Business Partners Limited Leading Investor in SMEs

David MorobeRegional General Manager09 October 2013

Presentation outline

• Economic Environment Overview

• SME Market Overview

• Who is Business Partners?

• Business Partners’ Finance Offering

• Property Finance Offering

• Concluding Remarks

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?

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

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

Overview of the SA SME market

Overview of the SA SME market

Who is Business Partners?

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

• 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

BUSINESS PARTNERS CORE ACTIVITIES

Performance since 1981

Businesses financed

Finance rotated

Job opportunitiescreatedFinance

available for 2013/14

69 000

R12,5 billion

550 000

R1 000 000 000

Profiling the target market

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

Business Partners is a Risk Financier

Viability

Entrepreneur

Business

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

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

•

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

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

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

Offering a property transactionOffering a property transaction

• 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

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

Buying vs. renting

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

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

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

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

BankersAccountants Brokers

nkersConsultants Attorneys Agents

Deal Generation:

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%

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

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

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

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

Questions

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.

David MorobeRegional General Manager

012 347-3208

dmorobe@businesspartners.co.za

THANK YOU