Ethos Private Equity together with Ethos Capital have partnered with Brait SE, providing a strong platform to maximise value through the realisation of assets in Brait’s portfolio, and returning capital to shareholders in the medium term.

Stuart MacKenzie, CEO, Ethos Private Equity, said: “This strategic equity partnership and our role as the new advisor to the Brait board empower us to bring a completely fresh perspective to the Brait portfolio and to drive a revised investment strategy; shifting from an investment holding company strategy focused on long-term growth, to a value-maximisation strategy on a medium term horizon, in line with our proven track record in private equity.”

The partnership (subject to all conditions precedent being met) will entail Ethos Private Equity’s Fund VII, in conjunction with Ethos Capital, investing R1.35bn in Brait, via an equity capital raise of up to R5.6bn, including a R5.25bn rights issue, to help refinance and restructure existing Brait debt.

Ethos Fund VII will contribute R750m and Ethos Capital will invest R600m (to be raised via a separate rights issue) to the overall R1.35bn capital injection, by taking up part of Titan’s portion of the Brait rights issue (R1bn) and an additional R350m from other Brait shareholders who do not take up their shares in the rights issue, or (in the event that all shareholders follow their rights) a specific issue of new Brait shares.

The exact pricing will depend upon the rights issue pricing, but based on the maximum Brait rights offer price, Ethos’ effective in-price will be a maximum of R10.81 per Brait share.

Ethos Private Equity will become the new advisor to the Brait business, replacing the existing Brait advisory contract for a significantly reduced fee structure with effect from the date the Brait rights offer closes which is expected at the end of February 2020.

MacKenzie added: “Ethos is ideally placed to source and execute unique opportunities in the alternative space for our investors, particularly at this point in the economic cycle. This is a great opportunity for us to co-invest with Ethos Capital in Brait’s assets, at an attractive value. Applying a private equity mindset to the Brait portfolio and leveraging Ethos’ proven ability to accelerate value enhancing strategies will provide a clear pathway to unlocking value over the medium term.”

The new advisory team will comprise a combination of senior Ethos executives and certain Brait executives who will join Ethos, thereby bringing together two of the more experienced private equity teams in Southern Africa.

Peter Hayward-Butt, CEO, Ethos Capital, said: "Co-investing in Brait alongside Ethos Private Equity’s Fund VII provides our shareholders with access to a high-quality asset base that complements our existing investments, adding sector and geographic diversification. We believe the unlock of value through the value realisation strategy will provide strong capital flows to Ethos Capital over the medium term which will have a positive impact on our returns and liquidity. We are pleased that both existing Ethos Capital shareholders and new investors have committed to supporting the transaction.”

Anthonie de Beer, Ethos Fund VII Managing Partner, said: “We’re pleased to have been able to secure this unique investment opportunity for Fund VII investors. Ethos’ value creation approach is centered on aligning shareholders, the board, and management teams of portfolio companies around value maximization strategies, and then focusing on the execution thereof. We look forward to working in close collaboration with all of these stakeholders as we drive the delivery of the mandate which the Brait Board has endorsed.”

There is strong support for the transaction from Brait and Ethos Capital shareholders as well as Ethos Fund VII investors.

The Brait board undertook a selection process to identify the right strategic partner to achieve their restructuring objectives and Ethos Private Equity won unanimous support given their strong track record of generating superior accelerated returns, ability to commit the required capital with shareholder support, and depth of institutional expertise and value-add.

The board, in conjunction with a large consortium of Brait‘s institutional shareholders, are supportive of a new investment strategy for the company and are prepared to make the changes required to deliver value for all shareholders. Post the recapitalisation, a new board is intended to be reconstituted and proposed to shareholders for approval, in line with best practice governance.

The strategic partnership with Ethos, as part of a recapitalisation process at Brait, puts the company in a strong position for the future and marks the conclusion of an extensive process to materially reduce the debt on its balance sheet and maximise shareholder value.

The recapitalisation comprises a fully committed and underwritten equity capital raise, refinancing of the Group’s revolving credit facility and the launch of a new convertible bond to fund the partial repurchase of the existing GBP350m convertible bond maturing in September 2020.

The recapitalisation provides Brait with a significant quantum of new equity, which will be used to reduce debt to a sustainable level and, together with the refinancing of the revolving credit facility for an additional 3-year tenor, addresses concerns over Brait’s ability to meet its debt obligations.

Following the announcement, a process has been initiated by Brait to launch the new convertible bond.

A rights issue circular will be posted to Brait shareholders by end January 2020 launching the rights issue, which is expected to be concluded in late February 2020.

The rights issue is fully underwritten by Titan, Ethos Fund VII, Ethos Capital, existing Brait shareholders and Rand Merchant Bank, a division of FirstRand Bank Limited.

In order for Ethos to meet its commitments in the Brait Equity Raise, Ethos Capital will undertake a renounceable rights offer to raise equity of R750m. Ethos Capital has received commitments from existing Ethos Capital shareholders and other investors to fully fund its R600 million portion of the Brait Equity Raise.

The Ethos Capital Rights Offer is expected to commence in late January 2020 and be concluded in February 2020.