William Blackie, director, corporate finance at Standard Bank, says as empowerment companies become more mature and begin to bed down their investments, there is likely to be a move towards focusing on core business areas.

“As earlier investments become available for sale, empowerment companies are likely to go through a period of consolidation.

“I would expect that they will tend to shed non-core assets and seek to strengthen their positions in their chosen industries,” Blackie says.

Kevin Kerr, joint head of corporate finance at Investec, says empowerment companies with a diverse range of investments are likely to take some time to consolidate their positions.

Many empowerment deals have conditions under which empowerment partners are locked into their positions for a long period — usually five to eight years in the past. Therefore it is not easy for them to realise those investments until the constraint expires.

Given that the new BEE codes do not seem to be adopting a position of “once empowered always empowered”, longer lock-ins are likely to be a prominent feature of BEE transactions going forward.

“Some companies have reached a point at which the conditions have now fallen away and there has been some shift towards consolidation.

A number of empowerment companies have now built up substantial net equity value that they can use to fund further transactions.

The JSE has had a significant run and this has served to enhance the value of stakes held by many empowerment companies, he says.

“We are seeing a trend in which these empowerment players are using their equity to develop larger stakes in existing investments.

“Empowerment companies are likely to use their equity to conclude further empowerment deals, as there is often a degree of facilitation from the company, either a discount on new shares issued or low-cost funding, that adds to the value of the deal for the empowerment player. There is often a lot of value that is transferred to empowerment entities on the day the deal is signed.

“Companies with cash on hand are in a powerful position and they will want to access the value from new opportunities to develop additional value for their shareholders,” Kerr says.

However, he says a limitation that does come into play is that companies seeking empowerment partners will consider the number of other deals in which a potential partner is involved.

“They will consider factors such as the amount of time empowerment partners have to contribute, as well as any potential conflicts,” Kerr says.