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| Vantage Risk Capital is looking to invest between R50 million ($6 million) and R350 million ($44 million) in established mid-market companies with the following characteristics: |
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- After-tax profits in excess of R25 million ($3 million);
- A talented and committed management team with performance-based financial incentives;
- Minimal or manageable technology risk;
- Product lines with extended life cycles and low obsolescence risk;
- A diverse mix of products, customers, geographic markets and suppliers;
- Stable demand for products or services and a defensible market position;
- Sound historical financial performance and stable, predictable earnings and cash flows;
- An ability to service the interest and capital repayments with a significant part of the earnings converting into free cash on a normalised long term basis; and
- Reasonable security in the assets of the company for the purposes of raising senior debt funding.
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| Vantage Risk Capital will source senior debt as well as equity funding for a transaction using its well-developed network of relationships in order to complement its capital investment. In this way, it will be able to leverage its own capital enabling it to target transactions involving businesses with enterprise values of between R100 million ($12 million) and R5 billion ($625 million) plus. |
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| What transactions will Vantage Risk Capital avoid? |
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| The Fund will target most industry sectors but will exclude: |
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- Primary agricultural businesses subject to significant weather-related volatility;
- Low-margin, trading businesses;
- Businesses not complying with local or international labour, environmental and other laws;
- Businesses selling weapons or munitions;
- Businesses producing or selling products subject to international bans or phase-outs;
- Hostile takeovers;
- Loss-making operational turnaround opportunities;
- Start-ups such as technology start-ups or junior mining businesses;
- Alcohol other than wine and beer; and
- Casinos and gambling.
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| What types of transactions will Vantage Risk Capital target? |
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- Expansion capital - Vantage Risk Capital can assist in funding the acquisition of another business or the expansion of an existing business. Mezzanine can be a highly compelling alternative for shareholders seeking to expand their businesses whilst avoiding excessive equity dilution.
- Management buy-out (MBO) and buy-ins (MBI) - Vantage Risk Capital’s funding can complement private equity by leveraging private equity capital. In an MBO or MBI transaction, Vantage Risk Capital’s funding can replace the requirement for private equity capital.
Particularly in the smaller MBOs or MBIs, where exit risk is high, a mezzanine-based transaction may be better able to generate returns for all stakeholders than an equity-based solution that could be overly reliant on high-priced, difficult-to-achieve exits. - Black economic empowerment (BEE) - Vantage Risk Capital’s funding can assist BEE partners who lack capital to achieve their ownership objectives in a way which is cost-efficient and equitable. Mezzanine, with its focus on debt-based returns, can minimise the potential equity dilution for BEE participants and reduce the time for BEE investors to enjoy full unencumbered economic ownership of their assets.
- Replacement capital - Mezzanine is often used to fund the exit of private equity investors in situations where management are seeking to maximise the value of their shareholding following such an exit.
- Re-leveraging or refinancing - Vantage Risk Capital can fund the re-leveraging of existing private equity transactions, with mezzanine capital often replacing existing shareholder loans provided by the private equity and other leading shareholders. This helps shareholders boost their returns by facilitating an early return of capital while retaining much of the equity upside in a transaction.
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