business partners financing - sacci2013
DESCRIPTION
For further information contact Business Partners or The South African Chamber of Commerce and IndustryTRANSCRIPT
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Business Partners Limited Leading Investor in SMEs
David MorobeRegional General Manager09 October 2013
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Presentation outline
• Economic Environment Overview
• SME Market Overview
• Who is Business Partners?
• Business Partners’ Finance Offering
• Property Finance Offering
• Concluding Remarks
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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?
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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
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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
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Overview of the SA SME market
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Overview of the SA SME market
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Who is Business Partners?
Business Partners Limited is a specialist investment group, providing finance and mentorship for small and medium enterprises in South Africa.
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• 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
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BUSINESS PARTNERS CORE ACTIVITIES
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Performance since 1981
Businesses financed
Finance rotated
Job opportunitiescreatedFinance
available for 2013/14
69 000
R12,5 billion
550 000
R1 000 000 000
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Profiling the target market
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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
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Business Partners is a Risk Financier
Viability
Entrepreneur
Business
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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
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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
•
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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
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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
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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
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Offering a property transactionOffering a property transaction
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• 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
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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
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Buying vs. renting
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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
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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
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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
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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
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What else do we do?
• Property investments– Multi tenanted properties– R787 million invested– 2 000 tenants
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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
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BankersAccountants Brokers
nkersConsultants Attorneys Agents
Deal Generation:
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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%
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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
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The role of Business Partners (in the life of an intermediary)
• A source of funding for the client• Referral fee• Share of information
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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
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Questions
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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.
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THANK YOU