Inhep Electronics Holdings, a South African supplier of a wide range of services to the electronics industry since 1985, owned and managed by a highly committed management team, has been acquired by Lereko Metier Capital Growth Fund.
Hi-Tech Security Solutions met with Inhep managing director, Grant Hazell, to find out more about the implications of the deal.
Hi-Tech Security Solutions (HSS): Inhep is an owner-managed business, which now has a large and reputable private equity investor with a healthy stake in Inhep. Give us a little bit of background on Inhep, a little history on how Inhep was built, its ethos and the personalities that underpin the business.
Grant Hazell (GH): 25 years ago, Inhep was a garage operation. Tony Pitout and Roy Innes started the business in Roy's brother-in-law's garage. It was a part-time venture at that stage, with both founders doing what they could after-hours. The business developed, and in 1985 it was officially registered as Inhep Electronics. I joined the business 17 years ago, and the three of us have built the business from where it was, to what it is today. We have a very good team of guys, and have had a lot of fun doing it. Now, come 2007, as with all owner-managed businesses, one starts to look at the future of the business, and one's own future, so when the guys from Lereko Metier Capital Growth Fund expressed interest, we were ready to talk.
HSS: What were the original products that gave birth to Inhep and to what extent do they still inform Inhep's strategic thinking?
GH: Inhep's first products were not in the security industry. One of the early products was an emergency lighting product and then some little add-on boards in and around the RF-side of things. From there it developed and our original foray into the security sector was doing a product for a local distributor. Over time, we made the decision to target the security market, as we saw some scope in it, and the potential in our panel range, which was starting to develop quite nicely at that stage.
HSS: What was the time frame of Inhep's initial focus on the security industry?
GH: 17 or 18 years ago, Inhep was doing pretty ad hoc work through a local distributor, and it was about 15 or 16 years ago that it made a decision to develop a range of products that we would take to the market ourselves. I think that is one of the key defining moments for Inhep, and it led us to where we are today, where probably 75 to 80% of our business is in the security market. We still do work outside of the security market, but the bulk of Inhep's business is into the security market.
Inhep's strengths have always been its ability to conceive a product, to recognise the product that is needed in the market place, to listen to our clients and then to produce a product that can get to the market at the right price, with the right features.
HSS: Can you give us some insight into the Lereko Metier Capital Growth Fund's intentions with Inhep going forward, its involvement and the involvement of the current management team?
GH: LMCGF is actively involved in the business at a board level, and provides strategic and operational support to management. Further to this the fund will provide the BEE credentials to the business as well as access to capital for growth and acquisitions.
The intention from LMCGF is to assist growth and develop Inhep into a market leader in the South African security industry. It is currently investing in synergistic businesses in the security and access control sector to leverage a world-class service offering to the market.
The management team will not change much. Tony Pitout will remain with Inhep on a full-time basis for a period before moving on to other interests. Thereafter, there will be some involvement going forward, but it will be on a more ad hoc, consulting basis.
I plan to stay on as managing director and Roy Innes will stay on as a director. Key management maintains a stake in the new entity although there has been a minor name change, which is really just a vehicle for getting the business deal concluded.
In terms of going forward, there is a new MD designate, for want of a better word, who started with Inhep in Durban on 1 September, Bryan Watson. Bryan will be pretty much shadowing Roy and myself, getting to know the business, with the view, going forward, for him to step up and take the helm.
HSS: What is Bryan's background?
GH: Bryan has a legal background and an MBA, with a couple of years as a management consultant. He is well qualified to lead Inhep, and now really just needs to see what the business does and who the business deals with, and over the next year to get to know the politics of the industry.
HSS: What is the name change?
GH: The name change is from Inhep Electronics, to Inhep Electronics Holdings.
HSS: Let us talk about Lereko Metier Capital Growth Fund.
GH: Metier is a specialist investment and advisory firm with a deep private equity track record. The Metier principals have been in the business of advisory, investment services and private equity fund management since 1985. The pioneering private equity fund partnership, the Lereko Metier Capital Growth Fund, with black-owned investment house Lereko, now represents a core business of the group.
The Lereko Metier Capital Growth Fund has more than two billion rand in the fund, a portion of which has been allocated to acquisitions in the security and access control sector.
Clearly the Lereko Metier Fund has strong BEE credentials, which brings something quite positive to Inhep. Anthony Hewat and John Hannig, who were intimately involved in this deal, will likely be integral to the business and to the future of the business.
HSS: Which suitor drove the deal? Was it an investment fund looking for suitable security growth or Inhep looking for a BEE partner?
GH: For many years Inhep has had interested parties court it, wanting to acquire the company. But previously, the timing was not right, and perhaps the offers were not right. But when this deal came to the table, the timing and the nature of the deal was attractive to the owners of Inhep. So we opened discussions.
HSS: From Inhep's current management perspective there are obviously ambitions to grow your export business and to introduce new products. A deal of this nature is going to facilitate both. What do you envisage the effect of the deal will be on both your export opportunities and product development?
GH: Certainly business growth and product development forms part of our thinking. We are involved in the export market and have been growing that, but certainly with the fund involved, there is huge potential to develop that even more. Once we have the deal bedded down, that is one of our key areas that we will be looking at.
HSS: And in terms of new product development, do you envisage sticking to your knitting, or leaping into new areas of innovation?
GH: We will stick to our knitting. In this game, one needs to keep on innovating and developing products, keep up to date with technology trends and maintain market and product leadership.
HSS: How would you position Inhep Electronic Holdings, as a business in terms of its core competence, its focus on the future and what is does best?
GH: Inhep has a great track record. I think we have got the team in place to build on this, to continue doing what we do well, from R&D, all the way through to a great manufacturing facility. We have done that well over the years and we know we can be competitive as a local manufacturer. It has always been key to our success.
We have got a great channel to market through our offices and our dealer footprint, and we are looking to grow that significantly going forward. The market in which we are playing, is wider than our current footprint and we will certainly look at any opportunities going forward, that have a good fit and that will give us the type of growth that we are looking for.
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