South African market. We are now actively searching for potential investors to invest alongside the 27four Black Business Growth Fund to support our disruptive initiative.”

Our Fund is sector agnostic but has a skew towards to the following industries: manufacturing, financial services, technology, industrials, agro-processing, fast-moving consumer goods and healthcare.

Khumovest says: “To the owners of the small and medium businesses we seek to uplift, we encourage you to contact us for more information. Together we have the power to elevate the South Africa economy, and if we have this power, then it is our responsibility to do so for the betterment of all South Africans.”

Source: Business Insider

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