Actis to Cash in on Energy Boom With R5 Billion Deal

IN THE biggest private equity deal so far this year, UK investor Actis plans to take advantage of energy-markets growth with a R5,2bn buyout of electrical engineering group Alstom SA.

As Eskom scrambles to source generators, boilers and turbines in its R350bn programme to expand power generation and its distribution network over the next eight years, the electrical engineering group is poised to benefit handsomely.

Actis director Garth Jarvis said: "This is exactly the right sector to be in. This company is well positioned to benefit from expansion in electricity generation over the next seven-eight years ."

Alstom is likely to see an upside from its investments on the rest of the continent, and there could be upside for other investors down the line, too, as the buyout could eventually see the new group, with a yearly order intake of R5bn, publicly listed when Actis exits.

Actis typically took a three-to-seven- year view on investments. With Alstom, Actis would take a long-term view and probably remain invested for about five years, Jarvis said. When it decided to exit, it could look for another buyer or consider listing the company if the circumstances were right.

The transaction would see French company Alstom, Rand Merchant Bank and Areva T&D exit the South African firm. All commercial and technology agreements with Alstom and Areva T&D would, however, remain in place.

Actis, which will take a 34% stake in the company, is partnered by Old Mutual Private Equity, which will hold 20%, and black investors Kagiso and Tiso and a private black investor, which will collectively own a 28% stake .

Another motivator for the deal was Alstom's strong management team, Jarvis said. Alstom CE Mark Wilson would be retained to drive its growth strategy.

While management of the company and operational divisions would be unchanged, two operations were excluded from the deal. The power service and after-sales division, which contributed about 14% of turnover, would be sold back to Alstom France.

The repair services business, contributing less than 1% of turnover, was also excluded from the deal as Actis was unable to get clearance from the Competition Commission for its inclusion. The business would remain with the existing shareholders.

While Jarvis was unwilling to disclose the debt equity split in funding the deal, he said the transaction was conservatively geared at levels substantially below previous Actis deals.

Nedbank would underwrite the debt component of the deal.

The transaction would see a considerable dilution of Alstom's empowerment shareholding, with black ownership reduced from 50% to 28%. Still, the company's empowerment credentials under the trade and industry department's black economic empowerment codes would remain unchanged.

Jarvis defended the deal as "empowerment working properly". Kagiso and Tiso were part of the original buyout of Alstom, and opted to reinvest R500m.

"Ultimately, the dilution is a result of some cash having been taken off the table, but it has created real value and wealth for them," he said.

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