As the CEO of Ethos Capital, Peter Hayward-Butt heads up the JSE-listed capital raising vehicle of Africa’s largest private equity firm. He’s also the CEO of Brait, the Christo Wiese-backed private equity vehicle that turned to Ethos for management assistance after several of its investments hit market turbulence.
Hayward-Butt tells Business Day how he got into the private equity game and why he thinks listing Virgin Active may be its best option as Ethos looks to wind down Brait.
Q: You’re originally from Zimbabwe. Tell us about your background and how you ended up working in investment banking and private equity in Johannesburg.
A: I was brought up on a farm in Zimbabwe and had every intention of heading back there after my studies. I completed my BSc in agricultural economics at university in Pietermaritzburg and went to study for my postgrad in the UK. Out of interest I attended presentations by the global investment banks. Advising large corporates on transformational transactions around the world seemed more exciting than farming, so I joined Barings Brothers’ corporate finance team. After a stint in Singapore and then London, I moved to ABN AMRO and was sent to head up their M&A [mergers & acquisitions] Advisory business in Hong Kong. Unfortunately, my father was unwell, and I moved back to SA to be closer to him and was fortunate enough to get a job at Rand Merchant Bank (RMB) where I ended up as co-head of investment banking. After 12 years at RMB, I decided to join Ethos Private Equity who were starting to strategically transform their business.
Q: Tell us about the M&A stint in Hong Kong and how it shaped your career.
A: Hong Kong in the late 90s and early 2000s was a fantastic place to be. I was 28 at the time, the Asian economies had recovered from the Asian crisis and were growing rapidly — the number of deals was extraordinary. I was fortunate to work with leading corporate finance advisers across seven or eight countries, which fast-tracked my experience. It helped me navigate the societal and transformation complexities that SA presented when I returned here.
Q: What prompted you to move from RMB to Ethos Private Equity and how do the two worlds differ, despite being fairly closely associated?
I had been co-head of investment banking for about nine years and was keen for a new challenge. The RMB culture is to hire people better than you (which in my case wasn’t difficult) to facilitate succession. So, I was looking for a different sort of challenge. Private equity is an exciting business. It combines many of the skills of investment banking but you have to own the outcome. In an investment banking role, you provide advice to large corporates and private equity firms and then move on to the next advisory role. In private equity, in your capacity as a principal or owner of the businesses, you live with the consequences of your decisions for years to come.
Q: Ethos signed its advisory agreement with Brait just months before Covid-19 took hold, which meant you had to steer the likes of Virgin Active and New Look in the UK through a pandemic. Talk us through that experience.
A: To be honest, the past three years have not been ones I would want to repeat ever again! Covid-19 was totally unprecedented in how it shaped the world. Businesses that were highly profitable and cash generative closed their doors and had to fight for survival. In the case of Virgin Active, we restructured the business in the UK using recently promulgated legislation which was totally untested. We ran a complicated restructuring process through the UK courts from SA. Similarly, we concluded a restructuring for New Look in order to save the business from liquidation. Both businesses survived — testimony to the incredible job that the management teams did during these dark days.
Q: You’re now looking to wind down Brait and list Virgin Active. Why go the listing route with Virgin Active rather than selling it to another health club chain?
A: When we took on the Brait contract in 2020, we set a target of five years to monetise the asset base and return value to Brait shareholders. We’re just over three years into that strategic transformation and have monetised four of the seven assets (Iceland Foods, DGB, Consol and the IPO [initial public offering] of Premier). This has enabled Brait to repay its debt and once it settles the outstanding convertible bond, it will be in a position to deliver the remaining assets to its shareholders through unbundling. This would leave Virgin Active as the only remaining asset in Brait, and the business would thus effectively be listed through introduction. The objective is to maximise value for shareholders and, if a third-party buyer made an offer to acquire the Virgin Active business, the board would definitely consider this.
Q: Ethos has just merged with The Rohatyn Group (TRG), a global emerging markets investor. What opportunities does that unlock for Ethos?
A: TRG has developed a stellar track record across many emerging markets and the merger with Ethos allows TRG to extend its global emerging markets presence, given that it did not have a footprint in the fast-growing African continent. Being part of a global firm with access to global pools of capital is a massive opportunity for Ethos to expedite its growth. It is an exciting next leg of the strategic transformation that Ethos began in 2015.
Q: Ethos has been renamed TRG Africa and although you’ve always been active in Africa, will there be a greater focus on the rest of the continent given that this was presumably part of TRG’s rationale in concluding the merger?
A: Absolutely. Sub-Saharan Africa growth potential is unmatched globally, even compared to India and China. The growing middle class, urbanisation and a young but growing population are key drivers of growth which aren’t present in many investment destinations. Digitisation of the global economy will help expedite growth in many of these African countries. Clearly investor-friendly policies, government-led infrastructure development and stable governance are required to attract investment, but the potential is undeniable.
Q: With the TRG tie-up, will Ethos Capital be taking stakes in some of the non-SA or non-African TRG assets to diversify geographically?
A: Ethos Capital only has a mandate to invest in Ethos-managed funds. The TRG merger could allow Ethos Capital to invest into a larger, more diversified pool of emerging market investments opportunities.
Q: The Ethos Capital listing is an innovative way to allow institutional access to private equity. Is the appetite among institutions for this private capital exposure growing?
A: Globally, most asset managers and pension funds are increasing their exposure to the private equity asset class to provide diversification and enhance returns. Ethos Capital provides one way for institutional investors to get this exposure.
Q: Given that you hail from Zimbabwe, do you think dollarisation is the best solution for that country? Would adopting the rand be a better option perhaps?
A: Irrespective of the currency, what Zimbabwe (and many other African countries) needs to provide is investor certainty. This includes transparent, long-term government policies, a robust and sustainable framework for public/private partnerships and an evergreen mechanism to externalise capital. Zimbabwe is unable to attract foreign capital based on its current policies and restrictions on doing business. Dollarisation may well be the best option to bring inflation under control and encourage investment to drive growth. Once the country has developed a sustainable track record of investor-friendly policies and growth, then transitioning back to a local currency (or a rand-linked floating currency) may be an option.
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