Alternative medicine draws private equity investment

Business finance and its availability to the right investment opportunities are healthy in South Africa as evident from a string of recent Private equity investments in the pharmaceutical industry. In recent months, two local private equity firms have made large investments in this lucrative market — one in complementary and alternative medicines and the other in the generic HIV/Aids drugs market.

Investment opportunities in business plans from a wide variety of industries have been attracting interest from investors looking fro high returns on their money. Businesses both large and small have been on the receiving end of this phenomenon and the trend sees no signs of slowing down any time soon.

The alternative medicines market in SA has an annual turnover of R3,5bn , according to the Vitamins & Dietary Supplements Report.

For private equity company Coast2Coast, the acquisition of homeopathic company Natura, as well as Bioter Health and its sister company Consulting Microbiological Laboratory (CML), is part of a strategy to build and list a branded consumer goods company with annual after-tax earnings of R100m by 2011.

Coast2Coast subsidiary Bounty Brands expects to generate about 40% of its turnover through its health division .

Bioter Health and CML manufacture nutritional supplements. Their combined turnover is R50m/year.

Natura, which produces popular products like Rescue Remedy and Arnica, is projected to turn over R100m in 2010.

“The complementary and alternative medicines industry has shown significant year-on-year growth, with consumers turning more regularly to self-medication and health maintenance,” says Coast2Coast COO Cris Dillon.

The three companies acquired by Coast2Coast also supply about 400 homeopaths in SA and produce house brands for retailers.

Bounty Brands plans to become the largest complementary health products company in SA.

“This is a highly fragmented industry,” says Dillon. “There are more than 400 players, many of which are family-owned. Of these about 30 are large players.

“Consolidation in this market is inevitable, particularly as government is considering tightening regulations in this market.”

The high-growth nature of the pharmaceutical industry also drove private equity investor Capitalworks to acquire a stake in Quality Chemical Industries in Uganda. It manufactures combination therapy anti retrovirals (ARVs) and anti malarials under licence from Cipla India.

“There is a great need for high-quality, affordable ARVs in Africa,” says the fund manager for Capitalworks Partnership Fund, Beth Mandel.

The Quality Chemicals plant is one of three pharmaceutical producers in Africa to receive good manufacturing practices certification from the World Health Organisation.

As a least-developed country as defined by the UN, Uganda is exempt from the agreement on trade-related aspects of intellectual property rights .

“This allows companies based there to produce patented products without restriction ,” says Mandel .

With the recent certification from the World Health Organisation, Quality is marketing its triple-combination ARVs and anti malarials to NGOs within Uganda and beyond.

“We believe demand for these two products could keep the factory running at capacity, but there is always an opportunity to move into other, related products — to treat tuberculosis, for instance,” says Mandel.

Capitalworks Partnership Fund has other investments outside SA — in MTN Nigeria and in the Reclamation Group.

Much of the original capital raised, about R500m, has been invested in these three companies, but Capitalworks may raise more capital , Mandel says .

Similarly, Coast2Coast, which is invested in 10 companies, plans to raise R200m to add to Bounty Brands’ portfolio.

These are not the only two firms active in the market but they have been so active recently that their investments have drawn attention from entrepreneurs and business owners alike. An attractive exit strategy is a key element of most business plans and from an entrepreneurial point of view, this certainly is attractive.

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How to create a private equity fund

Deciding how and in what to invest your money may be a challenging task with many different issues to take into consideration. Return is of course one of the first things on your mind but a number of other issues may also be important. This is of course the domain of corporate finance. You may want to invest first of all into a business plan of your own or the possibility exist, with great business plan templates being easy to find today, that you want to invest into someone else's business idea.

Something that is increasingly becoming more commonplace is the creation of a private equity fund from where you and others investing in the funs then choose which business opportunities to invest in further.

A private equity fund is a good way to invest your money. Though the investment is locked for 10 years or so, a private equity fund brings a good value to your investments. This is true even compared to the fact that public equity gives your investment more freedom. So if you decide to create a private equity fund, here's how you can do it:

Enter into a partnership. Take note that private equity funds are all structured in the form of a partnership. The first partner, or the general partner, is the one who will operate the fund. On the other hand, the other partner, or the investor, is the one who provides investments and has no power over managing the funds. Seek help from a business attorney to help both of you to draft the agreements of the partnership. Make sure that both parties understand every detail of the investment. Take note that this partnership may get as many members to operate granted that it falls within the private equity fund agreement.
Identify the partnership's investment guidelines. All of the investment funds must have investment objectives of their own. For instance, some investment funds can be specified for buying industries such as health care or technology only. Other funds can be defined to support buying companies in a specific region or companies with marked sales revenue.
Solicit funds. The capital of the private equity fund will only come from the funds brought in by different investors. Set a minimum investment in your private equity fund. Take note that the most common minimum investment in businesses like this is $250,000. The minimum investment can be more than this standard depending on company to company. Make sure that you collect funds from accredited investors only as defined by the Securities and Exchange Commission. It is best if you can get a list of contacts of the wealthy investors in the business scene. Or, contact different investment advisers to help you find leads for the best investors. This is true especially for investment advisers that personally work with accredited investors that are of high net worth. Acquire companies. Now that the private equity fund has money from clients, it is time to acquire new companies for the portfolio. Check out good leads to see companies that are best to be bought. Seek help from business brokers or exit planning advisers whenever possible. Other great resources in finding potential companies are CPA firms and also business attorneys.
Distribute profits. All of the defined profits of the private equity fund must be distributed to all its investors. This can be done quarterly or annually depending on the agreements drafted for the partnership. The more the profits are of the private equity fund, the more money each investor gets.


The success of your private equity fund will depend on how well you have created it. Since a lot of people can be affected by the success and failure of the firm, it is necessary that you create the firm successfully. Refer to the above-mentioned steps so you will be guided accordingly not only in the creation of the private equity fund but also in its successful operation.

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Should entrepreneurs pay for introductions to investors?

Renowned Business Angels and SA Venture Capitalists who created big companies don’t do that: Ask the famous business angels or famous venture capitalists from Sequoia Capital, Kleiner Perkins, Benchmark Capital etc, you do not hear that they require the entrepreneurs to pitch. Instead, they are ready to buy the entrepreneur a meal or drink and spend the time to listen to the ideas of the entrepreneurs. These are the same angels and venture capitalists who produce Google, Facebook and Twitter. None of the top notched companies pay angels to pitch their ideas. Consider another argument, entrepreneurs are trying to set up companies with limited resources and financing, and yet these groups make them pay to find investment. In fact, a lot of entrepreneurs and developers use SEO consultants to gain visibility for their businesses on search engines like Google. The people who attended (including myself) even learned more abut term sheets and valuation. Try to make a guess how much it cost to get Joi Ito to talk about start-ups and new venture financing: Absolutely Free! and I did not add the free lunches and coffee breaks too.

With numerous business finance networks such as Investors Network, angels den and many more facilitating the introduction between entrepreneurs and investors the question does arise whether this 'business dating service' should be a paid for service. The charges vary of course with some business not charging much more than a 2% success fee while others choose to both have an upfront fee as well as a, up to 5% commission upon completion of the business plan being funded by the investors in question. It will be interesting to hear your views on this as there certainly are many. 

Depending on the nature of the business and the opportunities some will say that the investor should pay for introduction while others are happy for the entrepreneur to show his/her commitment to the deal by paying for the introduction.

Even agencies Singapore Government make it free for entrepreneurs: If you have recently watched the iMatch conference, where MDA organized entrepreneurs in Singapore to pitch in front of an international consortium, you do not hear the Singapore government will tell you to pay for pitching. In fact, they enlisted the services of the incubators in London and several business angels to help the companies to prepare their presentation for the investors. It’s probably one of the things I praised the government agencies like SPRING and MDA are doing with the iJAM and TECS schemes.

If you fail many times to get an investor, you will end up losing more money doing this: Here is a way to think about this. If you pitch your idea and the investor did not respond to you, it just means that he or she has no interest to invest in your company. Your job is to iterate from the reason to why the investor did not think that it’s a good proposition to invest in your idea. If you are serious about your start-up, you will put your own money to make it work than to spend the money to pay some middle men to get you investors who may or may not put money into your company.

I will leave the entrepreneurs to decide whether to engage with these groups. Ultimately, in the ecosystem, there must also be a natural selection to decide the weak and the strong. Perhaps, having these groups help to make that distinction.

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Entrepreneurs need freedom says private equity boss

With entrepreneurs increasingly turning to private equity in their quest for business finance, business funders are being warned that dealing with new businesses are a entirely different game in comparison with funding the corporate sector. Entrepreneurs need freedom to implement their strategies and ideas in the entrepreneurial way. The countries economy and ongoing recovery of this depends on a more entrepreneurial way of conducting business. So from a private equity investor point of view its important that the business plan and strategies of the entrepreneurs is respected. Yes of course you can comment, make amendments and add your expertise but don't try to dominate entirely as this will end up driving entrepreneurs away.

In his recent role as boss of the private equity industry's trade body, BVCA, Kolade suffered a roasting by the Treasury Select Committee when he tried to defend the sector against accusations of entrepreneurial ventures and the greed that often may go allong with this, asset stripping and loading some of the finest names in corporate Britain with insupportable levels of debt.

Though seen as one of the 'good guys' of private equity, Kolade was turned over by the Press and public outings became tests of endurance.

Now safely back as managing partner of ISIS Equity Partners, specialising in small to mid-sized investments, Kolade is reserving his skills as an eloquent and polished speaker strictly for rather more cerebral university audiences (he is a governor of the London School of Economics).

But with the looming General Election and a sense that an incoming government will launch an emergency Budget, Kolade is venturing back into the spotlight.

'None of them seems to realise how important entrepreneurs are to this country,' he says.
'Big business isn't going to be the backbone of recovery - they employ comparatively few people and can always shift their assets overseas. It is the smaller entrepreneurial businesses that will create the jobs and the growth that we need.'

But Kolade, 43, thinks he is already seeing a queue of entrepreneurs wanting to sell up rather than expand because they fear a huge rise in capital gains tax from 18%.

Read more: http://www.thisismoney.co.uk/markets/article.html?in_article_id=503387&in_page_id=3#ixzz1Cc1SpFJw

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The real benefits of sourcing private equity for entrepreneurs

More and more entrepreneurs are viewing private equity and venture capital as sources of small business finance for their business plan a recent report has found. With bank increasingly becoming more risk averse when it comes to SMEs the next best option - and in my mind a much better one as it also provides you with experience and support from entrepreneurs who have been there and done it successfully - is that of private equity, venture capital or Angel finance.

With LinkedIn recently announcing it will be the first social networking site to launch an IPO, while other venture-backed companies like social network Facebook and discount retail site Groupon have attracted heavyweight investors. One in leading entrepreneurs will be looking to private equity and venture capitalists to raise capital in 2011, according to a survey by Investec.

Forty-four per cent of those interviews say they are expecting to launch new ventures and a further 31 per cent believe it is “quite likely” that they will do this.

However, their plans could be put on hold because many still fear that access to capital could be difficult. Only six per cent expect it to be easy to raise funds during 2011.

But what are the real benefits of sourcing private equity for entrepreneurs? Theo o'Brian from http://privateequityblogger.com/ talks about hither following advantages for business owners:

Companies that are backed or acquired by private equity firms are often made more efficient and produce higher profits, which benefits now only the private equity firm but also the company.

Private equity firms use skilled management teams to correct the problems and ineffective parts of the company and many times this intervention prevents the company from further declining or even failing.

The management receives carried interest, a portion of the profits, so managers and their staff are motivated to produce good results to investors. Although carried interest is often criticized for taking money from the investors, it is a very big incentive for managers.

By definition, private equity firms work outside the public eye and do not have to follow the same transparency standards that public firms and funds must adhere to. This allows private equity firms to reform the companies without the constraint of having to report quarterly to the SEC or similar distractions.

Private equity firms generally perform very rigorous due diligence on potential investments. By utilizing a team of researchers the private equity firm is able to identify most risks that would not otherwise be found.

Private equity managers are paid very well and so it is easy to attract high calibre, experienced managers that tend to perform very well. The same goes for lower level employees at private equity firms, they tend to be the top young business school graduates.


Looking at these, its not surprising that so many business owners are opting for this solution when it comes to raising finance for their businesses and if the trend persists we may see this percentage rise even further

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Private Equity in South Africa alive and well

With private equity in South Africa alive and well, many of which supported by outstanding digital marketing consultants. We look at some of the recent news and movement in the South African market. Recent news that Goldman Sachs has valued Facebook at $50-billion makes it tempting to look at the business plan and prospects of some of SA's innovative and successful internet ventures.

A recent Times Live article explores the opportunities and threats in the SA Private Equity market quite wonderfully:

    " 'Entrepreneurs here generally don't have deep enough pockets for the time it takes to break even' "

    * Yola, which has secured $20-million from the Luxembourg-based Reinet Fund (controlled by the Rupert family), recently signed a distribution deal with California-based IT firm Hewlett-Packard, which sells more than 60 million computers a year. A similar deal is set for early this year with AOL.

Yola was founded in 2007 by South African Vinny Lingham and is a website-building and hosting service, helping small businesses develop their online presence. In March 2008 it moved its headquarters to Silicon Valley in California but still has offices in Cape Town.

Lingham said there were no plans to list or take on a private equity partner. "We see Yola as a global business that was started in South Africa."

    * MXit is a free online mobile chat service that also provides music downloads, movie clips, sport and quizzes and facilitates obtaining quotes for travel and insurance, as well as quick access to news and weather.

MXit South Africa has been profitable since September 2006 and since then has not required any funding.

"We hope to increase revenue even more as we explore new fields such as m-commerce and wallets, and when we launch the best version of MXit ever, Version 6," said Herman Heunis, the founder and CEO of MXit who is based in Stellenbosch.

MXit International is still in an investment phase and the shareholders are Naspers (30%) and Heunis. MXit has more than 30 million registered users, many of whom are from SA.

Online travel agency Travelstart, founded in 1999, posted 30% growth in transactions in the first seven months of last year in the face of the global economic crisis.

Stephan Ekbergh runs the company he founded 11 years ago in Sweden but which is now headquartered in Cape Town.

"This is as good a place as any to run an internet company," he said.

The site has 25000 unique visitors daily and about 120000 customers are on the business's database.

Wholly owned by Ekbergh, the company's options include listing in SA or London or both, or taking on a private equity player.

Travelstart launched in Tanzania three months ago, is setting up in Kenya and has plans for Egypt and Turkey.

    * Zoopy is an online and mobile social media community that was launched in 2007. Users visit the site to upload, share and discover videos, photos and audio files.

"We thought that to have all three media in one place is a lot more beneficial," said Zoopy co-founder Gerry da Silva. YouTube, for instance, offers only video.

Zoopy has 120000 registered users and more who view the downloads. It is 75% owned by Vodacom.

"We would consider listing but not right now," said Da Silva. Users, mainly from SA, also span the US, Germany, Nigeria, India and the UK. At one stage about 40% of Zoopy's users were from the US.

Small countries (apart from Israel which has had multiple listings on Nasdaq) battle to create internet models that are internationally successful.

"America is so successful because internet usage is prolific and ideas catch on quickly in larger markets," said Allon Raiz, the CEO of Raizcorp, the privately held business incubator that supports more than 200 enterprises.

"Entrepreneurs here generally don't have deep enough pockets to sustain the time it takes to break even."

The Silicon Cape initiative is trying to build an ecosystem for entrepreneurs, but has yet to see notable successes.

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