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JOHANNESBURG — Futuregrowth Asset Management has made a substantial investment, through its Development Equity Fund, into a very interesting local technology company called ‘Symion’. Symion is a commercial and industrial technology group that focuses on ‘intelligent infrastructure’ and bringing smart connectivity to physical systems. Some of the sectors that Symion plays in includes smart buildings and cities, industrial automation and robotics, intelligent manufacturing, renewable energy and electric vehicle infrastructure. In this interview, Futuregrowth Investment analyst, Amrish Narrandes, and the MD of Symion, Rick Basson, explain the investment deal. – Gareth van Zyl
It’s a pleasure to welcome Futuregrowth Investment analyst Amrish Narrandes and the MD of Symion, Rick Basson. Amrish, Futuregrowth is predominantly known to be a fixed-interest house. Where does this investment into Symion sit?
That’s exactly correct. We are known to be a fixed-interest house but what many people don’t know, Gareth, is the fact that within this fixed-interest house we have a developmental equity fund, and that equity fund has been in existence for the last 10 years and this investment will sit in the developmental equity fund. Just to give you a bit of background as to when we say, ‘development equity.’ Yes, it’s a subset of private equity but our model with regards to the way we approach private equity isn’t your traditional private equity where you have a sort off 2/20 fee structure and it’s a close-ended fund, where traditionally the fund would have to be closed out at exit. We’re an open-ended fund, so our investment horizon is a lot longer, sort of 10 years.
Amrish, what are the assets under management in the development equity fund? How many deals does it have?
The developmental equity fund is, as I said, it’s got a track record now for over 10-years. It has about R2.5bn, and just to clarify what I was trying to go on point 1 again, and I don’t think I made myself exactly clear. Traditional private equity is closed-ended. Meaning, you’d invest in deals and after set investment time horizon, the fund closes and then you exit those deals. With the open-ended fund, which the development equity fund is, is we can hold the deal for as long as… We take guidance from our portfolio companies, the co-shareholders, for about 10 years. So, from a deal perspective because you have a long term in nature open-ended, we do have quite a few deals and we have about 45 on our books, at the moment.
Why did Futuregrowth invest in Symion?
I have Rick Basson by my side here, and he’s going into the detail of Symion but if you look at Symion per say, within our criteria of looking for deals, you look for good management, which Symion ticks those boxes. Not only are they good but they are extremely strong with a good track record, and the businesses that Symion, the underlying companies that they’re invested in are well-performing, highly cash positive, with small quantities of debt. So, it made sense, from the onset that it was attractive. It didn’t need to be institutionalised – it was already well-run, so it was ready for it to be institutionalised and that’s the key reasons as to why we wanted to do this investment. Most importantly, if you tick all those boxes at the company, semi-level, but it’s in a sector and in our view, there’s a lot of growth that’s going to be in the sector that it’s playing in and that lends itself for good investment pieces.
Rick, can you explain what Symion does exactly?
Sure, so Symion operates primarily in the commercial/industrial sector. So, we service large corporates, institutions, etc., and we focus specifically on what we like to call intelligent infrastructure and we’re quite specialised in that field. If one looks at the overarching philosophy is that connectivity has now come to physical systems, as well as data analytics. So, what that means is things that were a little bit siloed or unconnected or stand-alone, are now connected and smarter. So, this leads to smarter buildings, smarter factories and smarter infrastructure. We’re not doing this for the sake of it. Through this technology you get to solve some real-world problems and particularly relevant to our lives in SA and Africa, those are quite focussed about making places safer for people and assets.
Managing workforces better and more efficiently and also, using our resources more effectively. I know that is a lot to take in and maybe it’s useful for me to give an example or two. So, on the safety and security side – if one takes an airport or a large shopping mall – it’s been shown that a security guard looking at 15 or 20 screens – after a while, that attention span wavers and it’s quite hard to actually pick up incidents but if you overlay technology, such as video analytics with that, where the system can effectively point the operator to something that’s going wrong, for example, someone is running, there’s some loitering. Most interestingly perhaps someone entered the site with a bag and has now left that bag somewhere. There’s not necessarily something wrong with that but that would flag an exception.
The technology is moving in such a way that you could even pause that and say, ‘well, let’s find that person now, based on the clothes they were wearing and that’s all with the assistance of the operator. Added to that, another way of keeping people safe is there’s obviously fire detections, we’ve got some pre-advanced electronic fire detection systems which can detect fires before you could see or smell them. Then allied to all of that is linking it with some sort of hoist evacuation system, which speaks to the access control as well. So, we’ve had an issue that there’s a fire. We’re going to get people out of there and we’re going to open the required doors in order to create the least issues. So, we think that adds a lot of value and it’s obviously very topical now.
Then on the utilisation of resources side – we’re in a country that’s seen increasing electricity prices, we’ve seen increasing water prices, so managing buildings cleverly through things like LED lighting, intelligent lighting systems that only turn on when you’re in the room, for example. Buildings and infrastructure – being able to generate their own energy through solar filter tanks on the roofs and also store that energy effectively is something that we see a lot of growth in. Then moving towards something that is probably not quite at its inflection point now, but it certainly is going to be in the future is electric vehicle charging onsite. So, those are just a few examples of what we do, and maybe just to put our group in context. We are not seeking to break into these markets, we’re pretty established already. We’ve got group revenues of just short of R1bn, and we have about 400 employees.
And you mainly operate in SA?
Yes, currently about 15% of our revenue is outside of SA, predominantly in Africa but we actually have some clients in Latin America as well, and that’s mainly on the safety and security side, particularly in the mining sector. But we see a lot of potential for renewable energy within Africa. Obviously, there’s a low rate of electrification in Africa and our strong belief is that many countries in Africa will effectively skip the grid, like they skip the landline, through the use of renewable energy systems and micro-grids.
So, Amrish, is this the first of its kind investment for Futuregrowth?
If you look at what I mentioned, there’s 45 deals within the fund. I think if we look back at some of the sectors there could be many for us, and some of those underlying deals, for instance, are your hardcore infrastructure projects. I can give you an example, for instance toll-roads, and some of the renewable energy deals – we have equity stakes in them. But that being said, where you mix technology and infrastructure – it’s definitely a first in the smart infrastructure space.
Rick, why did you choose Futuregrowth as an investor?
That is something when any business is raising capital, you have to consider very carefully because it’s such a long-term relationship. For us, firstly we knew them. We knew the guys. We did some invest in another business I was involved in so, I knew Amrish and the rest of the team here. They shared our ethics and our philosophy and, most importantly to us, they backed our story – they believed in us. So, that’s crucial because you know with any long-term relationship you’re going to have some ups and downs so you’ve got to see eye-to-eye.
Then for us that long-term mindset, which Amrish mentioned, is very important. We don’t really have a time frame on what we want to achieve with Symion, so not having an investor that hat-exits was key. Then lastly, for someone such as us, were we are seeking some pretty successful businesses in their own right to try and approach them and enter the group, they often ask you, ‘who’s behind you?’ So, to have someone with the track record, name recognition, and gravitas of Futuregrowth has really been quite important to us and has certainly benefited us in sealing some of those transactions.
Rick, Is Symion still looking at investing in other companies?
Yes, I would say that’s a qualified yes. At this stage we have 3 material companies in our group and we have just finalised the transaction, which is subject to the Competition Commission. That’s an acquisition of what we believe is SA’s leading intelligent lighting business. So, we’ve got quite a lot to digest right now and, as you may have seen, our strapline is collaborative technology, so it’s very important to us that our businesses work together. They collaborate, they share leads, they enter new markets together and they make the experience more seamless for clients. At the moment, the next 6 months is, we’re probably focussed on that but there’s no question we have 1 or 2 areas where we’d like to strengthen our group.
Just to make clear, we’re not a group that is looking to buy 20 or 30 companies. You’ll probably see one or two more in, and very specific, so we’re looking at businesses that specialise in automation in the food and beverage, and mining sector because we see a lot of the scope in SA and Africa there. Then other businesses, such as energy monitoring businesses, heating, ventilation, cooling businesses, which just aid our whole intelligent buildings ethos. That would be the focus. Just to add, it’s generally our philosophy to buy established businesses as well.
Amrish, can we be on the lookout for Futuregrowth making many more such investments?
Definitely, for us, the first is first. Whatever investments we make it comes down to our clients. We have to ensure that the investments are going to adequately reward, so the returns have to make sense for the given risk of the investment. So, if the risk/return metrics stack up then definitely, we’re on the look out to make more such investments. That being said, as I mentioned, we have quite a few traditional hard infrastructure assets here but more and more, we’re looking at some technology play companies coming in recently and you should be on the lookout. We’ve done a deal in the early stage, venture capital space so, always open-for-business, Gareth.
Thanks guys for taking the time to chat to me. It’s been a fascinating discussion.
Thank you so much.