Until recently, funding structures in South Africa comprised of only two components: senior debt provided by the banks, and equity that was provided by private equity funds and other institutions such as the Industrial Development Corporation.

The government’s success in introducing a measure of macroeconomic stability and predictability has led to the emergence of a huge potential market for “mezzanine” products, which rank behind secured bank debt but ahead of equity features. With senior debt sourced at rates of 10-15% and equity funds targeting returns of 25-33%, the space for funders seeking to earn returns between 15-25% has ballooned.

This is the gap in the market that Vantage Risk Capital is seeking to profit from by providing highly tailored financial solutions, which combine aspects of both equity and debt in new, innovative ways. The benefits of this innovation will be shared with its clients: primarily entrepreneurial management teams which will be able to achieve their objectives with less equity dilution thereby spurring risk-taking and investment, and empowerment groups that will shorten the time it takes for them to acquire the full benefits of unencumbered real economic ownership of their assets.

What value can Vantage Risk Capital provide to a management team?

Vantage Risk Capital can minimise the impact of a replacement capital or an expansion capital transaction on its equity shareholding and on the overall ownership structure of the business.

With its debt-based focus, a mezzanine based solution can:

• Avoid the significant equity dilution which accompanies traditional private equity deal structures;
• Avoid potentially disruptive shareholder disputes associated with diverging exit agendas;
• Help resolve such disputes by facilitating the exit of certain shareholders whilst maximising value for the remaining investors;
• Provide the funding required for the buy-out of a business currently run by a management team or assist managers in buying into a new business;
• Help managers expand their existing business by providing expansion capital, which can also be used to fund the purchase of businesses complementing the existing operations and providing critical mass; and,
• Apply the entrepreneurial, business development and private equity skills sets of the Vantage Risk Capital team to assist management in building long-term sustainable value for all the stakeholders.

What value can Vantage Risk Capital provide to a BEE partner?

BEE funding can be structured along flexible, cost-efficient lines which shorten the time BEE partners need to wait before they enjoy the unencumbered economic benefit of their ownership. With its small, entrepreneurial team and its straight-forward decision-making processes, Vantage Risk Capital can move quickly to provide a BEE investor group with funding certainty. Speed is often a significant competitive advantage in a highly contested marketplace.

What value can Vantage Risk Capital provide to private equity investors?

To date, sources of risk capital outside the traditional private equity format have been limited. Vantage Risk Capital is a new, independent source of risk capital in the South African marketplace. Private equity investors can use mezzanine to enhance their returns on new investments by reducing the amount of equity they need for a given opportunity. The intelligent use of mezzanine has become a critical success factor in private equity globally.

Moreover, private equity investors can improve their returns on existing investments by using mezzanine to refinance and re-leverage existing debt structures, thereby providing the opportunity for early IRR-enhancing returns on capital. Vantage Risk Capital can also provide an exit solution to private equity investors that are seeking to lock in an attractive return by structuring an exit which meets their requirements as well as those of the remaining shareholders.