After a somewhat silent year on the market, there are now a couple of corporate transactions starting to come through. One of these deals includes the transaction that will see a South African-domiciled company with exposure to the diaspora market, listed on our local market. BridgeFort Capital recently released the prospectus of its proposed transaction with Diaspora Kapita.
In this article, we will break down the key issues to note about this transaction, which I have called a reverse takeover.
But wait, what is a reverse takeover and why is it so important? A reverse takeover (RTO) is whereby a private company, typically smaller or growing, gets listed on an exchange by buying enough stake in a listed firm, then eventually consummating it in its own operations.
Usually, this is done to avoid the whole process of Initial Public Offering (IPO).
IPO is where a company registers and complies with the requirements of the regulator before trading its shares for the first time publicly.
RTOs are not a new concept to the Zimbabwean capital markets. In fact, back in 1998 Innscor, which is now a manufacturing giant with annual turnover close to nine figures, completed a reverse takeover of Capri.
Kingdom Bank, also back in the 1990s, was listed on the Zimbabwe Stock Exchange (ZSE) via an RTO of Discount Company of Zimbabwe.
So, the concept is not new, although it can have several variations depending on the creativity of whoever structures the deal.
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So, perhaps a good starting point is to understand the major parties involved in the proposed transaction. Bridgefort Capital Limited is a Zimbabwe-based investment holding company.
The company has changed names a couple of times.
Its history can be traced back to the late 1990s as a pharmaceutical distribution company.
The latest name change came also with a structure change in 2021 where the company introduced various classes of shares as it rebranded to BridgeFort Capital, from MedTech.
BridgeFort’s class A shares include a 50,1% stake in MedTech Distribution (Private) Limited and a 51% ownership of Chicago Cosmetics (Private) Limited.
MedTech Distribution (Private) Limited is a distributor of consumer goods like Satiskin and Clere among others, manufactured in South Africa. Under class B, BridgeFort also owns a property portfolio estimated at US$120 000.
On the other hand, Diaspora Kapita is an investment holding company with interests in insurance, funeral services, financial services and agricultural technology among other sectors. The company has operations in Zimbabwe and South Africa, and also serves Zimbabweans living and working outside the country. Significant investments include a 74,12% stake in National Funeral Undertakers Investment Company (NAFUICO) which is reported to have gross annual written premiums of ZAR80 million (about US$4,4 million).
NAFUICO also has various companies under its wing, including AubsPro, a property company and 21st Century Events Management, a funeral service company. The other company is AgroStrong, which is essentially a savings and investment vehicle that leverages agricultural technology in the form of cattle-backed investment. The Zimbabwean arm of AgroStrong, which is expected to be owned by BridgeFort after the transaction, also owns a minority stake in Montana Meats. The other key company is Tsigiro Usekelo, which is into wealth management and investments among other financial services.
Now that we have established brief profiles, let us break down the deal at hand.
Diaspora Kapita has the plan to get listed on the Victoria Falls Stock Exchange (VFEX), and it will do that by essentially buying the BridgeFort Capital vehicle as we know it today. BridgeFort has already secured shareholder approval to delist from ZSE but will need this deal to fall through in order to meet the capital requirements for proceeding with the VFEX listing. If this transaction is successful, BridgeFort will technically issue shares to acquire Diaspora Kapita as we know it today, plus Agritech.
I know at this stage the question of who is acquiring who might not yet be clear but think of it this way.
After this transaction, it is envisaged that MedTech business will be disposed of, such that BridgeFort will only consist of Diaspora Kapita and AgroStrong.
So essentially, BridgeFort as we know it today, is not the one acquiring, but the other way around hence why I called it a reverse takeover. Anyway, enough with the technicalities and more to the deal.
So, the question that current shareholders of BridgeFort reading this article might have, is what will happen to their current shares? Well, this is not a bad time to break your heart and let you know that this article is by no means financial advice, but is just there to raise awareness of what’s happening in our economy.
So, if the current holders like the deal and decide to continue holding on to their scrip, for every ordinary share currently held, they will get 0,15 ordinary shares and 68,69883 Class A preferred shares post transaction.
This also implies that they will now have exposure to assets which are totally different from the ones that they currently have exposure to today.
Although domiciled in South Africa, Diaspora Kapita has very strong ties to Zimbabwe. In fact, it was created as a collaborative venture of Zimbabweans living and working outside the country who wish to serve the local market.
Obviously, the VFEX was created with companies like these in mind, and it is the naturally preferred bourse for Kapita given its foreign operations.
With over two million Zimbabweans estimated to be in the Diaspora and US$2 billion in diaspora remittances annually, Diaspora Kapita plans to tap into this market.
At the back of this, Diaspora Kapita will then issue out diaspora mortgages by tapping into their already existing diaspora clientele and giving them a trustable way to acquire properties back home.
To bring this deal to life, the prospectus talks about listing diaspora a bond, that will finance the housing development in Zimbabwe.
On the other hand, AgroStrong will be looking to provide an investment vehicle backed by cattle here in Zimbabwe and in South Africa.
The Class B shares will continue to look for opportunities to exploit in the real estate space.
The prospectus also speculates on the possibility of a future Real Estate Investment Trust (REIT) coming from this portfolio, should it scale up and exploit the opportunities.
According to a third-party valuation of the deal, which is contained in the prospectus, the transaction is a US$6 million deal, coming from the value of NAFUICO, Tsigiro Usekelo, AgroStrong and other companies.
In conclusion, this is an interesting transaction on the market, perhaps one that requires you to pick up the phone and hear what your financial advisor and stockbroker think if you are the investing type.
But also, one that just brings a new perspective to the exposures that we are used to and tries to tap into the ever-growing diaspora market.
Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.
