In a year that was overshadowed by Covid-19, one screaming headline in May 2020 caught the eyes of many financial analysts in Zambia. Was Lawrence Sikutwa about to dispose of his beloved LSA Group? The financial maestro was quick to dispel the false expose by Lusaka Times and put it on record that LSA was not for sale.
Lawerence however admitted that his group was resolved that the shared services that were provided by the LSA Group to Madison Financial Services be stopped following the restructuring and rationalization of the Group on May 1st 2020. “I do admit that some subsidiaries in the MFS Group face some challenges brought about by a number of reasons including the widely reported situation in Madison Asset Management Company (MAMCO). Rest assured that the said challenges are firmly being addressed so that they are resolved to ensure the businesses adapt, restructure and continue to thrive in the new normal,” Dr Sikutwa stated and reported by the Lusaka Times.
Fast forward to the epilogue of 2020, Lawerence’s MFS announces a complex transaction that sees multiple share purchase agreements being announced on LuSe’s Stock Exchange News Services.
“Further to the cautionary announcement by Madison Financial Services PLC (“MFS”) published on SENS dated 8th December 2020, shareholders and the market are hereby advised that Lawrence Sikutwa & Associates Limited (“LSA”) and ZFI Holdings Limited (“ZFI”), the two largest shareholders in MFS, have separately executed Share Purchase Agreements (the SPAs) with XYLEM Trading (Pty) Limited (“XTL”)”, read the SENS announcement issued by MFS Company Secretary Kafula Mwiche on behalf of the board of directors of the group on Christmas eve 2020.
The transaction, which has all the hallmarks of how Lawrence Sikutwa’s group has used equity as leverage to concentrate and dilute shareholding when financial seasons change, is evident.
In the season of asset dilution, “XTL is therefore in the processes of acquiring the combined shareholding of LSA and ZFI in MFS, which amounts to 72.05 % of the issued ordinary shares of MFS as at the Effective Date, subject to the terms and conditions as set out in the term sheet”. This would be achieved through two share purchase agreements whose anatomy is as follows:
i) The acquisition by XTL of the 100 % shareholding in ZFI from Enko Africa Private Equity Fund Limited (“Enko”) as the first leg of the Transaction. ZFI holds a total shareholding of 34.91 % in MFS; and
ii) The acquisition by XTL (via ZFI) of 37.14 % shares in MFS from LSA, as the second leg of the Transaction.
Madison as indicated earlier is no stranger to such complex transactions. In our article entitled “The Evolution of Madison Financial Services“, we chronicle how analogous transactions were executed.
“From 2000 to 2003, LSA grew and gains enough capital to ensure an increased stake in MICL with the exist of TZI and Hannover Re. Looking at the timeline, it is evident that TZI and Hannover came in for a 7 to 10 year period at which point they must have realized their return on investment. Typical of Venture Capital and Private Equity firms (VC& PE) when they achieve their desired multiple. Shareholding at exit of the two leaves LSA with 62.86% and Zambia Venture Capital Fund (ZVCF) with 37.14%.A beautiful exit no doubt.”
“In 2007 Madison Financial Services (MFS) is formed with the capital injection of International Finance Corporation (IFC)who are a bit like VC & PEs. IFC specializes in private sector development hence the value preposition of coming on board must have been attractive. LSA’s management of the firm must have been above board considering they had a 100%stake and worked well enough to attract such a noble investor. LSA reduces its stake to 80.5% whilst IFC gets 19.5%.”
“Between 2011 and 2013, 25% of Mfinance is acquired by Shorecap. In 2014, Madison Financial Services lists on LuSE. LSA reduces its shareholding to 60% with AFlife Financial Services getting a 10%stake at IPO. 30% of the company’s shares are floated to the public whilst the MFinance business commences deposit-taking.”