Brait SE, a leading investment holding firm partially owned by South African billionaire Christo Wiese, has cut its yearly advice fee to The Rohatyn Group to R50 million ($3.33 million), down from the original R200 million ($13.3 million) it paid to manage its portfolio.
Brait, once the strongest private equity firm in town, has experienced a spectacular downturn, shedding 95 percent of its market value during the last five years. The price decrease announcement was buried in Brait’s yearly financial statements, which were released at the end of June.
Last year, Brait paid R65 million ($4.33 million) for advisory services, a significant decrease from the R215 million ($14.3 million) previously spent. This reduction is part of a larger attempt to control costs and recover value from a failing portfolio.
Following a forced recapitalisation in 2019, Ethos Private Equity stepped in to save Brait, injecting R1.35 billion ($90 million) as part of a total R5.6 billion ($373.33 million) rights offering. This commitment was made by Ethos Fund VII (R750 million or $50 million) and listed Ethos Capital (R600 million or $40 million). Ethos took over management of Brait in March 2020, and it was later acquired by The Rohatyn Group in 2023.
Initially, the arrangement with Ethos resulted in a significant reduction in consulting expenses, which were slashed in half. However, terminating the arrangement cost Brait over R100 million ($6.67 million) in retrenchment and office closure costs.
In the first year (FY2021), Brait paid Ethos R100 million ($6.67 million) for portfolio management, which was increased annually for inflation. Throughout the Covid-19 pandemic, Ethos voluntarily cut their fee to R91 million ($6.07 million). Despite this, it was granted a short-term incentive of R23 million ($1.53 million) based on key performance objectives established by Brait’s board.
The board approved a one-year contract extension for FY2024 at a lower fee of R65 million ($4.33 million), indicating a lesser portfolio.
Last year, Brait listed Premier Foods on the JSE, selling a portion of its investment and lowering its interest from 47.1 percent to 35.4%. Ethos planned to maximise and realise value from Brait’s portfolio firms over a five-year period, focusing on existing assets rather than new ones.
Brait announced in June a fully underwritten rights offering of R1.5 billion ($100 million) at 59 cents per share, as well as a three-year extension of its convertible notes, exchangeable bonds, and revolving credit facility. The time was deemed unsuitable for extracting value from the remaining three portfolio companies.
Ethos Capital is not exercising its rights and will unbundle its holding in Brait to shareholders, citing a revised strategy of winding down and not making new investments.
Brait will pay The Rohatyn Group R50 million ($3.33 million) per year, with a three-month notice period. After selling all of its investments, this cost will be reduced to R1.5 million ($0.1 million) per month to wind up Brait. The existing short-term incentive system has been replaced by a new one, under which Brait will pay up to R50 million ($3.33 million) each year depending on market capitalization increase from a base of R3.6 billion ($240 million).
Brait shares are down 43 percent this year, and the company has lost 95 percent of its market value in the last five years. During this time, Ethos was paid R414 million ($27.6 million) in advising fees, while former corporate advisor Brait received R215 million ($14.3 million).
