SAVCA speaks to ASOC Management Company executive director Paul Birkett (PB) on the distressed fund managers role within the private equity industry and some of their exciting projects.

Tell us a bit about ASOC.

PB: ASOC Management Company (“ASOC”) is a specialist alternative investment management firm, with significant turnaround and restructuring expertise, that offers flexible capital to support companies where situations are ill suited to more traditional sources of capital. The firm was founded by Richard Ferguson, Shaun Collyer and Paul Birkett, with the support of institutional investors, and has offices in Johannesburg and Cape Town.

ASOC manages a pilot fund, namely ASOC Fund I, with committed capital of R205 million, and a prudential investment limit of R60 million per transaction. It is our understanding that ASOC Fund I is the first specialist fund of its kind, dedicated to supporting companies in times of restructuring and turnaround.

The Fund seeks to invest in companies that are fundamentally good businesses, however have found themselves in a challenging space and where ASOC’s expertise, from a restructuring and turnaround perspective, alongside its capital, can add significant value. To this end, we are very active in our portfolio companies, often taking executive roles to support the incumbent management teams through the turnaround process.

Of further value to management teams is our experience in such situations; we have a deep understanding of the turnaround process as well as the relationships and knowledge to ensure the business continues in a safe pair of hands.

What role do funds that focus on restructuring and recapitalisation play within private equity, especially in Southern Africa?

The restructuring and turnaround industry in Southern Africa is still relatively young, however maturing quickly. The introduction of specialist investors, such as ASOC, into this market is simply part of the natural evolution of this market and we hope that more funds will join this space in due course.

At the moment, as far as we are aware, there are no other funds dedicated to restructurings and recapitalisations in Southern Africa, particularly with such a focus on operational turnarounds. This is unfortunate, as restructurings can be enormously expensive (including direct and indirect costs) and companies can least afford to pay for such help, when they need it the most. In addition, there is a social stigma attached with restructurings and some management teams are reluctant to come to terms with the actions that may be necessary to reach a sustainable outcome.

We feel that we are filling a critical part of the business cycle. As companies face challenging circumstances, they need capital (both human and financial capital) and ASOC seeks to provide this within an expedited timeframe and on terms that ensure the sustainability of the business, the employees and the communities in which it operates.

We believe this niche market offers good value for those investors who are willing to roll up their sleeves and take an active and operational approach. In addition, the team is naturally wired to investigate and workout challenging circumstances and feels a great sense of pride when a business does return to its full potential. However, it goes without saying that getting so active and operational can be tough in itself, however immensely rewarding.

What projects have you been working on in the past 12 months?

Over the last 12 months we have made two investments, namely into Opti Baby & Kids and Okuhle Media Group, based in Gauteng and the Western Cape respectively.

Opti Baby & Kids is a network of 12 pre-schools located around Johannesburg and Pretoria, educating and caring for approximately 900 children. We believe that the private education market is a relatively defensive space within which to invest, although increasingly competitive, particularly as many parents are seeking dual incomes in this tough economic climate.

Upon making the investment, we set about re-investing in the people by empowering them with the tools they needed to perform to their full potential. We also set about re-investing in the schools, painting and fixing the properties as well as resolving legacy concerns.

To date, we have seen a significant turnaround in the people and their energy towards the business. With respect to the operations and key financial outputs of the business, we continue to remain humble and cautiously optimistic.

Okuhle Media Group is a well-established media production company, delivering high quality television productions to local broadcasters as well as media for the international market.

The business was founded by five creative women, who did remarkably well to develop the business on a thin capital base. ASOC’s investment has sought to introduce both financial capital (i.e. recapitalise the balance sheet and offer additional financing for growth) and human capital (i.e. commercial and financial best practices) for the future growth of this business.

What exciting future projects are in the pipeline?

Our primary focus over the next few months will be to firmly bed down our two current portfolio companies. As a new fund manager, we are intent on progressing forward but with due care. To this end, we would like for both Opti Baby & Kids and Okuhle Media Group to be well on the road to achieving their potential before we actively seek out the next investment opportunity.

Notwithstanding our active engagement with the market, we are always interested in and stimulated by challenging business problems and would welcome the approach of any companies or investors who may wish to understand us a little better.

Our focus remains firmly on delivering good returns for ASOC Fund I and thereafter we can lift our heads to consider a second fund and other potentially complementary investment strategies.