Bayport’s purchase of SA unsecured lending business is not ill-timed says CEO
Last week, Transaction Capital announced that it was selling SA-based lending business Bayport Financial Services to developing market lending specialist Bayport Management. In the light of the announcement from African Bank about its deteriorating lending book, this move into the SA unsecured lending market may look a little odd. But Bayport Managenent CEO Grant Kurland says that BFS deals with a very different part of the South African market to Abil, and that the deal will be a net enhancement to Bayport Management Ltd. Read Grant's arguments and see if you agree with him that the R1.6bn purchase represents good value. – FD
ALEC HOGG: Earlier this week Transaction Capital has entered into an agreement to sell its 83 percent share in Bayport Financial Services to Bayport Management Limited for R1.3 billion. Grant Kurland, CEO of Bayport Management joins CNBC on the line. Grant, today we had a trading update from Abil – they operate in the unsecured lending market which is where you guy's operate, now that share price has taken another tumble, people are saying that Mark Lamberti sold at absolutely the right time.
GRANT KURLAND: Well I think he did sell at the right time. We had no knowledge of this announcement coming from African Bank but thankfully it doesn't impact in any way the decision made by Transaction Capital or ourselves. In South Africa we are applying for R1.6 billion and we're acquiring one hundred percent of the equity. It is a high quality asset investment that investors, shareholders and management and auditors are very comfortable with. To understand the difference to Abil, we're a very small segment of the South African unsecured lending market and we have the luxury of not having to chase market share – now that's not a criticism of Abil specifically, but it explains BayPort's South Africa's continual out performance. We're comfortable with the quality of the asset. We're not a proxy for the market where as African Bank probably is a bit more of a proxy.
ALEC HOGG: Just give us an understanding of the relationship of your company in the UK and BayPort in South Africa? Obviously it's now going to be wholly owned, but in the past?
GRANT KURLAND: In the past it shared two principal commonalities. It was founded by the same management founding shareholders – Stuart Stone (my partner) and myself, we had common shareholders but the two structure were always legally unrelated. BayPort Uk went on its own course and Bayport South Africa went on it's own, which resulted in shareholders – common founders and obviously a common brand. We're very excited for a few reasons which I'd like to elaborate on bringing those two entities together. Historically they have always been two totally separately companies.
GUGULETHU MFUPHI: Grant, my question to you is regarding the cost you are paying for this company. I understand that you sold it for about R650 million back then in 2010, but you're buying it back for a premium of R1.3 billion, why?
GRANT KURLAND: Well, Transaction Capital has been a wonderful custodian, they have invested in building that business. The earnings have tripled / quadrupled in that area, the asset growth has probably gone from about a billion Rand, when we sold it, to five and a half billion today. That business has performed fantastically, and Transaction Capital for their own strategic reason's – Mark Lamberti has explained to the market quite adequately – he decided that it was the right time to sell, and Bayport asset management decided that it was the right time for us to buy. We see this as a transformed Transaction which is a very successful market leading provider of financial services in the emerging markets outside of South Africa. We've done this deal to create some scale and size, we believe that the price is fair, that we've taken into account the South African macro and industry risks, we know this asset very well, we're part of the management team by extension of my partner Stuart Stone in South Africa, who runs the South African business, and the transformation in terms of product capabilities and the fantastic management team of which will add huge value for the emerging market journey. It's not something that takes a huge amount of intellect to extrapolate the benefits for our group. From a size perspective a bringing the brands together perspective, a product development and capacity, technology and I.T. it is a no brainer for us.
ALEC HOGG: Grant, it is interesting is to notice that you've done well in the UK, Wonga who are South Africans who started it have done well in the UK and stretching back to South Africa as well. What is it about you guys, what was it in the water that got you into this unsecured market and going to and conquering Britain as well?
GRANT KURLAND: The truth be told, we don't operate in the U.K. We have some resident capacity which helps to manage the business based outside of the U.K. But we actually don't operate within the UK unlike Wonga which is a successful, well-known somewhat controversial lending story. I think the question is really one around South African entrepreneurs and their ability to take skills that they have learnt in South Africa and extend those into other markets. I think South Africans are unbelievable entrepreneurs with remarkable skill sets of managing volatile change-oriented environments. We are in African, north of South Africa. Botswana, and Uganda, Tanzania, Ghana, Mozambique and we are also in Latin America. So we have taken our operating capabilities across cultures, geographies, across the sea and it has been a very successful journey. I think it comes to the fact that there are a lot of richly-talented South Africans and immigrants who have left the country and they have the luxury and the wonderful education, upbringing and exposure to the fantastic business environment in South Africa.