Struggling small cap company Torre Industries is to delist from the JSE, subject to shareholder and regulatory approval.
A consortium of investors, comprised of Ethos Capital Partners and investment banking firm Apex, has offered to buy out 100% of the company’s shares. Apex was founded by Charles Pettit, who was the main driver behind the creation of Torre. Torre was built into a medium-sized business using the acquisition in 2012 of tower crane supplier SA French as a base. Pettit reversed Torre into Stellar Capital Partners in 2015 but stepped down as CEO of Stellar last August. Stellar owns 57% of Torre. If the offer is accepted by shareholders, they will receive a cash dividend of 35c per share, R1.05c per share, and a deferred top-up payment of 10c per share, subject to the attainment of specific performance targets. In total shareholders will receive between R1.40 and R1.50 per share, a 44.67% premium to the 30-day volume weighted average price.
The share price appreciated immediately when news of the deal broke. “For 140c cash and a 10c deferred payment – I’d bite the hand off the person offering me that deal,” says small-cap expert Anthony Clark. “Torre is operating in an industry that is under extreme pressure, and where investment in capital equipment has been very limited over the last few years. Three months ago Torre was trading at 80c. That share is unlikely to move anywhere in a hurry.” However, he notes that Pettit is the architect who took Torre from obscurity to a decent sized industrial firm supplying capital equipment into the mining, engineering and other sectors.
In the process, the share price rose to R3.50 and the market cap to R2 billion. That was until dreadful underlying economic conditions caused a blowout of small-cap stocks. An interesting feature of the deal is that the special purpose vehicle (SPV) created to finance it will be collapsed once the deal is struck. Torre Analytical Services businesses, comprising the WearCheck, Amis and Set Point Labs divisions will be retained by Ethos; while the Torre Industrial businesses, comprising the SA French, Manhand, Torre Parts and Components, Tractor & Grader Supplies, Letaba Pumps,Elephant Lifting, and Torre Logistics divisions will be retained by Apex.
“The SPV was created just to do this deal,” says Pettit. “There have been a few approaches for Torre over the last year. I knew the price the majority shareholder wanted. It was a case of biding our time until we found the right structure and buyer.” Pettit believes this is a good deal all around. “For me, this is a low-risk deal. I know the business back to front. I hired the managers. This company, like many other listed companies, is very undervalued. But shareholders are getting a big premium too.” He will not take over the operational reins of Torre. “We will make a few changes, take a few costs out and optimise the portfolio. It won’t take much for this business to be a nice organic play – it already has scale; at the end of the last financial year the business turned over R1.4 billion.” Instead, Pettit will focus on what he loves most – dealmaking, using Apex as the vehicle. The firm will provide advisory and lending services and be an active investor. This is almost full circle from what he was doing 10 years ago when he started AfrAsia Corporate Finance (the forerunner to Stellar Capital partners). “I will do a few things differently. I have access to private capital, so don’t need to be listed, and I will choose my partners more carefully.”