Fairfax Financial Holdings Ltd. has announced plans to merge with Africa-focused private equity firm Helios Holdings Ltd., in a transaction that will bring new leadership and a different business model to Fairfax Africa Holdings Corp.
The combined entity will be called Helios Fairfax Partners Corp. and will be run by Helios founders Tope Lawani and Babatunde Soyoye as co-CEOs. Current Fairfax Africa chief executive Michael Wilkerson will become the executive vice-chairman of the new company.
Toronto-based Fairfax Financial launched Fairfax Africa in 2016 to invest in equity and debt of African companies, both public and private.
It has deployed or committed approximately $459-million to date, but has struggled with weak growth in key markets and poor stock market performance by the two publicly traded companies in its portfolio. It reported roughly $60-million net losses in both 2018 and 2019.
The Helios transaction will be a major realignment for Toronto Stock Exchange-listed Fairfax Africa and puts Helios’ management team in the driver’s seat for most investment decisions.
The deal will also move the company away from a traditional investment fund model, where it is valued based on the assets on its balance sheet, to more of an asset-management model where it will generate revenue from managing third-party money while also making its own strategic investments.
The deal came together after Fairfax Financial CEO Prem Watsa met Mr. Lawani and Mr. Soyoye last year in London. The pair founded Helios in 2004, and have launched four Africa-focused private equity and debt funds with around US$3.6-billion under management.
“I looked at the resources they have and the resources we have: They have 40 people, they’re very private-equity oriented, and have done tremendous deals. We didn’t have that expertise [in Africa],” Mr. Watsa said in an interview.
“With Fairfax India, we have 35 years of experience, we know a ton of people there. In Africa we didn’t,” he said.
For Helios, the transaction helps diversify its funding sources and gives it a pool of permanent capital to invest alongside its private equity funds, Mr. Lawani said in an interview. He acknowledged that Fairfax Africa’s existing portfolio contains several troubled investments, but said that his team is well-placed to get these companies back on track.
“We think the [Fairfax Africa] team has the right plan, and we think the challenges have just been the execution of those plans. And so with our, candidly, greater connectedness and literal proximity to the markets, we think we can actually be quite helpful,” he said.
The combined company’s investment philosophy will be driven by a view Helios has developed over the past 15 years investing in Africa: Avoid cyclical investments and look for investments supported by the long-term demographic, labour force, and technological trends.
“We’re not really subscribers to the ‘Africa Rising’ notion that everything will grow up and to the right, and it will all be good and people will buy more fridges and televisions,” Mr. Lawani explained. “That may happen, but … we start by looking at secular dynamics that are driven by long-standing trends that will not end any time soon,” he said.
Detailed financial terms of the deal were not disclosed, but Helios shareholders will gain a 45.9-per-cent stake in Fairfax Africa, which will issue new equity to Helios. Fairfax Africa had a market capitalization of around US$194-million as of Friday’s market close.
In return for the equity stake, Helios will contribute fees from its existing and future funds, and act as the new company’s sole investment adviser.
While the deal still needs to be formally approved by Fairfax Africa shareholders, majority shareholders Fairfax Financial and OMERS Administration Corp. have already agreed to vote in favour of the deal.
