Kholo Capital has provided 275 million rand ($17 million) in mezzanine debt financing to South African technology distributor DCC Holdings to refinance existing debt and support its expansion plans.

The deal brings Kholo Capital Mezzanine Debt Fund I into DCC’s capital structure alongside the company’s management and existing private equity investor Kleoss Capital, according to Kholo Capital.

DCC, founded in 1988, distributes technology products across Southern Africa, including computers, printers, enterprise infrastructure and software from manufacturers such as HP, Dell and Lenovo.

The company supplies resellers, retailers and system integrators, which sell technology products to businesses and other customers or incorporate them into wider technology solutions.

Kholo Capital founder and managing partner Mokgome Mogoba said the financing would help DCC refinance its existing debt while providing room to pursue future growth.

Financing supports DCC’s growth plans

DCC chief executive Carlos Ferreira said the company welcomed Kholo Capital as a funding partner and planned to continue building its business through relationships with technology manufacturers.

The transaction provides DCC with an additional source of capital as it looks to develop its distribution business across Southern Africa.

The company has built relationships with international technology brands over several decades, although its announcement did not provide revenue figures or a breakdown of sales by country.

Kholo Capital managing partner Zaheer Cassim said DCC had developed an established distribution network and logistics capabilities during its nearly four decades in business.

Cassim also pointed to DCC’s initiatives in youth employment, support for learners with disabilities and the development of small and medium-sized enterprise resellers. The company has also introduced solar energy and water-saving measures, he said.

Kleoss Capital managing partner Hale Matsipa also commented on the transaction, describing it as an example of collaboration between investors in the private markets.

Kleoss is already an investor in DCC, while Kholo Capital provides debt financing to established businesses.

What mezzanine financing means for DCC

Mezzanine debt is a form of financing that sits between conventional senior debt and equity in a company’s capital structure. It can give a business access to additional funding without requiring existing shareholders to sell part of their ownership.

The arrangement can be useful when a company needs to refinance borrowings or fund expansion but wants to limit dilution for existing shareholders. However, mezzanine debt can be more expensive than senior bank loans because it generally ranks lower in the repayment hierarchy.

Kholo Capital targets established businesses

Founded in 2020 by Mogoba and Cassim, Kholo Capital provides alternative financing to mid-market businesses across Southern Africa.

Its Kholo Capital Mezzanine Debt Fund I has a stated fund size of 1.4 billion rand. The fund finances activities including business expansion, acquisitions and debt refinancing, according to information published by the firm.

Kholo Capital says its typical investments range from 70 million rand to 205 million rand and target businesses generating at least 25 million rand in annual earnings before interest, taxes, depreciation and amortisation (EBITDA), a measure of operating performance.

The 275 million rand DCC transaction is larger than that stated investment range. Kholo Capital says it can support larger deals through co-investments from its limited partners or syndicated financing arrangements. The announcement did not say whether either structure was used for the DCC transaction.

The fund invests across sectors including infrastructure, financial services, healthcare, education, telecommunications, renewable energy, food and services. Its strategy focuses on established businesses with cash-generating operations.

Mezzanine financing allows investors to earn interest income and, depending on the structure, potentially participate in equity-linked returns. For borrowers, the trade-off can be a higher cost of capital than conventional senior debt.

Deneys acted as legal counsel to Kholo Capital, while Webber Wentzel advised DCC, according to the announcement.

Kholo Capital provides tailored funding solutions for a variety of transaction types, including growth capital, acquisitions, management buy-outs, leveraged buy-outs, private equity transactions, share buybacks, refinancing of shareholder loans and dividend recapitalisations.

The fund also partners with businesses to optimise their capital structures, including refinancing portions of senior bank debt to improve cash flow and create additional headroom for reinvestment and expansion.

Kholo Capital adopts a disciplined investment approach, with leverage typically capped at 3.5x to 4.0x total debt to EBITDA and up to 80% loan-to-value, ensuring a minimum 20% equity buffer.

Investments are made in established, cash-generative businesses, and the fund does not invest in distressed situations or standalone greenfield projects without appropriate guarantees from qualifying operating entities.