Thabo Dloti partners with Prescient: "We want financial freedom for all"
He is on a mission to offer low-to-middle-income consumers financial services products.
Two years after Thabo Dloti (pictured) stepped down as Liberty CEO following a clash with the board over the insurer’s strategic direction, he has staged a comeback in South Africa’s financial services industry. A newly-formed investment holding company called Sithega that Thabo leads emerged in April as the new controlling shareholder of financial services group Prescient Holdings.
Sithega, through Sithega Financial Services Fund, shelled out R360 million to own 75 percent of the Prescient Empowerment Trust, which in turn owns 56 percent of Prescient. Prescient has R88 billion worth of assets under management and R415 billion under administration (as at the end of February 2019), businesses in wealth management, trading in equities, derivatives and fixed income securities. It acquired Prescient with the help of several investors including Yellowwoods, which has a controlling shareholding in insurance group Hollard. Yellowwoods have committed R250 million into Sithega’s ambitions.
Through Sithega, Thabo is on a mission to offer consumers, mainly those in the low-to-middle-income category, a suite of life insurance, short-term insurance, and asset management products. He says Sithega vision is to make the magic of financial freedom accessible to all.
In an interview with M&A Africa, Thabo says Sithega is on the prowl for financial services acquisition opportunities. He warns that Sithega doesn’t intend to have a large portfolio of financial services investments that will compete with Prescient or enter the banking space.
M&A Africa: Why is Prescient the right fit for Sithega?
Thabo Dloti: We are a black owned and run business with people from the asset management and insurance industry, which is where we are primarily investing. Our vision is to transform the industry – not just from a racial point of view but by introducing financial services products and capabilities that will grow the market by increasing all participants.
The second element is that we are looking for businesses that need a change in their lives and a different trajectory of growth because they have achieved success to a certain point. We believe that Prescient is the perfect target because with some of the networks we have, we can unlock strategic growth for the company. They are at the right phase to get that step of growth through partnering with us. It has very strong investment capabilities and a strong investment platform for growth, which has been built over many years.
The third element, which is most important, is that we are active owners of the assets. And Prescient is the right size. Sithega is not intending to run a huge portfolio of investments or invest in businesses that directly compete with Prescient because we want to deploy ourselves in helping businesses get to where they need.
M&A Africa: How did the Prescient deal come about?
Thabo: Before we decided to do the deal, Herman Steyn [the founder of Prescient Group] and I had a long engagement. He wanted to call me when I left Old Mutual [in 2009] to create an opportunity for us to work together. But I was joining Stanlib as a CEO. We have a similar background from a professional point of view. Both of us had bursaries to study actuarial sciences from Old Mutual. Herman recently called me when I left Liberty [in 2017] to talk business.
Herman Steyn, the founder of Prescient Group.
When we eventually talked about the deal, we really hit it off. I respected how he thought about Prescient and how he built the business. Initially I didn’t take him seriously because I didn’t see why he’d want to work with us. But when I saw his commitment to making the deal work and how aligned we were, l was convinced.
Herman is different from our team at Sithega. He has built a business from scratch while we have built businesses from within corporate structures. That is a good challenge and fit in terms what we want to do. We like the Prescient structure, as we can leverage resources and deploy them into opportunities.
M&A Africa: Why is Sithega focusing on the so-called mass market (comprising of low to middle income consumers) and offering them financial service products?
Thabo: We really believe that providing holistic financial services that is simple for consumers to engage with is important. Insurance is well consumed in South Africa. But nobody looks at the mass market’s broad set of needs and how to offer them the best advice because they pay small premiums on narrow set of products like funeral policies. Comprehensive short and long-term insurance solutions are reserved for people who can afford larger premiums, which also guarantees them great advice. Our sense is that there is a gap in the market that needs to be filled. Making comprehensive insurance cover, simple investing and best advice accessible to all.
M&A Africa: Are you finding quality acquisition opportunities in the market?
Thabo: The market is challenging. We are probably going to have to build entities if we don’t find what we require [existing entities]. We have been on the journey of finding entities. We have kissed many frogs along the way. We are toying with a parallel process of starting an entity that we can put our own ideas into and acquiring existing entities. But it’s a long journey.
M&A Africa: What kind of opportunities is Sithega looking for?
Thabo: We want to partner with entities with strong capabilities, that are poised for a change in their growth trajectory and aligned with our vision of making financial services accessible to all. We are looking at the insurance industry now. We have Themba Baloyi who left Discovery Insure as its founder and joined us. We have Khaya Ntozini, the former MD of Old Mutual Group Schemes, now called the Mass & Foundation cluster. Both are directors in Sithega and will drive the firm’s insurance exposure. We have top people working on the insurance question. That is where our priority is at the moment.
M&A Africa: How did you meet your business partners Themba and Khaya?
Thabo: All of us cut our teeth in the financial services industry in different places. We met through professional circles. We all felt that the things we were doing in our previous roles and jobs didn’t address problems of the mass market. All of us wished we could do better. But the entities we worked for, as much as they had done well, the mass market wasn’t their big focus. I’ve been talking to Khaya about the vision for a long time when we worked together at Old Mutual. When I told Themba that I was leaving Liberty to start Sithega during our morning run, he didn’t hesitate to commit to leaving Discovery Insure to join me.
M&A Africa: How big can Sithega get?
Thabo: Transforming the industry is at the heart of what we want to do. We want to make sure that financial services works for the average person as well as it works for the affluent market. We want to make the magic of financial freedom works for everybody and make it accessible for everybody. If we can achieve that, we will feel that our careers have been successful. If I can see an average teacher, for the R2 500 premium they are paying for multiple funeral policies, to get reasonable life cover, protection for their goods and life events for the same premium, I’d be a happy person.