Ethos and Goldman place bets on South African gaming company

Ethos Private Equity, one of South Africa’s largest domestic buyout firms, and Goldman Sachs are heading a consortium to buy local casino Gold Reef Resorts, in the US investment bank’s first deal in the country.

A consortium led by Ethos Private Equity and Goldman Sachs has launched a fully funded bid of R11.4 billion ($1.5 billion; €1.1 billion) for Gold Reef Resorts, a casino operator, despite recent credit turmoil.

The offer is worth R34 a share and comes three weeks after the consortium said it was preparing a bid at the height of the crisis of confidence in global financial markets.

Ethos, which last year raised one of South Africa’s largest dedicated private equity fund at $750 million, is bidding alongside investment and real estate funds managed by  Goldman Sachs in tandem with a Black Economic Empowerment group.

Black Economic Empowerment is the name given to a programme launched in post-apartheid South Africa to allow previously disadvantaged groups to participate in economic opportunities. A BEE group currently owns 4.9 per cent of Gold Reef, but would own 30 percent of the new company. 

The consortium is backing the current management team. The investment is Goldman Sachs’ first private equity investment in South Africa.

Gaming and casino operators have been attracting private equity bidders of late on a global scale, not least because of their property assets. By July this year, private equity funds acquired $27.5 billion (€20 billion) of hotel and casino operations, a 600 percent increase on the first half of 2006 according to data from Dealogic.

Last month Dubai World invested $5 billion (€3.3 billion) in MGM Mirage, the world’s second largest casino group. That followed a deal in June by Fortress Investment Group to takeover Penn National Gaming for $8.9 billion (€6.7 billion). Last year, Oaktree Capital Management acquired a 33 percent stake in Cannery Casino Resorts and Apollo Management teamed with TPG Capital to buy Harrah’s Entertainment for $17 billion.

South Africa’s gambling legislation was overhauled when apartheid fell in 1994. The acquisition of Gold Reef will give investors ownership or stakes in five casino resorts and two under development. Gold Reef City Casino and Theme Park in Johannesburg, which opened in 2000, is probably the jewel in the crown and is a complex where visitors can gamble 24 hours a day.