Reaping the benefits of being a long-term partner from early stage to exit
- 7 September 2023
- 4 min read
In 2013, the Futuregrowth Investment Team presented a proposal to the Investment Committee to invest R15 million alongside a consortium of investors bidding to purchase 100% of Cash Connect. The business was starved of cash despite having very promising growth prospects that were underpinned by a well-positioned product and quality service offering. The Investment Team identified these fundamental value drivers for the business, as well as the strength of the management team that would be put in place to take over the running of the business. Based on these factors, the Investment Committee approved the investment into Cash Connect. In 2021, the business was sold to NASDAQ-listed Net1. This sale resulted in the initial investment delivering a 47% internal rate of return over the holding period and returned a 33-times multiple on invested capital to the clients of the Futuregrowth Development Equity Fund.
Cash Connect Management Solutions
Founded in 2006 as an automated cash handling business.
Evolved into an “end-to-end” cash management offering i.e. from vault to bank, and later added the provision of loan capital for business growth.
February 2020, acquired Kazang, adding:
Virtual cash and value-added services (e-wallet, airtime, data, prepaid electricity, DSTV payments, lotto);
Merchant card solutions (POS devices);
Allowed SMME’s to offer additional products to customers;
In South Africa, Namibia and Botswana (35k SMMEs).
To provide an invaluable service in the SMME space:
Removal of cash risk;
Safety and security of staff (they take the risk);
Protection against armed robbery through state-of-the-art safes;
Automated management information systems (MIS) reporting
Operational cost savings;
Float management (releasing “trapped” cash);
Control of fraudulent banknotes; and
Working Capital needs (provision of capital).
The role of a stable, reliable and patient capital partner in helping young companies reach their potential.
While exits such as this have generated and aim to generate significant returns for our equity funds, it is not always smooth sailing for these businesses. Over the course of our investment period with Cash Connect, the South African economy experienced a challenging economic environment that was characterised by limited economic growth. We were, however, able to see beyond those obstacles, and provided a stable equity capital base for the business in the macro environment at the time. When the business needed capital to fund attractive growth opportunities, and where the risk-return profile of these opportunities made sense, we were able to provide that capital. In addition, we played the role of strategic and governance stewards through our board representation.
A socially responsible investment
Cash Connect was founded in 2006 as an automated cash handling business – with the intention to provide a secure mechanism for Small, Medium and Micro-Enterprises (SMMEs) to handle their cash. The business subsequently evolved into an end-to-end cash management provider (from vault to bank) and later added the provision of loan capital for business growth to its offerings, “enabling retailers to move from a place of safety to a place of growth”.
The social and developmental impact of Cash Connect was also significant:
Safety and security: Given the crime statistics in South Africa, the services provided enabled an environment of safety and security in the SMME space, which extended beyond the protection of cash to include the safety and security of staff and clients as well. Due to the company’s track record, it was found that where a Cash Connect sign was displayed, this was a crime deterrent in itself.
SMME end users: The services provided were predominantly to the SMME market. SMMEs in South Africa are identified as a key driver for employment creation and economic growth. Therefore, supporting this sector is a key developmental requirement.
In addition, Cash Connect had a strong CSI footprint. The company encouraged its employees to give their time and support to initiatives that would make a difference in the lives of communities in need. These projects not only had a life-changing consequence for the beneficiaries, but were also morale boosting for the employees.
