Thread by @MaanoMadima

Sanlam, African Rainbow Capital and Alexander Forbes have, today announced 2 new deals, on top of many others concluded this year.

1) Sanlam Life Insurance is acquiring 100% of Alexander Forbes’ Individual Client Administration business for a cash consideration of R200m.

2) Sanlam concluded a sale and transfer of business agreement with Alexander Forbes Group Holdings which will result in Sanlam Life Insurance disposing of its operations in relation to large stand-alone retirement fund administration to Alexander Forbes for R154m cash.

3) Alexander Forbes agreed to buy out the shareholders of EBS International including the 25% held by African Rainbow Capital in EBS International.

4) Mid 2021, Alexander Forbes Life sold & transferred group risk and retail life business operations to Sanlam Life for R100m.

How complicated is the relationship between Sanlam, Alexander Forbes and African Rainbow Capital?

African Rainbow Capital owns a +-35.51% stake of Alexander Forbes Group Holdings and first bought a 10% stake in Alexander Forbes in 2016 for R753m.

In 2020, Mercer Africa intended to dispose +-442.8 million ordinary shares in Alexander Forbes, which represented 34.4% equity in the company.

2 transactions happened.

1) African Rainbow Capital bought 193m shares from Mercer Africa for
R1bn moving ARC's stake to 28.6%.

2) Alexander Forbes had stated that it will then repurchase and cancel the remaining balance of 208 million shares from Mercer Africa.

African Rainbow Capital agreed to exchange its shares in Alexander Forbes (the unlisted) for shares in Alexander Forbes Group Holdings (listed).

So Alexander Forbes is an associate of African Rainbow Capital Financial Services (ARC FS) a wholly owned subsidiary of Ubuntu-Botho Investments (UBI) which owns 14% of Sanlam.

In 2003, Sanlam envisaged to sell a stake in order to be "BEE-compliant". In came Patrice Motsepe.

The deal saw the Ubuntu-Botho consortium take an initial 8% stake in Sanlam.

Shareholding was extended to include broad-based groups; trade union companies, religious organisations, women and youth groups,provincial companies from all the provinces, representing 700 shareholders

By 31 December 2013, the 8% equity stake had grown to 14% through a combination of share buybacks and the reclassification of an additional 66.5 million deferred shares to ordinary shares.

UBI’s shareholding of ~14% in Sanlam has declined slightly over the years and as at 31 Dec 2020 was 13,3%.

This stake is currently valued at +-R18 billion based on Sanlam’s current share price.

Ubuntu-Botho is the biggest shareholder in Sanlam with the GEPF right on its heels.

At the beginning of 2014, the initial 10-year lock-up period and all of UBI’s contractual obligations towards Sanlam came to an end with the repayment of the original debt (initial investment of R1.3-billion (all debt and interest on debt was fully settled).

Ubuntu-Botho Investments used the returns on its 14% shareholding in Sanlam to establish African Rainbow Capital.

ARC Investments was registered and incorporated in Mauritius as a private company on 30 June 2017 and was converted to a public company on 2 August 2017.

ARC Financial Services (ARC FS) houses all of the financial services investments (A2X, TymeBank, Rain and Afrocentric).

Majority shareholding (50.1%) is directly held in ARC to ensure the empowerment status of financial services investee companies remain intact.

Things get a whole lot confusing.

In 2020, Sanlam (Sanlam Investment Holdings) signed agreements with African Rainbow Capital Financial Services in respect of a transaction to establish one of the largest black-empowered asset management companies in South Africa.

ARC FS then subscribed for a 25% economic interest in Sanlam’s South African third-party asset management business other than the investment management business conducted by Sanlam Private Wealth Proprietary Limited and the Sanlam Specialised Finance division.

ARC FS has a 25% effective interest in Sanlam through its 25% shareholding in SIH’s holding company, with Sanlam owning the other 75%.

Sanlam Investments Holdings is a black-owned asset manager as defined in the Financial Sector Charter.

ARC FS purchased shares in a newly established holding company that was initially a wholly-owned subsidiary of Sanlam and which, in turn, owned 100% of SIH.

The ARC FS purchase price was calculated with reference to a base value of R787.5m at the time of negotiations.

The transaction price was settled in part by utilising the Ubuntu-Botho facility that was approved by Sanlam shareholders in 2018 for up to 80% of the ARC FS purchase price. 20% funded from ARC FS’ own cash resources.

Purchase price was a 25% discount to the valuation of SIH.

Sep 2021, ABSA Investments' purchased 17.5% of Sanlam Investment Holdings.

Remaining ~82.5% of SIH (held 75% by Sanlam and 25% by ARC) will surely be diluted relative to their shareholdings.

Quick condom box calculation gives;
Sanlam: 75% ⬇️ to 61.9%
ARC FS: 25% ⬇️ to 20.6%.

In 2014, the initial 10-year lock-up period and all of UBI’s contractual obligations towards Sanlam came to an end, but a decision was taken to extend the relationship for another 10yrs.

First transaction after the extension saw African Rainbow Capital taking a stake in Indwe.

The beneficial relationship between Sanlam and UBI continued.

2015, Santam sold 76% of its stake in Indwe Broker for R208m to;

51% sold to ARC and
25% to Sanlam.

Santam retained the 24%.

Santam is buying back the 76% and will pay R125m for it.

Sanlam holds 61.9% of Santam.

ARC thrives on complex structures and it is often said that the management fee structure creates an inherent incentive for management to ⬆️ valuations of portfolio companies.

ARC wanted to use 27% of the rights issue to pay fees to the managers of its investment fund - ARC Fund