African PE firm Ethos strikes first new deal in two years

 African PE firm Ethos strikes first new deal in two years

Private equity firm Ethos is leading a consortium of investors to buy Crossfin, a leading player in the South African fintech industry, in its first new investment in two years.

Ethos’ Mid-Market Fund I (EMMF I) is leading the consortium. The group also includes Crossfin’s management team, the co-investors of EMMF I, Ethos Artificial Intelligence Fund I and black empowerment investor African Rainbow Capital. The management team had co-founded Crossfin and has led it since inception.

The transaction is valued at ZAR1.5 billion ($94 million). This includes a combination of the acquisition cost and growth capital for the business. African Rainbow Capital will acquire 37.33% of Crossfin for ZAR600 million. Ethos will invest ZAR178 million via two funds.

The deal provides an exit to the founding investors Capital Eye Investments and the Multiply Group, who have been anchor shareholders in Crossfin since 2017.

The transaction is one of the largest private equity-led investments in the fintech sector in South Africa to date, Ethos said. It added that the deal offers the consortium exposure to an industry that is likely to continue benefitting from digitalisation and proliferation of payments technologies.

Crossfin currently has three main pillars: payment technologies with investment in Adumo, an omnichannel payment processing company. The vertical also includes Crossgate Holdings, which offers card issuance for retailers, banks and non-bank financial institutions as well as alliance banking and other financial services.

The other key unit is Smart Funding under which it has invested in Retail Capital, which uses transactional data to provide funding to small and medium-sized businesses. Crossfin also has a VC arm.

In addition, Crossfin is acquiring Sybrin, a low-code and artificial intelligence-enabled enterprise software business targeting the financial sector with a focus on automation and the use of AI and machine learning to achieve efficiencies for its clients.

“Crossfin is ideally positioned to continue capturing the payments technology and the broader fintech opportunity both existing and emerging. The transaction is an exceptional opportunity to acquire a group with significant value creation momentum,” said Edward Pitsi, managing partner at EMMF I who led the deal.

Independent investment banking firm Fairview Partners acted as financial advisor on the transaction.

For Ethos, this is the first new investment after it struck multiple transactions in 2019 with Brait, Synerlitic (formerly Torre Analytical Services) and Tymebank. In July, it inked a deal to exit Mozambique-based logistics company J&J Group to Carlyle spinout Alterra Capital.

EMMF I was launched in 2016 and has commitments of ZAR2.5 billion to invest in mid-market leveraged buyout transactions. Ethos AI Fund makes growth equity investments in companies where artificial intelligence can be used to improve the operations of the business.

African Rainbow Capital is an investment holding company focusing on the South African financial services industry. It is owned by Ubuntu-Botho Investments, which was founded by Patrice Motsepe in 2004.

Vivek Sinha

The Capital Quest