Investing in the local manufacturing sector is a real opportunity to stimulate the South African economy, mid-market private equity firm Agile Capital partner Liz Kolobe tells Engineering News, adding that the firm is, therefore, targeting niche and differentiated local manufacturers in its immediate growth strategy.

Although there are challenges such as electricity, logistics infrastructure and labour, Agile Capital sees opportunities in specific subsects of the manufacturing sector.

She explains that besides the long-term opportunities for South Africa to export finished goods to other countries, investment in the sector will also have a positive impact on the struggling job sector.

“Agile Capital, through its current fund, has significant funds available for local investment and we are currently actively seeking opportunities and businesses in which we can invest,” she says.

She adds that, owing to the fund already being active, once an application is received and all due diligence is complete — and the applicant is found to be a suitable candidate – the transaction can happen relatively quickly.

As a testament to Agile’s dedication to the sector, it announced in July that it acquired a significant minority share in rigid moulded and thermoformed plastic packaging manufacturer Berry Astrapak in April this year.

Agile is already invested in other manufacturing businesses in South Africa, including adhesives supplier Henkel South Africa, which boasts a significant presence in the automotive sector.

Berry Astrapak services several industries, from the personal care product market and food services through to the automotive market.

Further, it is well positioned to grow top-line sales and take advantage of African market opportunities.

Some reports indicate that the African packaging market’s size is estimated at $43-billion and is expected to reach $52-billion by 2029.

She explains this growth can be attributed to the increasing number of young consumers in Africa intensifying the demand for consumer goods.

“It is also worth noting that sustainability within the packaging industry has become an important topic,” she says.

“We pursue opportunities across diverse sectors,” she explains adding that Agile seeks to invest in businesses that have a sound strategy for growth with “solid” operational track records for long-term partnerships.

She expresses that Berry Astrapak is well established, and Agile looks forward to continuing its journey of growth with the business.

Carbon Tax Outlook

Agile believes that companies will need to educate themselves on the effects of the Carbon Border Adjustment Mechanism (CBAM), being implemented by the EU, and about international clients’ requirements in contrast to local requirements.

For example, Kolobe says the international requirements around water quality and the use of wastewater during the manufacturing process could differ from local regulations and guidelines.

She adds the implementation of CBAM may be an opportunity to raise quality standards in certain industries, specifically around waste production, circularity and recycling.

Although there may be some initial strain, relating to the understanding and implementation of the various requirements, once manufacturers figure out how to manage these obligations, there may be an opportunity for growth – particularly for exporting companies, which will continue to benefit from favourable exchange rates.

While most businesses already have environmental, social and governance policies in place, they would also now need to take responsibility to plan for CBAM within their sector and ensure that sustainable implementation happens.

“It would certainly be something Agile Capital would take into consideration when seeking to invest in businesses that have significant exposure to this risk – locally or internationally,” she stresses.

Critical Criteria

Although Agile has the funds readily available, manufacturers will still need to comply with Agile’s investment criteria.

“Firstly, obviously, the applicant company must be integral in a sector that is of interest to us,” Kolobe says.

After ascertaining this, Agile then looks at the business’s earnings before interest, taxes, depreciation and amortisation (EBITDA).

She points out that a solid management team is often the key to success and a “good fit” is required.

Agile Capital also looks at the financial history of the business, including its profit history and future growth prospects.

“Our standard requirement is that this should be at least R40-million a year” she says, adding that the company is willing to look at companies with a lower EBITDA, should the business fit into a sector that Agile is keen on investing in, or with one of Agile’s current investee companies.

Once it has established that the partnership is one it would like to pursue, it meets with the company’s management, to see if the team aligns with Agile’s philosophy and ethos.

“Our focus remains on established business with demonstrable track records and tangible growth prospects,” concludes Kolobe.