Patrice Motsepe's African Rainbow Capital (ARC) is set to increase its stake in Alexforbes, South Africa's largest employee benefits firm, to nearly 80%. This move comes a decade after ARC first invested in the group and forced a strategic rethink. ARC, an investment holding company controlled by Motsepe, had previously acquired a 10% stake in Alexforbes in 2016, which it built up over the years.
The increase in stake comes after Prudential, one of the key investors in Alexforbes, decided to sell its stake in the company. ARC has pounced on the move, acquiring Prudential's 74.1-million shares in Alexforbes as part of a $185m transaction. Under the deal, Alexforbes will also repurchase about 372.8-million shares held by New Veld, Prudential's entity. This will see ARC's stake in Alexforbes rise to 78% from just less than 50%.
Prudential's decision to sell its stake in Alexforbes was part of a strategic review of its global operations. The review resulted in a decision to simplify its international footprint through the disposal of its emerging markets businesses. Alexforbes said in a statement that the shares in the company form part of Prudential Financial's emerging markets portfolio.
The acquisition will open the door for a possible delisting from the JSE by Alexforbes. ARC delisted from the JSE last year and has been focusing on growing its portfolio of investments. Alexforbes is a key cog in ARC's portfolio, which includes stakes in GoTyme and Rain. The investment holding group led the push to pivot Alexforbes's strategy, leading to the ouster of former CEO Andrew Darfoor in 2018.
ARC Investments' Johan van Zyl led the charge against Darfoor's "Ambition 2022" strategy, which focused on driving growth through expanding its retail business segment alongside expansion in Sub-Saharan Africa through selective bolt-on acquisitions. Van Zyl, credited with turning around Sanlam's fortunes during his CEO tenure, was clear to Darfoor: get out of capital-intensive areas such as insurance, where the group did not have scale, and focus on advice and distribution as its core revenue streams.
After Van Zyl's intervention, Dawie de Villiers took over as CEO and launched a refreshed strategy in March 2019. The strategy reaffirmed Alexforbes' strength as a trusted adviser to its clients with a renewed focus on the core businesses of consulting, administration and investments. De Villiers quickly disposed of the insurance business to Momentum for nearly R2bn and transitioned the Alexforbes-sponsored umbrella fund to private administration.
The changes implemented by de Villiers led to a leaner, more focused and efficient business, with substantially reduced capital requirements. This allowed Alexforbes to return capital to its shareholders, with dividends and special dividends a regular occurrence. The company's share price has reacted positively, up more than 100% in the past five years, with the group valued at R10bn on the JSE.
Key points
- ARC will increase its stake in Alexforbes to nearly 80% after acquiring Prudential's shares.
- The deal is part of Prudential's strategy to simplify its international footprint.
- The acquisition could pave the way for Alexforbes to delist from the JSE.
