Niche investment bank, Bravura, is seeing the competitive advantage of having a strong presence in South Africa and Australia, as the fall-out from Brexit and challenges in the US are driving investors down under.
While South Africans have traditionally looked north when it comes to offshore investment and business expansion on the same timeline, Australia offers shared seasons and an increasingly attractive opportunity in certain industries, according to Germien du Plessis, Bravura’s Corporate Finance principal based in Sydney. Du Plessis leads a team focused on cross-jurisdictional transactions between South African and Australian companies.
“With continued rand volatility and the threat of a ratings downgrade, South African companies are looking ever increasingly at offshore options and the introduction of hard-currency earnings to their income statement,” says du Plessis. “The popularity of listed stocks with a Rand hedge and international operations, is testament to this derisking strategy. A common theme is also that, whilst Africa remains a great frontier and offers super-profits in some areas, the African expansion story is often fraught with regulatory and logistical difficulties. We therefore see that the trend is set to continue for South African corporates to look to first world economies, including the UK and Australia, for diversification opportunities.”
According to du Plessis, Australia offers a particularly good option for IT and financial services businesses, or those in industries that rely on technology, have a high degree of automation or have inputs that are import related. “Australia has a high degree of regulation, major labour costs and very high occupancy costs, so businesses need to have a strategy for that. Financial services, IT, pharmaceuticals and particular retail brands are leading the charge.”
In financial services, South African insurance giant PPS has moved into Australia's $7.5 billion retail life risk market. “New entrants can leapfrog the problems of legacy systems and innovate in the competitive financial services market,” says du Plessis. Youi, owned by RMIH, has also made big strides in the insurance sector.
Du Plessis says that while a few early-mover SA retailers have burnt their fingers, success has followed for Nandos, Pepkor, Steinhoff and Woolworths. The acquisitions of key brands, including David Jones, ramped up Woolworths’ operating profit from Australia to 45% of the group total. Steinhoff, which epitomises large-scale foreign expansion, emerged as one of the largest retailers in Australia after buying South Africa’s Pepkor Holdings which added Harris Scarfe and Best & Less to Steinhoff’s Australian investments. It now has 477 stores in Australia. Mr Price has recently moved into the market with two stores, after establishing Australia as one of its top five e-commerce markets. Other success stories include Naspers, Mediclinic, Aspen, Imperial and Bidvest.
Du Plessis has advised several South African businesses with regard to their entry into the Australian market. A recent series of transactions involved the acquisition by Southern View Finance (owner of the Capfin micro-lending business in South Africa) of finance businesses in the consumer and B2B lending space. “For investors planning to establish or expand business operations in Australia, informed, local advice with an understanding of the South African investor perspective, is essential to navigate local business law and nuances. This ensures the best transaction outcome.”
Australia has a set of common structures that investors can use when establishing a business and investors need to consider carefully which structure best suits their business needs. The business structure will determine the licences necessary to operate, as well as tax and legal implications. Dual listing is an option for capital raising as Australia has a modern and active stock market, allowing access to the Asia-Pacific region and a time zone providing opportunities for trading on a round-the-clock basis.
Investment into South Africa
In the opposite direction, Bravura also assists Australian businesses looking for acquisitions in South Africa. Most of the Australian investment into South African revolves around resources, says du Plessis. “The mining sector bottomed out; we are however now seeing an uptick in activity and South African junior miners need to consider the potential capital inflows from Australia, bringing in foreign investment and saving jobs.” Bravura also assists clients with raising capital in South Africa.
“An example we advised on is the acquisition of Village Main Reef’s ConsMurch mine out of liquidation, which resulted in the mine being saved and employment opportunities being secured for the mining community,” says du Plessis.
“As an advisor, we are able to assist Australian clients to navigate the typical challenges we encounter, including BEE, exchange control regulations, mining regulation and obtaining the necessary permissions from the Department of Mineral Rights,” says du Plessis. “By accessing our relationships in the legal, regulatory and business community, we are able to resolve the issues which can otherwise hamstring inward investment, and ensure that deals get over the line”.