CAP teams with FMO to back South African timber spin-out

Criterion Africa Partners and Dutch development bank FMO have collaborated on an investment into South African timber products company Merensky Timber.

The deal sees the timber business separate from its agriculture-focused counterpart Westfalia Fruit International, which is backed by Harvard Management.

Bethesda, Maryland-headquartered CAP and FMO said they had each invested $20 million into Merensky Timber as part of a transaction that “catalyzed” a total of $64 million in equity for the company.

Founded in 1949, Merensky Timber was previously a subsidiary of Hans Merensky Holdings, which also owns Westfalia Fruit and invests on behalf of the family of Hans Merensky, a South African entrepreneur who died in 1952.

The unit claims status as the third-largest private plantation owner in Africa, with a 65,000-hactare portfolio of high-value eucalyptus solid wood logs and lumber supplying mostly domestic and select export markets. Merensky Timber owns and operates a network of plantations, sawmills and distribution centers stretching across six South African provinces and into neighboring Mauritius.

“We see this as right down the middle of the fairway in terms of what forestry funds should be investing in,” George McPherson, CAP managing director, told Agri Investor.

He declined to disclose additional terms of the deal beyond clarifying no other investor participated in the transaction, which resulted in a $64 million equity investment into Merensky Timber and a restructuring of its parent, Hans Merensky Holdings (HMH). Under its terms, existing HMH shareholders – which include the International Finance Corporation, Vuka Forestry Holdings and the Hans Merensky Legacy Foundation, among others – will all assume direct equity holdings in Merensky Timber, which will operate independently from Westfalia Fruit.

Westfalia Fruit is a vertically integrated fruit supplier with operations in South Africa that provides avocadoes, mangoes, blueberries, pomegranates, apples, grapes, stone fruit, citrus, cherries and passion fruit to customers in the UK, Europe, North and South America and southern Africa. Harvard Management Company acquired a minority position in the company in January 2020.

In their statement, FMO and CAP highlighted that Merensky Timber’s plans call for a focus on growth opportunities in forestry, biomass energy, downstream processing and nature-based solutions to mitigate climate change. McPherson added expansion of Merensky’s forestry holdings could include acquisitions outside of South Africa.

“Enhancing the forestry resource and making the industrial processing part of the business more efficient are two areas of immediate focus,” he added. “Generating more of their own electricity using biomass – or wood waste – is something that we see as immediately adding value to the company by helping the company spend less money on fossil fuels and operate more sustainably.”

Michael Jongeneel, chief executive at FMO, said in the statement that the Merensky Timber investment constituted a “meaningful step” toward achieving its ambitions in the forestry sector.

“Our shared values will see this transaction being transformational for the company and create real value and genuine climate impact at scale,” he added.

CAP managed $115 million as of an October 2021 filing and before a 2017 spin-out, operated as the Africa unit of Bethesda, Maryland-headquartered Global Environmental Fund. In February, CAP sold its stake in South African avocado producer ZZ2 Bowery to Nasdaq-listed Mission Produce for an undisclosed sum.