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Business Partners Limited Leading Investor in SMEs David Morobe Regional General Manager 09 October 2013

Business Partners financing - SACCI2013

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For further information contact Business Partners or The South African Chamber of Commerce and Industry

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Page 1: Business Partners financing - SACCI2013

Business Partners Limited Leading Investor in SMEs

David MorobeRegional General Manager09 October 2013

Page 2: Business Partners financing - SACCI2013

Presentation outline

• Economic Environment Overview

• SME Market Overview

• Who is Business Partners?

• Business Partners’ Finance Offering

• Property Finance Offering

• Concluding Remarks

Page 3: Business Partners financing - SACCI2013

Economic Trends & discontinuities

• Global– Battling to recover from the 2008 GFC and 2009 recession

– Slow/no growth in North America & Europe

– Growth in Emerging Markets (China, India, Brazil)

– European sovereign debt crisis: Will it precipitate another recession (in Europe and the rest of the world)?

• Africa– Booming economies – driven by commodity exports,

demographics, rising per capita disposable income and resultant consumer spend

– The 21st century: Is it the dawn of Africa’s era?

Page 4: Business Partners financing - SACCI2013

Economic Trends & discontinuities• South Africa

– Fragile recovery from the 2008 GFC and 2009 recession

– Recovery largely driven by commodity exports and infrastructure projects

– Vulnerable to European economic malaise and slow growth in North America (which, together, accounts for > 50% of SA exports)

– Several factors could undermine fragile economic recovery:• General over-indebtedness of households

• Inflationary pressures (especially administered prices)

• Low levels of fixed investment spending (especially by the private sector)

• Over-regulation

• Low and/or inappropriate skills levels

• High unemployment levels possibly leading to social unrest

• Low incidence of entrepreneurship

Page 5: Business Partners financing - SACCI2013

Overview of the SA SME market

• 1,5 – 2.0 million (estimate) small and medium and micro-sized enterprises (SMMEs) operate in South Africa– 600 000 are SMEs

• 35% of GDP ― the estimated contribution by SMEs in SA

• 42.8% of the total labour force in the private sector is employed by the SME sector in SA

• 90% of new jobs created in the private sector should be in new and growing SMEs

Page 6: Business Partners financing - SACCI2013

Overview of the SA SME market

Page 7: Business Partners financing - SACCI2013

Overview of the SA SME market

Page 8: Business Partners financing - SACCI2013

Who is Business Partners?

Business Partners Limited is a specialist investment group, providing finance and mentorship for small and medium enterprises in South Africa.

Page 9: Business Partners financing - SACCI2013

• Founded in 1981 by Anton Rupert – successful entrepreneur, industrialist & philanthropist

• “Blue chip”, patient shareholders

• Sustainable risk financier of SMEs in South Africa for > 32 years

• S. African & international office network – localized area offices

• ISO 9001: 2008 accredited

• 300 to 600 investments per annum in SA with own funds

• Expansion into Africa: Madagascar, Kenya & Rwanda. Soon Southern Africa (Malawi, Namibia, Zambia and Zimbabwe)

Business Partners: A risk financier

Page 10: Business Partners financing - SACCI2013

BUSINESS PARTNERS CORE ACTIVITIES

Page 11: Business Partners financing - SACCI2013

Performance since 1981

Businesses financed

Finance rotated

Job opportunitiescreatedFinance

available for 2013/14

69 000

R12,5 billion

550 000

R1 000 000 000

Page 12: Business Partners financing - SACCI2013

Profiling the target market

Page 13: Business Partners financing - SACCI2013
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Page 15: Business Partners financing - SACCI2013
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Dealing with Business Partners

• Procedures we follow:– Work in small teams (RGM, Area Manager and

Investment Officer)– Do proper due diligence– Prepare an approval report– Committee decision– Implementation follows– Post Investment action

Page 17: Business Partners financing - SACCI2013

Business Partners is a Risk Financier

Viability

Entrepreneur

Business

Page 18: Business Partners financing - SACCI2013

Viability based financing

• Focus on business:• business risk evaluation• business nature, stage• gearing of business• profit potential/history• growth potential

• Entrepreneurial ability:• relevant experience: doing skills,

management skills• track record• profile• integrity

Page 19: Business Partners financing - SACCI2013

Focus market

• Business Partners is a RISK FINANCIER:– Will fund where others would not because:

• Lack of or nature of securities offered

• Policies of financiers

• Lack of own contribution

• Industry regarded as risky

• Track record (profit history, start-up, performance)

– Major focus is on VIABILITY when considering funding

Page 20: Business Partners financing - SACCI2013

Business Partners offering

• Largest SME risk financier in SA– Investment decisions based on viability

• Focus on the entrepreneur

• Evaluate the business

– Will invest R1 000 000 000 this year in SMEs

• Finance full spectrum – Start-up capital – Franchising– Property finance to obtain own premises– Expansion capital

Page 21: Business Partners financing - SACCI2013

Business Partners Venture Fund(R400 million)

•Guidelines:– Early stage investments (after research and

development stage)– The product or concept must be market ready– No seed capital investments

Page 22: Business Partners financing - SACCI2013

Business Partners Venture Fund

• Criteria:– Investment period: normally 5 years– Exit Strategy: preferably trade sale– Financing format: minority stake share participation – Financing limit: 1st round not in excess of R10 million

Page 23: Business Partners financing - SACCI2013

Offering a property transactionOffering a property transaction

Page 24: Business Partners financing - SACCI2013

• Industrial, offices or retail

• Buying own premises or

moving to own

• Occupies most, if not all of

the building

• Property: well priced, nature

of the building, location and

condition

Fundamentals of Property Financing

Page 25: Business Partners financing - SACCI2013

Buying your own business property?

• NO DEPOSIT - up to 100% funding• Main criteria

– Owner occupied (> 50% of property)

– Established & profitable business

– Afford loan installments

• Competitive pricing

Page 26: Business Partners financing - SACCI2013

Buying vs. renting

Page 27: Business Partners financing - SACCI2013

Buying vs Renting Scenario

Scenario

Monthly Rental 50 000

Monthly Expenses 7 500

Net Income 42 500

Net Annual Income 510 000

Market Valuation @ CAP Rate - 10% 5 100 000

Page 28: Business Partners financing - SACCI2013

Buying vs Renting Scenario cont…

Norm Transaction

Purchase Price 5 100 000

Costs (Admin / Legal) 100 000 Total 5 200 000

Deposit Required - 30% 1 560 000 Loan Amount 3 640 000

Business Partners OfferingPurchase Price 5 100 000

Costs (Admin / Legal) 100 000 Total 5 200 000 Deposit Required - Loan Amount 5 200 000

Instalment - 10 Years @ Prime 64 473 35% Shareholding in Prop Co

Page 29: Business Partners financing - SACCI2013

Buying vs Renting Scenario cont…

Buying vs Rental

Monthly Rental Escl @ 8%p.a Instalment

Year 1 50 000 64 473

Year 2 54 000 64 473

Year 3 58 320 64 473

Year 4 62 986 64 473

Year 5 68 024 64 473

Year 6 73 466 64 473

Year 7 79 344 64 473

Year 8 85 691 64 473

Year 9 92 547 64 473

Year 10 99 950 64 473

Page 30: Business Partners financing - SACCI2013

Where Business Partners investsIndustry Sectors• Manufacturing, retailing, services,

franchises, contracts, commercial property, not primary agriculture

Type of Investment• Take-overs, MBOs, Expansion,

(working capital, equipment), Start-ups, Property acquisition

• Investment capital of between R500 000 and R25 million

Page 31: Business Partners financing - SACCI2013

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What else do we do?

• Property investments– Multi tenanted properties– R787 million invested– 2 000 tenants

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Page 35: Business Partners financing - SACCI2013

What else do we do?

• Soft issues– Graduate internship program– Schools entrepreneurship program– SME Tool kit

• Global Entrepreneurship– Business Mechanics and home website– Entrepreneur of the Year Competition– Advocacy– Information– Post Investment Value Adding

Page 36: Business Partners financing - SACCI2013

BankersAccountants Brokers

nkersConsultants Attorneys Agents

Deal Generation:

Page 37: Business Partners financing - SACCI2013

Where does our deals come from?

Source % of total in Rands (2012)

% of total in Rands (2013)

Intermediaries Accountants, bankers, brokers,

consultants, auditors

52.6% 54.5%

Existing clients 37.6% 36.3%

Marketing action (direct) 9.8% 9.2%

100% 100%

Page 38: Business Partners financing - SACCI2013

The role of the intermediary (in the life of Business Partners)

• Understand the Business Partners product offering

• Act as a link between Business Partners and the client

• Support role in the clients business (e.g. Accountant)

• Future referrals • Source of information

Page 39: Business Partners financing - SACCI2013

The role of Business Partners (in the life of an intermediary)

• A source of funding for the client• Referral fee• Share of information

Page 40: Business Partners financing - SACCI2013

In SummaryWhat makes us different?

• The approach:– Positively looking for finance opportunities– The desire to make funding available

• Personal contact– It is all about relationships

• Funding flexibility– Seek financing methods that makes sense

• Prepared to take risk– Wants to be rewarded for it

Page 41: Business Partners financing - SACCI2013

Questions

Page 42: Business Partners financing - SACCI2013

Market conditions: Business Partners experience

• Tough trading conditions• Reluctance of entrepreneurs to commit to financial

arrangements• Period from sourcing to implementation is longer• Applicants are often in financial trouble (reflect losses,

non-viable, judgements, need for restructuring capital)• Policies of banks not conducive for SME development

but open doors for BPL.

Page 43: Business Partners financing - SACCI2013

David MorobeRegional General Manager

012 347-3208

[email protected]

Page 44: Business Partners financing - SACCI2013

THANK YOU