# Can private equity do for Africa’s manufacturers what it’s done for F1 and rugby?
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2022-11-14
Category: INVESTING
Category URL: https://financedigest.com/category/investing
Meta Title: Private Equity in Sports: Lessons from F1 and Rugby Success
Meta Description: Discover how private equity investments are transforming the sports industry and can contribute to Africa's manufacturing sector growth. Learn from
URL: https://financedigest.com/can-private-equity-do-for-africas-manufacturers-what-its-done-for-f1-and-rugbyhtml

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_![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/532-1736814865806-compressed.png)_

_By **Bryan Turner, Partner**, Spear Capital_

A few years ago, if you’d asked the average rugby or Formula One (F1) fan whether they thought private equity investment would be good for their sports, you’d probably have gotten a vociferous “No!” in response. Those with knowledge of the wider world of sports would’ve pointed to deals like the Glazer family’s 2005 leveraged buyout of Manchester United (funded by massive loans) as an example of how private money could alienate fans and directly contribute to a sporting entity’s slump. F1 fans, meanwhile, could legitimately point out that private equity investments [dating back to the late 1990s](https://en.wikipedia.org/wiki/Formula_One_Group) had done little to grow the sport.

And yet, thanks partly to some savvy investments, F1 is today more popular than ever and is even cracking America (something it’s always struggled to do). In rugby, meanwhile, there are several instances of private [equity investments](https://www.financedigest.com/norway-wealth-fund-to-consider-investing-in-unlisted-equities.html "Norway wealth fund to consider investing in unlisted equities") successfully shaking the entities involved out of mindsets still rooted in the amateur era. As a result, the overall [product has improved and is reaching new markets](https://www.financedigest.com/extruded-soy-products-market-overview-analysis-by-source-type-product-regional-outlook-industry-analysis-report-and-forecast-2022-2029.html "Extruded Soy Products Market Overview & Analysis by Source, Type, Product, Regional Outlook, Industry Analysis Report and Forecast, 2022 – 2029").

There are lessons in these successes, and not just for other [sporting bodies](https://www.financedigest.com/quidditch-becomes-quadball-as-sports-bodies-change-name.html "Quidditch becomes quadball as sport’s bodies change name"). Take Africa’s manufacturing sector, which currently contributes [just 1.9%](https://www.afdb.org/en/the-high-5/industrialize-africa) of globally manufactured goods, for example. With the right kind of backing, the continent has many of the ingredients necessary to [become a global manufacturing](https://www.financedigest.com/uk-becoming-less-attractive-for-investment-manufacturers-warn-2.html "UK becoming less attractive for investment, manufacturers warn") powerhouse.

**Add value, find the right buyers**

Before looking at how private equity could help contribute to that vision, it’s worth understanding what separates the kind of private equity [investments that have benefitted F1 and parts of the rugby world](https://www.financedigest.com/breaking-the-stigma-men-and-mental-health-in-the-world-of-investments.html "Breaking the Stigma: Men and Mental Health in the World of Investments") from the kind of buyouts that leave fans wondering how it all went so wrong so quickly.

To my mind, good [private equity investments](https://www.financedigest.com/procurementin-european-private-equity-investment-adding-value-to-the-boardroom.html "Procurement in European private equity investment – adding value to the boardroom.") are distinguished by two things: the ability to add value, and to find the right buyer when the time comes.

When it comes to adding value, it should be clear that I’m talking about more than simply providing the funds that sporting entities [need to survive and thrive](https://www.financedigest.com/10-secrets-every-entrepreneur-needs-to-thrive-in-2023.html "10 Secrets Every Entrepreneur Needs to Thrive in 2023"). In rugby, a good example of this is the [role played](https://www.financedigest.com/the-role-embedded-finance-systems-will-play-as-commerce-goes-increasingly-digital.html "The Role Embedded Finance Systems Will Play as Commerce Goes Increasingly Digital") by CVC Holdings (a previous investor in F1), which holds stakes in the Six Nations, Guinness Premiership (England’s top-flight competition), and the United Rugby Championship (URC), among others. Its stakes in these competitions have helped put all of them in a [stronger position to negotiate](https://www.icaew.com/technical/corporate-finance/private-equity/private-equity-investment-in-sport) broadcast deals. In the URC, CVC Holdings has also reduced the number of fixtures on weekends for international games so as not to dilute the product.

Another good example of a private equity investor adding value in rugby is MVM Holdings, which took a [controlling stake](https://sharksrugby.co.za/2021/01/07/us-consortium-to-take-a-majority-ownership-in-the-sharks/) in The Sharks in January 2021. Its relationship [with Roc Nation](https://www.sarugbymag.co.za/sharks-join-forces-roc-nation/), the sports management company headed by US rapper Jay Z, helped bring World Cup-winning captain [Siya Kolisi](https://sharksrugby.co.za/2021/02/17/siya-kolisi-is-officially-a-shark/) and several other marquee players to the franchise, which plays its rugby out of Durban on the East coast of South Africa. It’s also worked with the franchise’s already savvy management team to improve the [stadium and matchday experience](https://www.news24.com/sport/rugby/rugbychampionship/poignancy-abounds-as-kings-park-finally-sells-out-again-with-springboks-rolling-into-town-20220919) for fans.

It’s also [important to remember that those value-adds typically aren’t made with permanent ownership in mind](https://www.financedigest.com/minding-the-gap-the-importance-of-inclusive-financial-strategies-as-digital-currencies-rise.html "Minding The Gap: The importance of inclusive financial strategies as digital currencies rise "). While [private equity](https://www.financedigest.com/private-equity-so-much-more-than-just-money.html "Private equity – so much more than just money") firms (particularly those in the sporting sector) usually take a longer-term approach, their ultimate goal is to exit to a buyer. A good investor will ensure that the sport gets the best possible buyer.

In the case of F1, that buyer turned out to be Liberty Media. The US media giant bought its stake in the motorsport from a consortium of investors, led by CVC in 2016. Since the acquisition, the group has run a targeted [marketing campaign](https://www.financedigest.com/how-the-latest-ios-update-impacts-your-digital-marketing-campaign.html "How the latest iOS update impacts your digital marketing campaign") to grow the sport in the US and around the world. The most visible part of this [campaign is the Netflix series Drive](https://www.financedigest.com/tmwi-appointed-by-zeiss-vision-care-to-drive-integrated-paid-social-campaigns.html "tmwi appointed by ZEISS Vision Care to drive integrated paid social campaigns") to Survive. The results speak for themselves. The sport has seen growing TV viewership, significantly improved broadcast deals, and [massive revenue](https://www.financedigest.com/analysis-twitters-massive-revenue-drop-adds-to-heavy-debt-burden.html "Analysis-Twitter’s ‘massive’ revenue drop adds to heavy debt burden") boosts, generating US$360 million in revenue during Q1 2022, a 100% increase from the same period in 2021.

**The right investors for African manufacturers**

While the African manufacturing sector is obviously a great deal more complex than any single sport, there are similarities that make it clear that [backing from the right investors](https://www.financedigest.com/glencore-courts-120-teck-investors-for-bid-backing-as-spinoff-vote-looms-source.html "Glencore courts 120 Teck investors for bid backing as spinoff vote looms -source") could help manufacturers across the continent fully realise their potential.

As with F1 and rugby, for example, many of the right ingredients are already there, they just need to be optimally brought together to ensure that the continent’s [manufacturers are in a position to be competitive](https://www.financedigest.com/automotive-mems-sensor-market-key-manufacturers-development-trends-and-competitive-analysis-2028.html "Automotive MEMS Sensor Market Key Manufacturers, Development Trends and Competitive Analysis 2028"). [Raw materials](https://www.financedigest.com/henkel-trims-earnings-outlook-on-raw-material-price-spike.html "Henkel trims earnings outlook on raw material price spike"), especially those drawn from natural resources, exist in abundance. And while population groups in other regions around the world are ageing, [40% of Africa’s population](https://www.statista.com/statistics/1226211/population-of-africa-by-age-group/#:~:text=The%20youngest%20continent%20in%20the,global%20average%20of%2026%20percent.) is under the age of 15. That not only means a growing consumer base (especially with the return of economic growth),uti but also a growing labour [force in the coming](https://www.financedigest.com/the-glorious-twelfth-what-underwriters-should-be-doing-as-the-insurance-act-comes-into-force.html "The Glorious Twelfth: What Underwriters Should Be Doing As the Insurance Act Comes Into Force") years. As connectivity becomes cheaper and more ubiquitous, both will be better educated and more sophisticated.

It’s also worth pointing out that various trade deals, including the [African Continental Free Trade Area](https://www.worldbank.org/en/topic/trade/publication/the-african-continental-free-trade-area), will come into their own in the next few years. These [deals will ease](https://www.financedigest.com/analysis-g7-fails-to-reach-intervention-deal-to-ease-pain-of-soaring-dollar.html "Analysis-G7 fails to reach intervention deal to ease pain of soaring dollar") the flow of goods across borders on the continent, further incentivising manufacturing growth.

But in order to fulfil that potential, manufacturers [need investment](https://www.financedigest.com/5-reasons-why-women-need-to-get-into-property-investing.html "5 Reasons why women need to get into property investing"). According to [one economist](https://www.engineeringnews.co.za/article/a-10-increase-in-manufacturing-investment-could-yield-a-13-boost-to-the-economy-2022-09-08), a 10% increase in investment in South Africa’s manufacturing sector could yield a 13% boost to the economy and an eight percent increase in employment creation. Imagine similar results across the continent.

But, as various sporting examples show, investment cannot exist for investment’s sake. Manufacturers in need of private [equity investment should seek out investors](https://www.financedigest.com/uk-investors-add-1-2-billion-to-equity-funds-in-march-calastone.html "UK investors add .2 billion to equity funds in March – Calastone") that add value by exposing them to networks and helping them enter new markets, for example. Further [value can be added helping them meet](https://www.financedigest.com/fintech-incubation-more-value-than-meets-the-eye.html "FINTECH INCUBATION: MORE VALUE THAN MEETS THE EYE") the environmental, social, and governance (ESG) standards that many markets now demand.

Manufacturers should also ensure that prospective [private equity investors are open](https://www.financedigest.com/barclays-private-bank-opens-new-office-in-verbier-switzerland-for-2022-23-ski-season.html "Barclays Private Bank opens new office in Verbier, Switzerland for 2022/23 Ski Season") and transparent with them when it comes to targeting eventual acquirers. Ultimately, if an acquisition is something in a [manufacturer’s future](https://www.financedigest.com/technology-skills-and-servitization-a-brighter-future-for-manufacturing.html "TECHNOLOGY, SKILLS AND SERVITIZATION: A BRIGHTER FUTURE FOR MANUFACTURING?"), they should want it to be by a company that’s aligned with its value and share its long-term vision.

**Snowball effect**

None of this, of course, is to say that [private equity investment will have as immediate an impact](https://www.financedigest.com/4-trends-that-will-have-a-major-impact-on-private-equity-in-2021.html "4 Trends that will have a major impact on private equity in 2021") on African manufacturing as it has on F1 and rugby. But by looking for investors who add [value and lay out viable acquisition](https://www.financedigest.com/iris-acquisition-enables-accountants-to-add-greater-value-to-their-clients.html "IRIS acquisition enables accountants to add greater value to their clients") plans, they put themselves in the best possible position for growth. As more and more manufacturers get that right, it will have a snowball-like effect, helping foster further [growth even in the face of the continent’s very real challenges](https://www.financedigest.com/retreating-up-the-risk-curve-is-no-solution-to-the-growth-challenge.html "Retreating up the risk curve is no solution to the growth challenge").


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