Table of Contents
Key Points:
- Brait SE reduces its annual advisory fee to The Rohatyn Group to R50 million ($3.33 million), down from R200 million ($13.3 million).
- Brait has experienced a 95-percent drop in market value over the past five years, reflecting financial challenges.
- Brait is focusing on extracting value from its current investments without making new ones, aiming to stabilize its financial situation.
Brait SE, a leading investment holding company partly owned by South African billionaire Christo Wiese, has reduced its annual advisory fee to The Rohatyn Group to just R50 million ($3.33 million), down from the original R200 million ($13.3 million) it was paying to manage its portfolio.
Once the best private equity shop in town, Brait has seen a dramatic decline, losing 95 percent of its market value over the past five years. The news of the fee reduction was buried in Brait’s annual financial statements released at the end of June.
Financial struggles and fee reductions
Last year, Brait paid R65 million ($4.33 million) for advisory services, a sharp decline from the R215 million ($14.3 million) previously paid. This reduction is part of ongoing efforts to manage costs and extract value from an underperforming portfolio.
A forced recapitalisation in 2019 saw Ethos Private Equity come to Brait’s rescue with an injection of R1.35 billion ($90 million) as part of a total R5.6 billion ($373.33 million) rights issue. This commitment came from Ethos Fund VII (R750 million or $50 million) and listed Ethos Capital (R600 million or $40 million). Ethos took over the management of Brait in March 2020 and was later acquired by The Rohatyn Group in 2023.
Initially, the deal with Ethos saw a material reduction in advisory costs, cutting them in half. However, terminating the agreement came at a price, with Brait spending around R100 million ($6.67 million) on retrenchments and office closure costs.
In the first year (FY2021), Brait paid Ethos R100 million ($6.67 million) for managing its portfolio, which was adjusted annually with inflation. During the Covid-19 pandemic, Ethos voluntarily reduced its fee to R91 million ($6.07 million). Despite this, it received a short-term incentive of R23 million ($1.53 million) based on key performance indicators set by Brait’s board.
The board approved a one-year extension of the contract for FY2024 at a reduced fee of R65 million ($4.33 million), reflecting a smaller portfolio.
Portfolio adjustments and future plans
Brait listed Premier Foods on the JSE last year, selling a portion of its holding and reducing its stake from 47.1 percent to 35.4 percent. Ethos aimed to maximise and realise value from Brait’s portfolio companies over five years, focusing on existing investments rather than new ones.
In June, Brait announced a fully underwritten rights issue of R1.5 billion ($100 million) at 59c a share and extended its convertible bonds, exchangeable bonds, and revolving credit facility for three years. The timing was deemed not right for realizing value from its remaining three portfolio companies.
Ethos Capital’s strategy and fee structure changes
Ethos Capital is not following its rights and will unbundle its stake in Brait to shareholders, citing a revised strategy to wind down and not make new investments.
Going forward, Brait will pay The Rohatyn Group R50 million ($3.33 million) annually, with a three-month notice period. After selling all its investments, this fee will reduce to R1.5 million ($0.1 million) per month for winding up Brait. The previous short-term incentive structure has been replaced with a new one, where Brait will pay up to R50 million ($3.33 million) annually based on growth in market capitalization from a starting point of R3.6 billion ($240 million).
Brait shares have declined 43 percent this year, and the company has lost 95 percent of its market value over the last five years. During this period, Ethos has been paid R414 million ($27.6 million) and former corporate advisor Brait R215 million ($14.3 million) in advisory fees.
