Deal comment: M&A in South Africa's taxi industry
Futuregrowth's Luzuko Nomjana shares his views.
The South African National Taxi Council (Santaco) recently acquired a 25 percent stake in SA Taxi Finance Holdings (SA Taxi), which finances entrepreneurs who operate minibus taxis that may not necessarily have access to credit from traditional banks, for R1.7 billion.
The R50 billion a year local taxi industry is central to more than 40 percent of South Africans for whom the use of public transport is a non-discretionary daily spend. Further, the taxi industry has a much deeper route penetration than other traditional public transport services such as buses and trains, and also serves as a feeder to these nodes.
Over the past 10 years, SA Taxi has provided more than R21 billion in loans to the taxi industry, which has contributed to the creation of about 130 000 direct and 220 000 indirect jobs. SA Taxi utilises an innovative credit scoring technology to assess credit risk, and if it wasn’t for them, the industry would remain largely unbanked.
It is this empowering impact and developmental flavour that fuelled Futuregrowth, acting on behalf of client funds, to partner with SA Taxi and Standard Bank to finance the acquisition by the Santaco of a 25 percent stake in SA Taxi. SA Taxi has more than 20 years of experience in financing taxi operators, anchored by an unparalleled understanding of the industry operations and a highly experienced management team, making it an ideal partner in this transaction.
The salient features/benefits of this transaction include:
- A special purpose vehicle will be created specifically for this transaction, which will warehouse the 25 percent stake while it is funded through debt, with senior debt tranches equally funded by both Futuregrowth and Standard Bank, and a vendor finance tranche which is facilitated by SA Taxi.
- A trickle dividend will flow through to the taxi industry from day one of the transaction. This is earmarked to help address, amongst others:
- The unsafe conditions of taxi ranks across the country as an immediate priority;
- Promotion and emphasis of safety among the drivers, so as to curb road carnage (Hlokomela Campaign); and
- Upskilling of targeted participants within the transport sector to better run their taxi operations (encompassing numeracy and literacy, small business management, vehicle maintenance, etc.).
These projects will be driven by a dedicated committee comprising representatives of Santaco and the funders.
Upon settlement of the outstanding debt, Santaco will enjoy unencumbered share ownership of SA Taxi which has consistently declared sound dividends over the past years.
This transaction represents Futuregrowth’s core values of generating returns that matter, as we continue to play our role as a responsible investor, through driving transformation as a critical business imperative in South Africa.
Luzuko is an investment analyst at Futuregrowth Asset Management.