By Paul Hanratty, 20 August 2020
Once this transaction becomes effective, ARC FS will own an approximate 25% economic interest in Sanlam’s South African third-party asset management business other than the investment management business conducted by Sanlam Private Wealth Proprietary Limited and the Sanlam Specialised Finance division.
ARC FS’ 25% economic interest will be housed in Sanlam Investment Holdings (SIH) and Sanlam will own the remaining economic interest in SIH. Post the transaction, SIH will be a black-owned asset manager as defined in the Financial Sector Charter.
This follows Sanlam’s announcement in October 2018 of a series of Broad-based Black Economic Empowerment (B-BBEE) transactions aimed at enhancing Sanlam’s competitiveness in South Africa. The Group announced at the time that it would engage in an internal reorganising of its South African businesses engaged in the asset management of third-party funds under SIH, and that Sanlam would dispose of an interest therein to ARC FS. This transaction would, among others, enable Sanlam to explore opportunities to further develop its third-party asset management business, in partnership with Ubuntu-Botho Investments (UBI) and African Rainbow Capital.
ARC FS will purchase shares in a new holding company that will initially be a wholly owned subsidiary of Sanlam and which, in turn, will own 100% of SIH. The ARC FS purchase price (which will be calculated with reference to a base value of R787.5 million) will be settled in part by utilising the UBI Facility that was approved by Sanlam shareholders on 12 December 2018 for up to 80% of the ARC FS purchase price, with the remainder to be funded from ARC FS’ own cash resources. The ARC FS purchase price represents a 25% discount to the valuation of SIH, as outlined to shareholders in 2018.
The agreements allow for an adjustment to the base value by a factor equal to the UBI Facility funding rate from 30 April 2020 to the transaction effective date. Indicatively, at the current prevailing prime rate and with an anticipated effective date of 1 December 2020, the resulting ARC FS purchase price would be R815.2 million.
A further adjustment to the ARC FS purchase price may be implemented if, between 30 April 2020 and the transaction effective date, the assets under management of SIH move outside of certain pre-determined parameters. Any such adjustment to the purchase price will not be automatic and will only be made if agreed between ARC FS and Sanlam.
Following the internal reorganisation, SIH will consist of an asset management business covering an extensive range of asset classes, including South Africa’s leading index tracking business, Satrix.
The transaction is expected to unlock substantial value for shareholders of Sanlam as it will improve the competitiveness of the Sanlam asset management franchise.
Dr Patrice Motsepe, Founder and Chairman of Ubuntu-Botho Investments, commented: “ARC Financial Services through its parent company Ubuntu-Botho Investments (UBI) has been Sanlam’s partner for more than 15 years. Over this period, both partners have created significant value for their respective shareholders, as well as for thousands of other stakeholders. The partners benefitted as a result of their respective value add and contributions to the consistent growth achieved in their respective businesses.
“With the latest transaction, I am of the firm belief that it will enhance Sanlam’s business as a serious contender in this highly competitive asset management space. As before, UBI via ARC FS will competitively position and support Sanlam management to seize growth opportunities – to the benefit of both Sanlam and Ubuntu-Botho Investments stakeholders.”
ARC FS is the company within the broader UBI Group where all its financial services assets, excluding the direct investment in the listed entity, Sanlam, are housed. Most of the ARC FS businesses are complementary to others within the ARC FS portfolio and the aim is to, over time, build a holistic financial services business with significant market reach. Acquiring the shareholding in Sanlam’s third-party asset management business is aligned with the ARC FS strategy and is likely to open additional growth opportunities in future for both ARC FS and Sanlam.
Mr Paul Hanratty, Sanlam Group CEO commented: “We are absolutely delighted with the creation of a new powerful asset manager in South Africa in partnership with Ubuntu-Botho Investments and African Rainbow Capital. The relationship between Sanlam and our partners continues to create value for Sanlam shareholders and the wider community that we serve in South Africa. This transaction takes Sanlam a step further on the journey to becoming South Africa’s leading asset manager.”
Commenting on the proposed transaction with ARC FS, Mr Robert Roux, CEO of Sanlam Investment Group, said: “This deal comes as part of our ongoing efforts to transform Sanlam Investments on a number of fronts. To achieve sustainable economic growth in South Africa, the country must overcome the current situation where the bulk of people do not participate in the economy. We want to be part of the long-term solution in South Africa. For us, that means empowering people to retire with dignity, providing access to financial services to underprivileged markets through affordable investment, and continuing to pursue opportunities in the real economy – especially those with a strong impact on society.”
“This transaction is also a step forward to building a sizeable black-owned asset management business. Transformation is key to remain relevant and sustainable in South Africa and, most importantly, we believe it’s the right thing to do,” says Mr Roux.
The transaction is expected to be finalised during the last quarter of 2020. The market will be updated on the successful completion.