COMPETITION TRIBUNAL OF SOUTH AFRICA
Case No: 87/LM/OCT11
In the matter between:
ETHOS PRIVATE EQUITY FUND VI Acquiring Firm
And
KEVRO (PTY) LTD Target Firm
Panel : Norman Manoim (Presiding Member)
Yasmin Carrim (Tribunal Member)
Takalani Madima (Tribunal Member)
Heard on : 07 December 2011
Order issued on : 07 December 2011
Reasons issued on : 22 December 2011
Reasons for Decision
Approval
1] On 07 December 2011, the Competition Tribunal (“Tribunal”) approved the
large merger between Ethos Private Equity Fund VI (“Ethos Fund VI”) and
Kevro (Pty) Ltd (“Kevro”). The reasons for approving the proposed transaction
follow below.
The Parties to the transaction
2] The primary acquiring firm is Main Street 942 (Pty) Ltd (“Main Street”), a firm
incorporated in terms of the laws of the Republic of South Africa. It is
controlled by Ethos Fund VI, which has a 72% interest. Rael Hodes and
Steven Isaacson each have a 10.5% interest. Ethos Fund VI is advised by
Ethos Private Equity Fund (“Ethos”)1. Ethos controls a number of firms, one of
them being Busby Investments (Pty) Ltd (“Busby”), which is relevant to the
transaction as will be explained below.
3] Ethos is a private equity advisor which makes investments on behalf of its
advisors, through private equity funds. The funds that Ethos invests in are
involved in a number of areas, however, only its one investment, in a retail
chain called Busby, could potentially be regarded as overlapping with the
business of Kevro 2.
4] The primary target group is the Kevro Group 3 and shareholders who hold
more than a 10% interest in Kevro are as depicted below.
Shareholder name Interest
Melkbos Trust 22.705%
Kevro Promotions 20.000%
The Sky High Living Trust 18.800%
The Jacode Trust 10.800%
Steven Isaacson 9.600%
5] The firms within the Kevro Group are corporate and promotional product
suppliers. The Kevro Group’s main products are its own brand BARRON and
third party products, such as Nike and CAT. The Kevro Group operates as a
wholesaler and does not retail.
6] Kevro is a corporate and promotional product supplier in Africa, offering a
comprehensive range of clothing and a wide range of gifting products and
branding services.
1 Ethos also advises Ethos Fund V, Ethos Fund I (which has an 8.5% interest in Juta Holdings (Pty)
Ltd) and Ethos Fund IV (which has interests in Savcio Holdings (Pty) Ltd and Ethos Technology Fund
2 The areas which Ethos has investments in are: baking equipment and systems to retail outlets (such
as supermarkets and convenience stores), commercial catering and kitchen equipment to food
services outlets, refrigeration display systems to retail outlets and glass doors in refrigeration
applications
applications
3 Kevro (Pty) Ltd, Kevro KZN (Pty) Ltd, Kevro Cape (Pty) Ltd, Kevro Eastern Cape (Pty) Ltd,
Copperstone Trading CC, App-ly Branding Solutions (Pty) Ltd and Safrics (Pty) Ltd
7] In terms of the transaction, Ethos (acting through Main Street) will acquire
72% of Kevro’s issued share capital. Prior to the current acquisition, Kevro will
buy the minority shareholders of Kevro Cape, Kevro KZN, Copperstone and
App-ly out. However, with regards to Safrics, Kevro will only acquire 50%,
whilst the remaining 50% will be held by Kevin Berkowitz. Upon completion of
the transaction, Ethos will have control over the target group and joint control
regarding Safrics.
The Rationale
8] The merging parties submitted that the rationale for the acquisition is that it is
a good investment for Ethos, which it hopes will bring good returns. The
rationale for the shareholders of Kevro is that is it is an opportunity to receive
a financial return on their investment in the various target firms.
The relevant market and the impact on competition
9] Ethos controls Busby through Ethos Fund V and will control Kevro through
Ethos Fund VI. Even though these are different funds, we accept for the
purpose of this transaction that Ethos will control both firms. However,
although Busby is involved in an adjacent market to that of Kevro, its product
offering and mode of business differs. Busby is engaged in the distribution of
predominantly branded leather products, such as Aldo, Guess and Nine West
for retail purposes. The Busby products are usually distributed to its own
retails stores, as well as to other retail chains such as Truworths and
Stuttafords. Kevro, on the other hand, wholesales and typically adds the
required corporate branding onto the plain or sometimes minimally-branded
Nike or CAT products. This will then be distributed to the corporate client. Put
more simply, Kevro’s products are for the workplace and are sold through
resellers, whilst Busby’s are for the leisure and fashion market and are sold
through its retail outlets.
10]Due to the retailing and distribution differences in operations between Busby
and Kevro, and the differences in their product offerings, there are no
competition concerns raised, and as such, the transaction does not result in a
horizontal overlap.
11]Busby has made minor purchases of corporate gift products from Kevro but
they are too insignificant to raise any vertical concerns.
Conclusion
12]This transaction raises no public interest concerns.
13]The Tribunal agrees with the recommendation of the Commission that, in light
of the other large competitors active in those markets and that the transaction
does not result in a substantial overlap in the activities of the parties, the
acquisition of the Kevro Group is unlikely to result in substantial prevention or
lessening of competition in the relevant market. Accordingly, we approve the
above merger unconditionally.
__________________ 22 December 2011
NORMAN MANOIM DATE
Yasmin Carrim and Takalani Madima concurring
Tribunal Researcher: Nicola Ilgner
For the merging parties: Webber Wentzel
For the Commission: Dineo Mashego