Morgan Stanley-backed Capitalworks fund to invest in SA companies hit by Covid-19
Private equity firm Capitalworks Investment Partners plans to invest R5 billion (about $267 million) of freshly raised capital in South African companies negatively impacted by the Covid-19 crisis.
According to a Bloomberg report, Capitalworks raised 25% more than anticipated for its Private Equity Fund III. Limited partners in the fund include Morgan Stanley’s Alternative Investments Partners unit, institutional backers and family offices.
The fund is a private equity investment vehicle which seeks to invest in a diversified portfolio of privately negotiated equity or equity-related investments in middle-market companies operating principally in South Africa.
Many South African companies are currently under severe stress due to the Covid-19 lockdown that was implemented towards the end of March. While some trading restrictions have been relaxed, the economy is not expected to fully reopen in the near term.
John Bellew, head of private equity at law firm Bowmans, believes this situation will present opportunities for private equity firms, and in particular mezzanine debt funds, to plug the funding gap experienced by distressed companies. Bellew made these comments during a recent webinar hosted by the Southern African Venture Capital and Private Equity Association (SAVCA).
His colleague, James Westgate, a partner at Bowmans, said there are several companies with fundamentally sound businesses that “have been caught on the wrong side of this whole Corona lockdown”.
“We are seeing an opportunity for distressed M&A over the next six months or so … Everybody is putting out fires at the moment, but when we get a bit of breathing space and time to think, I reckon there could be some great returns to be made in the next cycle,” Westgate added.
There could also be opportunities for take-private transactions. Africa Private Equity News recently reported there are many upper-small-cap and mid-cap Johannesburg Stock Exchange-listed companies, which even before the Covid-19 fallout traded at significant discounts to their net asset values. “With the share prices of many good companies being where they are, I think there is a lot of opportunity for takeovers in the public space,” commented Ulrike Naumann, head of Bowmans’ general finance practice group.
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