South African fund manager Mergence Group has expanded to the commodity finance market after acquiring a majority stake in Riparian, the largest independent trade commodity finance firm in the country.
With the acquisition, the company aims to address the growing financing needs of commodity firms in the Southern African region.
Now rebranded as Mergence Commodity Finance, Riparian has to date focused on grain and oil seed finance traded on the South African Futures Exchange (SAFEX), a sector that due to drought, has been in particular need of finance.
“South Africa has a dual agricultural economy, with both well-developed commercial farming and smaller-scale communal farming in the rural areas,” says Masimo Magerman, co-founder and managing director of Mergence Group. “Our new acquisition, Mergence Commodity Finance, allows us to strategically play in a niche gap by straddling the two.”
According to deal originator Franklin Williams, the acquisition will allow the company to expand its focus to the entire spectrum of commodities, including in the energy and base and precious metals sectors.
He adds that, especially given the constraints on bank lending in the wake of Basel III regulation, the need for commodity trade finance is set to grow within Southern Africa. The company aims to bridge this gap. “There is a dire need for corporates to finance working capital. As an efficient team, we will work together with banks to offer nimble solutions,” he says.
The R32bn (USD$2.5bn) Mergence Group was founded in 2004 and has three subsidiary companies ranging across derivatives trading, property and investment management, now including commodity finance. Riparian’s team of five people have relocated from Johannesburg to Cape Town, where Mergence has its offices, and whose team now adds up to 39.