In its first major acquisition since the closure of its R300 million private equity fund six months ago, Kagiso Ventures - the private equity arm of Kagiso Trust Investment Company (KTI) - has purchased a 33,75% stake in the highly successful security company - Callguard Security Services - in a R75 million transaction effective 1 March 1999.
The Callguard Group, which has an annual turnover of almost R120 million, consists of five companies operating in the areas of guarding, electronic surveillance and access control, forensic investigations and training.
Kagiso Ventures beat off a number of competitors for a stake in the 18-year old contract security services company which has a predominately blue-chip client base.
Says Kagiso Ventures CEO, Funke Oyewole, "This acquisition is in line with our investment criteria. With its high profile position as the third largest security guarding firm in South Africa, its excellent track record, strong management team, solid income stream, its positive growth and future potential, we are satisfied that it will prove to be a sound and profitable investment.
"Furthermore, Callguard was seeking a BEE partnership with a group which could add value to the company, open new competitive areas and provide strategic support at board level."
Says Dave Lyons, founder and Executive Chairman of the Callguard group, "We saw in Kagiso a perfect partnership. Despite the established nature of Callguard's business, we have a young and dynamic management team with an average age of 34, with many of our executive team having grown-up in the company and having been with us for over 10 years.
"We were specifically seeking partners who would blend well into the culture of the company and we have found this in the Kagiso team. The negotiations leading to this acquisition have resulted in a cohesive team which already works well together."
Callguard Security has approximately 700 contracts, 4000 employees and a nationwide infrastructure of 16 branches which enables it to provide clients with fully integrated solutions to meet their security requirements.
Electronic security the company's fastest growing area
Guarding currently constitutes as much as 90% of the group's business. However Callguard Electronics, formed a year ago, turned in a first year turnover of R2 milion and is on track for a turnover of R6 million in 1999, proving itself to be the fastest growing area of the business.
Says Lyons, "The move into electronic surveillance, security and access control was a natural progression as it allows us to provide clients with optimal solutions to meet security requirements. As a distributor of the Reditron electronic surveillance products, Callguard Electronics, combined with the expertise of Callguard Security, has both the expertise and knowledge to design and deploy a fully integrated solution for clients."
Callguard typically begins a relationship with clients with a total security needs analysis and combines guarding, electronic surveillance and other services such as weighbridge management, stock control and inventory management to meet the specific needs of top tier clients such as SA Breweries, ABI and Colgate.
Outsourcing trend offers growth opportunities
Lyons reports that the future growth of Callguard will come from the opportunities now open to the group to tender for government and quasi-government business. In addition, Lyons says that the trend towards outsourcing of non-core businesses is growing and indicates that as much as 20% of the total security industry is still operated by in-house security divisions. This largely untouched market provides exceptional growth opportunities.
"The reason that these areas will ultimately be outsourced is that generally, they are not run according to commercial principles and, as a result, are viewed as cost centres. This is in our favour as commercial security operations can usually cut these costs by 30% while providing a far superior service, often while demonstrating a 100% improvement.
"The superiority of service relies on superior training and this is an area which we, at Callguard, devote a substantial amount of energy to.
"Over the years, through Callguard Training College, we have developed security management and guarding training courses which are UNISA approved and our training centres are driven by community demand as opposed to our requirements. As a result many of the trained security guards in specifically in-house security divisions are Callguard graduates.
Kagiso - a working partnership
Kagiso Ventures is the wholly owned subsidiary of Kagiso Trust Investment company (KTI) that manages a R300 million private equity fund, in which KTI is the largest single investor. The fund is the primary vehicle for all KTI minority investments in non-listed companies.
Says Oyewole, "We are continually seeking opportunities to make investments which offer a high rate of return and provide an opportunity for long term capital growth. We are particularly pleased with this acquisition as it allows us to provide financial backing to a strong management team which is committed to the growth of its business.
"Future investments will be of a similar high calibre and will be pursued with high growth companies seeking expansion or replacement finance or black partners. We will look carefully at industry sectors which offer consistently positive returns, and will exclude those of a cyclical nature.
"Investments will be made in companies which are well-positioned in their respective industries, either as leaders or as serious challengers.
"It is our intention to enter into partnerships with the management teams in such a way that the resources and skills of Kagiso Ventures can be used to build long term value, thereby establishing mutually beneficial relationships.
"We do not believe in simply providing capital.
"Our approach is proactive and includes the creation of innovative solutions tailored to the various financing needs of growing companies, providing operational and strategic support to management by utilising our extensive network of contacts, and working in partnership with management to compile coherent and achievable business plans."
For details contact Janet Bredell, Marketing and Sales Director of Callguard Security Services on telephone (011) 804 4722, fax (011) 804 6365; or Funke Oyewole, Managing Director of Kagiso Ventures on telephone (011) 807 4562, fax: (011) 807 7074.
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