Deal interview: Pragma is eyeing renewable energy opportunities as South Africa faces intensified power outages
Pragma CEO Adriaan Scheeres talks to M&A Africa about the company's deal with the Reatile Group.
As South Africa continues to grapple with intensified electricity outages, Pragma Holdings, an enterprise asset and facilities management companies with investments in oil, gas and power, has ambitious plans of ramping up its investments in renewable energy.
Pragma’s renewable energy plans have been boosted by the decision of the Reatile Group, an investment holding company, to acquire 37.54 percent of its shares. The move by Reatile not only brings a strategic partner in Pragma but it also enhances the latter’s Black Economic Empowerment (BEE) profile. After the deal with Reatile, Pragma will now be 54.33 percent black-owned.
The deal will also help Pragma to be on the prowl for wind and solar investment opportunities, as it will rely on the support of Reatile, which is already invested in the energy, petroleum and chemicals industry. Pragma works with existing energy companies such as Sasol and Shell to manage their retail facilities and down stream operations.
South Africa has faced a week of intensified power cuts as Eskom, which supplies more than 90 percent of the country’s electricity, lost the battle to keep up with electricity demand. Eskom, which has buckled under the pressure of its aging and neglected power plants, has resorted to cutting power to avoid a collapse of its systems.
The power shortages sparked a fierce debate about South Africa diversifying its sources of power supply to include renewable energy. In this interview with M&A Africa, Pragma CEO Adriaan Scheeres says the company is in a sweet spot to take advantage of renewable energy investments.
M&A Africa: Why is Reatile a perfect suitor for Pragma?
Adriaan: We see the partnership with Reatile continuing for a long time. Reatile is a good fit for us as they invested globally in the oil, gas and power sectors with international companies such as Vopak [headquartered in the Netherlands] and Rubis [operates in the Caribbean, France, and North Africa]. We are also active in the oil, gas and renewable sectors.
Using Reatile’s skills and exposure in international markets, it will help us to grow our business in offshore markets and reach a wider pool of clients. Furthermore, our focus is to grow into the rest of Africa, which currently has a huge shortage of skills. We can provide the physical asset management skills across the continent.
M&A Africa: Why didn’t Reatile acquire 100 percent of Pragma?
Adriaan: There was a number of Pragma shares available because older shareholders wanted to leave the business. This was an opportunity for Reatile to acquire shares. Reatile wants the management of Pragma to still be involved in the business. The 37.54 percent shareholding allows them to collaborate and partner with management on the business.
M&A Africa: How will the BEE profile help Pragma seek opportunities?
Adriaan: It will give us more access. Simphiwe Mehlomakulu [the chairman of Reatile]and I, can now go into communities and management meetings that we didn’t previously have access to. Reatile is long entrenched in the oil and gas industry, it creates a lot of credibility for us when we are looking for oil, gas and renewable energy assets.
We are big players in the oil and gas industry, especially on the retail side. We help Shell and Sasol to manage their downstream assets. In South Africa, the legislation from a BEE empowerment point of view in the gas and oil industry, requires companies to be transformed. If we were not transformed, we would have access to limited opportunities.
M&A Africa: What oil, gas or renewable energy opportunities are piquing your interests?
Adriaan: We see the upstream industry as an untapped market in terms of exploration and processing point of view. And we are seeing growth in that. Reatile is looking to invest in a lot of renewable projects in South Africa and Africa. We think we can be the leader in managing and maintaining those opportunities. We are also seeing a lot of investments made in wind and solar energy but there are difficulties in getting these two energy forms into the national grid.
M&A Africa: What is your diagnosis on why it’s difficult for players to enter the renewable energy space in South Africa?
Adriaan: My perception is that policy makers have made it difficult because they want to protect Eskom’s assets given the pressures if faces. Introducing more renewable energy players in the market will increase competition for Eskom and people will rely less on the state-owned enterprise. But logic will prevail for people to invest in renewable energy as we face blackouts and the case to move away from coal becomes clear.
M&A Africa: Are there regions in the rest of Africa that you are targeting?
Adriaan: There isn’t a specific country target. We are looking at developments in the next two to three years in the continent. The strategy is to have a client following strategy. This means that we will following our clients that are expanding further into the continent and offering them our services. For example, we offer our services in Namibia and Botswana, which are markets led by our clients.
M&A Africa: Is the process to find opportunities difficult?
Adriaan: It is not easy. There are a lot of negotiations involved. It took us quite a while to close this deal with Reatile. Making it difficult to close a deal is a combination of pricing of assets, concerns about the sustainability of assets and people, and looking at whether there is a sustainable future in South Africa.
There are a lot of opportunities in South Africa. What often happens with businesses and senior management is that they struggle from an operations point of view. Profitability is under pressure and growth opportunities are lower. Businesses need to look at ways to optimise their operations and reinvent themselves by incorporating technology.
M&A Africa: Is Pragma looking for opportunities in Europe?
Adriaan: Yes, especially oil and gas opportunities. Currently there are large networks of oil and gas retail distribution in Europe that will be supplemented by energy. The same asset management and maintenance of units will be done for those opportunities. From a gas perspective, the storage of gas is huge. Reatile is involved in this space and we will assist them.
Expanding into Europe is easier for us because our services are more Internet of Things-orientated. We are looking at asset management opportunities that are driven by technology. Meanwhile in South Africa, we are still introducing technology and operations are manualised and human-driven.
M&A Africa: Would Pragma consider an initial public offering on the JSE?
Adriaan: That’s the last thing I want to do before leaving as CEO. We have spoken to Reatile and they would like to see us listing. We have a scalable model to list on the JSE. it is a question of positioning our operations right from a scale point of view.