Deal of the week: Serial entrepreneur Mark Lamberti gets an offer he couldn’t refuse

 Mark Lamberti has family roots in Newcastle, the town in Northern KZN where I grew up. So from the time we met in the

Serial entrepreneur Mark Lamberti - 12% of your business for 25% of your market cap. A no brainer.
Serial entrepreneur Mark Lamberti – 12% of your business for 25% of your market cap. A no brainer.

1990s, I’ve kept a close watch on his progress – as one tends to do with a “home boy”. Mark’s creation, Massmart, is now worth R35bn, and in the ultimate accolade, was acquired in 2011 by the world’s biggest retailer Walmart as its foothold into Africa. Lamberti, SA’s Entrepreneur of the Year as far back as 2001, was thus freed to launch a second career as thechief executive of non deposit taking financial services business Transaction Capital. His new company is capitalised on the JSE at around R4bn – a value which looks decidedly light after this week’s sale of its Paycorp subsidiary. Paycorp was sold to Emerging Markets-focused private equity firm Actis Capital for R937m. The Paycorp management team will co-invest. It was valued at R480m by Deutsche Bank when Lamberti’s holding company was listed a year ago. In the six months to end March, Paycorp turned in R28m profit – the rest of Transaction Capital R200m. For Lamberti, being offered 25% of his market cap for a business that produced 12% of its profits was too juicy to resist. The perfect 63rd birthday present (he celebrated last Sunday) for the clear thinking serial entrepreneur who has clearly lost none of his value creating ability.  The CNBC interview Lindsay Williams and I had with Actis’s Johannesburg director Natalie Kolbe and Paycorp founder and CEO Steve Kark was held a couple of hours after the deal was announced. I wonder if they will be in such good humour a couple years down the line. Lamberti is not known for making mistakes in major transactions.    

The interview picks up me relating Mark Lamberti’s response to my question on why he didn’t reverse the deal – instead of selling, actually become the buyer of Actis’s African payments business assets into which Paycorp will be injected……

NATALIE KOLBE: I think Transaction Capital’s (TC) businesses, and the business of payments, are not necessarily linked. They’re both in the financial sector, but they’re not two businesses that necessarily sit next to each other and hence that was one of the reasons why we approached TC a couple of months back. So the businesses that we are invested in on the African continent are very specifically payments businesses. We are also invested in some banks but they are not related to TC’s business at all.

LINDSAY WILLIAMS: How is it going to work? We’ve talked about the enhancement of value that you’re going to attempt with the new acquisition. Are you going to keep the company as it is and grow it organically or are you going to bolt on things to it now? How do you see the progression from here once the dust has settled?

NATALIE KOLBE: I think there’s a combination of the two. There’s organic growth and there’s acquisitions. The first step

Actis SA partner Natalie Kolbe - betting on Paycorp benefitting from private equity firm's other African partnerships
Actis SA partner Natalie Kolbe – betting on Paycorp benefitting from private equity firm’s other African partnerships

for us is to really mine the network that we have on the African continent. As I mentioned, we are invested in banks on the African continent through our investments in the payments businesses. We have got links into pretty much all the financial services players on the African continent and these businesses are all linked. The payment value chains, link from one end to the other so they’re all looking for partners and Paycorp are looking for partners on the African continent It’s our way of being able to bring the two together.

ALEC HOGG: Steven, a private equity partner can be a double-edged sword. On the one hand, they do bring capital. On the other, they’re not with you forever. How did that affect your thinking when you decided to do this transaction and actually come along for the ride?

STEVEN KARK: Firstly, this is my third experience with private equity. In the very early days there was Horizon Equity as an early stage funder of our business, and then onto Ethos, I think in 2005. Then the TC transaction in 2006/2007 and now Actis. So we do have experience with private equity. I think that we’re aligned. We’re aligned to create value. We’re really hoping that the Actis network, the Actis balance sheet and the Actis opportunities that present themselves will be value creating for everybody. Come time of exit, well let’s see. I don’t have an eye on the door. The truth is that great businesses in time, fetch lots of money and we’ll see how that plays out. I’m not coming in with any preconceived ideas.

LINDSAY WILLIAMS: Steven, is this a uniquely African sort of business? Is it a uniquely African business model or can it be rolled out internationally? For example, somewhere like India.

STEVEN KARK: No question. We believe that what we have developed is IP – not only technical, but operational IP– that has relevance in a number of emerging markets. It’s not clearly limited to Africa. We believe that this has application in any number of key exciting emerging markets. I understand the Paycorp product suite ranges from ATM’s to card, to Point of Sale merchants acquiring mobile transaction processing. We do think that this has relevance well beyond Africa.

ALEC HOGG:   And a lot of your market penetration is in the rural areas – I see from the Transaction Capital interims, you hold 16% of the total South African ATM market – but 50% of the market outside of the cities?

STEVEN KARK: Two things: firstly, a big portion of our network has been deployed into the peri-urban rural township

Steven Kark - another day, another private equity deal.
Steven Kark – another day, another private equity deal.

kind of outlets which have been previously under-serviced by banks to date – that’s on the ATM side. Although we only have a 16% market share of the ATM’s in South Africa we have a significant market share of that rural placement. On our card products and our merchant services products, enabling small and medium-sized retailers to accept cards in their place of business, we think again, have financial inclusion relevance.

ALEC HOGG: And I’ve no doubt that’s what attracted you because if you take that model, rural South Africa, roll it out over Africa, you could be looking at better margins than you would be if you were planning in perhaps the metropolitan areas.

NATALIE KOLBE: Alec, I think that’s spot on. That’s exactly the expertise that Steve and his team have built around being able to penetrate the emerging consumer and  the kind of trends that we see on the rest of the continent. So absolutely; that was a very key attraction of the company for us.

LINDSAY WILLIAMS: Natalie, is this going to be built up and then relisted on an exchange somewhere at some time in the future?

NATALIE KOLBE: The exits are not defined yet. That could be an option. An international global payments business could look at this business and find it attractive. Management could do another buy-out. I think there’s just a whole host of options on the exit and as Steve said; good businesses attract buyers. This business attracted a buyer now and we have no doubt that when you have built a Pan-African payments business that it will be attractive to either the market or to a strategic buyer.

ALEC HOGG: Perhaps Visa, Steven.

STEVEN KARK: Maybe.

ALEC HOGG: You’re close to them, aren’t you?

STEVEN KARK: Very. Visa is one of our very important strategic partners. We are close to them and we work with them in a number of different markets and again, I don’t know. Let’s see. The dust hasn’t just settled yet. We’re still very much in the honeymoon period. Batten down the hatches. Do what we need to do. Make sure that the core businesses perform and then we’ll look for synergies elsewhere.

ALEC HOGG: And you’re not going to miss Mark Lamberti. I see as he left the studio he said ‘don’t believe a word this man tells you’.

STEVEN KARK: Ja, I know. He says that all the time.

ALEC HOGG: Are you not moving offices?

STEVEN KARK: No. The truth is they’re tenants of ours so we may have to put up the rent.

ALEC HOGG: Well, that was Steven Kark, landlord of Mark Lamberti, Paycorp Founder and Chief Executive of Paycorp and Natalie Kolbe, a partner at Actis.