Syntaxis launches Africa mezzanine strategy

Syntaxis Capital, the mid-market mezzanine debt fund manager specialising in Central Europe, is expanding into Africa, sister publication Private Equity International has learned.

The team is currently working on three potential transactions in Nigeria, one in agribusiness, and two in South Africa, with a total combined value of around $100 million. The firm’s total pipeline across its target countries is worth close to $300 million.

The firm has built a three-person team to lead the launch of the strategy, which will initially invest on a deal-by-deal basis.

The firm hired former JPMorgan EMEA acquisition and leveraged finance professional Adesuwa Okunbo, who is based between London and Lagos, and former Vantage Debt Capital Markets managing director Ashley Benatar, who is based in Johannesburg, to co-head the Africa team and begin exploring the strategy.

Côme Vercken, an associate director, will work on financial analysis and due diligence prior to acquisition, and then work with businesses during the holding period to help them institutionalise and implement appropriate KPIs and metrics.

In an interview with PEI Okunbo said Syntaxis’s mezzanine financing is “well suited to the African financing need right now”, as it is more flexible than bank debt and more cost-effective than equity.

Lack of credit flows into Africa due to capital adequacy requirements and reduced cross border-inflows from foreign banks have meant local banks have become much more selective about what companies they work with. They prefer instead to work with large corporates and national champions to small and medium-sized enterprises, which they consider to be more risky, Okunbo said.

This leaves a funding gap, which could potentially be filled by private equity. However, Syntaxis’s analysis has found the majority of private equity dry powder allocated to Africa is targeted at larger companies. Working with private equity also entails ceding a significant minority or control interest to the firm, which many founder owners are not ready to do, Okunbo said.

Syntaxis plans to work with established businesses which have proven they can service cashflows, initially targeting opportunities in Nigeria, South Africa, Ghana and Ivory Coast.

Syntaxis founder and managing partner Ben Edwards told PEI the expansion into Africa “is a natural progression” for the firm.

“The type of financing is very similar to what we were doing in Western Europe 25 years ago or Central Europe over the last 15 years,” Edwards said.

Syntaxis is partnering with the same development finance institutions and family offices with which it has worked in Central Europe to invest on a deal-by-deal basis, with the view to raising a fund in the future. These investors are already active in Africa.

South African house Ethos Private Equity has also recently launched a mezzanine platform, acquiring high yield and mezzanine firm Mezzanine Partners to focus on transactions in South Africa and selected sub-Saharan African countries.

“In sub-Saharan Africa a number of the deals that we see are actually better suited to a mezzanine product that has a self-liquidating programme with an equity-like return as opposed to trying to realise a minority stake in a high-growth business where you’re partnering with entrepreneurs who don’t want to exit at that point in time,” Ethos chief executive offices Stuart MacKenzie told PEI in a recent interview.