MFS pursues private credit opportunities
Despite still being in the process of finalising its first acquisition since listing on the Jamaica Stock Exchange (JSE), MFS Capital Partners Limited is moving ahead with plans to capitalise on private credit and bridge financing opportunities.
Subsequent to listing on the JSE Junior Market in August 2022, MFS Capital signed a memorandum of understanding (MOU) to acquire Micro Finance Solutions Limited (MFS) a year ago, with plans to take additional stakes in other more mature and scalable companies and shift its focus into the private equity space. But those plans have stalled as the company works with the Bank of Jamaica to complete the takeover of the microcredit institution.
“When we announced our first acquisition we didn’t anticipate some of the regulatory hurdles involved in completing the process, so we’re waiting on the final go-ahead now,” MFS Capital CEO Dino Hinds informed Jamaica Observer.
He noted, however, that the prolonged acquisition process has provided the company with insights and lessons it can use in its future pursuits of purchasing stakes in regulated companies and expressed that he doesn’t anticipate future acquisitions to take as long a time. The most important lesson he highlighted was the need to engage regulators for a “no-objection letter” as soon as an agreement is reached between both companies.
Notwithstanding the setbacks, Hinds pointed out that the company is still preparing for other private equity opportunities.
“We’ve already modelled out what the balance sheet and [profit and loss] would look like post-acquisition, and we’re very pleased with that. We also have a pipeline of projects and, in fact, we could have moved some of them ahead of MFS if we wanted to speed up the acquisition process and sign MOUs, but we are so close to completing the MFS acquisition; we wanted to do that first then move to the other projects,” he explained.
When asked what are some of the industries in which MFS Capital will be pursuing opportunities, Hinds named the money services, real estate, pharmaceutical, and health care industries, adding that while the company has its preferences, it was still open to any possibilities.
In the meantime, MFS Capital continues to carry out its due diligence on the companies in its pipeline with a view to move “aggressively” to finalise deals once the Micro Finance Solutions transaction is completed.
“There’s much to gain from the acquisition. Our intention is to more or less perfect the private equity model, in terms of acquiring portfolio companies, growing them to a particular level, and then while growing them get income from them and at some stage you make a decision as to whether you’re going to list that company or sell a stake or sell off the entire company,” Hinds outlined.
“That’s our intention and that’s why we’ve stated that we’re looking for fast-growing companies that are generating revenues of over $100 million and are scalable. So we want companies that we can inject our resources into, to grow them quietly then extract value within a two-year to five-year horizon, depending on the size of the company and how fast we can scale it,” he continued.
While the company waits for its private equity opportunities to hatch, it has in the interim ventured into the private credit and bridge financing space, thus diversifying its income streams. For the company’s first quarter ending September 30, 2023, MFS Capital generated $2.77 million in other income, up from $3,066 recorded in the corresponding period the year before. Core revenue for the period stood at $297,000.
For the period under review, MFS Capital sustained a net loss of $8.07 million, relative to profit of $5.36 million in the same period in 2022/23.
“We had announced the move from microfinance to private credit. That interest income from our private credit will become a core revenue line for us since we’re offering that in the core company (Micro Finance Solutions),” Hinds told Business Observer.
“So we think we’ve done pretty well in terms of those line items, but where we know we’ll see remarkable changes and improvements in our revenues is in the completion of the acquisition of MFS,” he added.
Pointing to the company’s acquisition pipeline, Business Observer asked the CEO if the company has plans for a capital raise. In this regard, he shared that he is not in a position to disclose that until the board meets and makes such a decision, announcing it through the JSE and inviting shareholders to vote on the matter.
Though he acknowledged that the company’s undertaking of expanding its balance sheet will require more capital, Hinds did not rule out a possible additional public offer or rights issue. However, he indicated that the company could support its capital structure through debt financing.