Dubai-based equity and consulting firm Delta Partners has opened up its $80 million (about R825 million) emerging market equity fund to the South African telecommunications sector and is looking for new investments.
Delta Partners co-managing partner Kristoff Puelinckx says the liberalisation of the local telecommunications market, coupled with the global economic downturn, has opened up investment opportunities in SA.
“We have seen liberalisation around the world and, in general, it is a good thing as it stimulates innovation and brings down prices. However, it has to be managed otherwise large investors do not invest in infrastructure,” he says.
According to Puelinckx, there is substantial investment being made in laying cables and providing infrastructure to enable more bandwidth across Africa.
“But we are yet to see the boom in this region's broadband market. It is definitely still coming, and its success will be centred on service provision, but also specialised services for high-value markets, such as the corporate sector.”
Puelinckx says the global economic downturn has affected the share price valuations of many listed firms, although their operations are unaffected.
Identifying opportunities
“Normally, a private equity firm, such as ours, would look for two types of opportunities to invest. Firstly, we would place growth capital with a company and, secondly, put in the capital along with our advisory services to support rapid growth of a company so it could grow quicker than it would have without that capital.
“However, a disjuncture has developed between the share price valuations of many of the smaller listed companies and their operations so that an opportunity has developed there as well,” he says.
Delta Partners opened its Johannesburg office four months ago, but its head office remains in Dubai, and it operates under the banking and investment laws of the Persian Gulf state of Bahrain. Most of its shareholders are European entrepreneurs based there.
The firm has not pre-allocated a particular tranche of its fund to SA, but Puelinckx says the firm is looking to make one or two South African investments over the next six months, with investment sizes ranging from $5 million to $15 million each. Once these are bedded down, the fund plans to expand the reach of its investments.
“These may include established telecoms players, new industry entrants, alternative telecom operators and industry suppliers that have proven track-records, solid business models and existing cash flows,” Puelinckx says.
He says the fund targets players in the telecoms and media space that are taking advantage of the opening up of the value chain - companies that the established players are turning to in order to make themselves more efficient or more focused on their core activity.
Delta Partners has, over the past year, concluded investments in Northern Africa, the Middle East and Russia. Puelinckx says it wants to expand its investment reach, with the possibility of raising funds for a second equity fund in the near future.
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