Sireletso Protective Group Business Plan — Investment Returns

A 23.1% project IRR and 38.5% equity IRR, the exit routes available, and the assumptions the return depends on.

Investment Returns

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Figure 24. Returns against the exit assumption.

Measure	Value	Basis
Equity invested	R11.95m	Fully subscribed at financial close
Total funding at close	R26.56m	Equity plus the senior term loan
Year 5 EBITDA	R14.11m	At a 13.2% margin
Exit multiple	5.0x	Applied to Year 5 EBITDA
Enterprise value at exit	R70.55m	Derived
Net debt at exit	R9.67m	Term loan R6.61m plus facility R11.83m less cash R8.77m
Terminal equity value	R60.88m	Enterprise value less net debt
Project IRR	23.1%	On total funding, inclusive of the terminal value
Equity IRR	38.5%	On the equity subscription; no interim distributions
Money multiple on equity	5.09x	Terminal equity value over subscription
Project NPV at 22%	R1.44m	Marginally positive at the hurdle rate

Exit multiple	Enterprise value	Terminal equity	Project IRR	Equity IRR	Money multiple
3.5x	R49.38m	R39.71m	16.3%	27.1%	3.32x
4.0x	R56.44m	R46.77m	18.8%	31.4%	3.91x
4.5x	R63.49m	R53.82m	21.0%	35.1%	4.50x
5.0x	R70.55m	R60.88m	23.1%	38.5%	5.09x
5.5x	R77.60m	R67.93m	25.1%	41.6%	5.68x
6.0x	R84.66m	R74.99m	27.0%	44.4%	6.27x

The gearing is doing most of the work, and the exit is doing the rest

The unlevered project earns 23.1 per cent against a hurdle in the low-to-mid twenties, with a net present value at 22 per cent of R1.44 million on a R26.56 million commitment. That is a marginal proposition on its own. The equity earns 38.5 per cent because R14.61 million of term debt is priced at 13.75 per cent against that 23.1 per cent unlevered return, and because the distribution lock-up means the whole return compounds inside the business until exit. Both features cut the other way in a downside: leverage amplifies a shortfall as efficiently as it amplifies a surplus, and an exit at four times rather than five takes the project return to 18.8 per cent and the equity return to 31.4 per cent. An investor underwriting this transaction is underwriting an exit multiple for a specialist security services business with contracted annuity revenue, and should form that view independently of the trading forecast.

18.1 What the buyer is buying

Asset	Year 5 position	Comment
Contracted annuity revenue	The majority of R107.17m	12 to 36-month contracts with wage-linked escalation
Deployed establishment	168 certified protective personnel	The constraint on any acquirer trying to build the same capability
Accredited academy	SASSETA-accredited, operating	A proprietary pipeline into the industry’s scarcest input
Control room and compliance record	Operating from month seven	What corporate procurement requires and most competitors lack
Advisory practice	11% of revenue at 72% margin	The line that differentiates the Company from a supplier of bodies
Fleet, armoury and systems	R7.43m net book value	The smallest component of what is being acquired

A trade buyer acquiring this business is buying a licensed, staffed and contracted platform rather than a set of assets. The net book value of the fleet, armoury and control room at Year 5 is R7.45 million against an enterprise value of R70.55 million, and that gap is the whole of the case for a five times multiple: what cannot be bought quickly is the registration, the accredited academy, the officer establishment and the incident record.

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