07 March 2008

Financial Mail
Larry Claasen

It now seems to have been destined that two companies with deep roots in AltX, the JSE's junior board, should reach a R90,75m deal where one will buy some of the larger assets of the other.

Small financial services group Vunani is buying some of the assets in Exchange Sponsors, an advisory firm that has helped list or transfer 28 companies onto AltX since 2005.
 
Exchange Sponsors gets some revenue from preparing documentation for listing, and gets paid a fee for attending board meetings, but it makes the bulk of its money by taking a percentage of the capital it raises before listing.
With 39 of the 79 companies on AltX having list ed during the past year, it's a good business to be in - especially good for Exchange Sponsors, as the companies it has helped list account for about 35% of the R31bn market cap of AltX.

The deal further cements the financial services group to AltX. Vunani, which is itself on the junior exchange, has representatives on the boards of six other AltX-listed companies it has holdings in. Vunan i CEO Ethan Dube serves as chairman of two of them.

From the outside it looks like there is long-term strategy on the part of Vunani to dominate the junior board, but Dube says the group's initial involvement with AltX was coincidental. "We were not really looking at AltX-listed companies."

He says Vunani inadvertently became involved in AltX companies because it had taken the view three years ago that it would invest in well-run, medium-sized companies in the infrastructure, construction and mining sectors.

Exchange Sponsors founder Wessel van der Merwe is buying out some of the assets of the group's operating company, Corporate Solutions, and reselling them. Vunani gets 65% of its staff, more than half of its contracts and the treasury division of Corporate Solutions, Treasury Resources.

Van der Merwe will head the newly formed Vunani Corporate Finance, which will house Exchange Sponsors businesses. The remaining Exchange Sponsors businesses will be run by Van der Merwe's former partner at Exchange Sponsors, Marius Meyer.

The deal's complexity stems from the two shareholders in Exchange Sponsors having differing views on which way to take the company, so they decided to split it up. "It is really a divorce," Van der Merwe admits.

Meyer gets to hold onto the Exchange Sponsors brand and continues the partnership with Grindrod Bank.

Van der Merwe plays down concerns that there will be a conflict of interest arising from Vunani now being able to use client information to sell them other services. "Obviously we will have Chinese walls in place," he says.
He points out that financial institutions like RMB and Standard Bank are in a similar position, and take precautions to prevent the misuse of confidential information.

For Van der Merwe the deal gives him the kind of clout he's dreamt of. He gets to leverage Vunani's balance sheet, has access to its research unit and acquires an empowerment partner.