3 February 2023
Johannesburg, South Africa
1.1. Divercity Urban Property Group is a South African company that invests in, develops and manages transformative social and affordable housing in South Africa’s major urban Nodes.
1.2. In the context of a country that is still grappling with the legacy of Apartheid Era spatial segregation, the value of offering previously marginalised, low-wage earning households access to affordable and dignified housing in well-located, amenity rich neighbourhoods is immense.
1.3. Furthermore, significant additional positive social and environmental impact emerges from our development model – as recognized in our recent shortlisting (top 5 globally) of the UN-PRI “Best Real World Impact” award.
1.4. As CEO of Divercity, I am pleased to respond to this request for evidence and share some observations on how Divercity has benefitted in pursuing its mission from the investment and post-investment support it has received from British International Investments.
1.5. Listed below are short responses to the relevant questions which Divercity is in a position to comment on.
2.1. Divercity is a BII investee company that has been through the BII investment decision-making process.
2.2. From our experience, it is apparent that BII follow a rigorous investment decision-making process that has all the best-practice hallmarks of private equity investment decision-making that would be typical of any sophisticated PE investor.
2.3. In our experience, BII have been among the most commercially astute dealmakers that we have dealt with, and there is certainly nothing concessionary about the returns that the BII team expect on their investment. If anything, the returns expectations are above that of sophisticated domestic South African private equity investors.
2.4. In addition to seeing solid commercial returns, BII insists on the demonstration of material positive impact – in particular in the areas of gender equality and environmental sustainability. Fortunately, Divercity has significant impact in these two areas, and in dealing with the BII team we have been able to improve how we measure and articulate this impact.
3.1. The BII investment into Divercity was largely negotiated and concluded during the height of the COVID-19 pandemic. During this time, our business – like many other businesses – was experiencing significant financial strain.
3.2. To the credit of the BII team, they took a view of the Divercity business and mission and looked “through the cycle”, and in doing so supported our business with a meaningful and catalytic investment that few other market players would have considered under those macroeconomic and market circumstances.
3.3. This may be one of the least appreciated areas of significant impact of BII’s model of impact investing, whereby it is willing to take (well calculated) risks on providing essential financial support to meaningful and impactful businesses during times when general liquidity dries up in the market.
4.1. As noted in paragraph 2 above, our experience is that the BII investment and due diligence process is on par with global best practice for sophisticated private equity investors.
4.2. In additional to the strong commercial skillset of the BII deal team, a top tier team of professional consultants were appointed to support their due diligence efforts.
4.3. If anything, the intensity of this process might be considered a prohibiting factor that may in instances preclude BII from making investments into smaller or more resource constrained businesses that may not have the internal capacity or skillset to deal with such an intensive due diligence process.
4.4. In the case of Divercity, which is a sizable business with a strong and experienced management team, the BII due diligence took up the majority of management bandwidth for a period of at least 6 months. It would be worth considering whether, in order to maintain this level of due diligence, additional financial support could be made available to due diligence targets to support them in the process while not sacrificing focus on their day to day operations.
5.1. In our experience, BII has been a very active investor in our business post-investment.
5.2. The BII team remain fully up to date with the latest performance data and happenings of the business, and plan and active and positive role on our respective board committees and related forums.
5.3. It should be acknowledged that Divercity has benefited significantly in the formalisation of some of its internal governance and management practices thanks to the guidance and involvement of the BII team.
6.1. In our experience, BII conducts extensive formal quarterly and annual impact monitoring by means of data capture from our business.
6.2. In addition, through their direct involvement and participation in the Social Ethics and Impact Committee of the Board, a more regular informal oversight and input function is fulfilled.