Newsletter, Volume 23 | July 2021
Who would have thought when we last spoke that the month of July would have such a tsunami in stall for South Africa! With the vaccine rollout picking up momentum, glimpses of economic recovery and evidence that the South African justice system is still robust, who could have foreseen what unfolded in parts of South Africa over the past weeks?
There has been extensive insights and coverage around these events, so I thought it important to bring it back to the impact on the M&A market. In our view, based on several meetings with international buyers from Portugal, China, Spain and Sweden, the events have been seen as a once-off event that has been building for some time due to the political and socio-economic landscapes in South Africa. As one of these buyers rightly pointed out, South Africa was not a bed of roses prior to the unrest but remains attractive to global acquirers in multiple industries. This was a relief on one level, but a harsh reminder of the fragile business environment that we operate in.
The buoyancy of the M&A market remained in place over July which we see as a positive barometer to keep driving growth and investment into the South African economy.
Wishing you success and resilience
Andrew & Rick
by Andrew Bahlmann
Success in selling or buying a business is easily defined … or is it? It depends on who you are speaking to!
It would be fascinating to be able to take a poll with every successful, and unsuccessful, buyer and or seller over the past few years and assess how they saw their M&A transactions unfold. From the highly motivated, high “sales” mode upfront, to the adrenalin of the bidding and negotiation phase and ending off with the complex and frustrating due diligence and completion process.
How many of you look back and say, “Wow, what a successful transaction!” and how many would ask “What just happened, and why did we get it so wrong?” There is no debating that hindsight is a powerful tool. If this is the case, why haven’t we learnt to use it more effectively when it comes to buying and selling businesses to prevent us from making the same mistakes time and time again. It is easy to reflect on the M&A process and make a sweeping statement as I have just done. However, that would be very short-sighted of me.
Why is that, you may ask?
Well, the complexities of concluding the successful sale or purchase of a business are indeed extreme for everyone involved. When I talk about “everyone involved” I refer to the buyer, the selling shareholder and the management team of the business being sold. Here you have 3 parties with 3 very different sets of requirements.
Looking at the above diagram, you can see that only 30% of the most common “non-negotiables” are aligned between the 3 parties. No wonder we look at the “fallout” of the sale of a business and question what the true benefits have been. This fallout could take the form of value destruction, a burnt-out management team, reputational damage, and operational interruptions.
Surely there is a way to get the average up from 30% as far as stakeholder alignment is concerned. If we were a company that had 3 directors who were aligned only 30% of the time, it wouldn’t take a genius to figure out whether our business was going to succeed or not. This isn’t a completely accurate comparison, but its close enough. If the buying and/or selling of businesses is of strategic importance to you, then the need to get effective stakeholder alignment becomes an imperative and not a “nice-to-have”.
The theory is always easy. The real challenge is in the how we get it right. The simple answer is “it depends!” Before you jump down my throat for sounding like the weather forecaster, let me qualify my answer.
Certain deals are better suited for certain processes. Businesses in large, high demand industries may attract many local and international buyers, which would require a very structured process that follows the traditional auction route. From a seller’s perspective, this is first prize as you have several buyers knocking at your door. In our recent conclusion for a South African listed group, we had 13 bidders at the table. On two current deals we are working on, we have 5 and 6 bidders respectively. This gives you a great deal of control and choice, both being critical cornerstones of what we believe one must achieve through a sale process. What could be better than multiple buyers bidding against each other? What could possibly go wrong? (Hold that thought!).
Take the same scenario detailed above and put yourself in the management team’s shoes of the business being sold. We are talking about a management team that:
- typically, doesn’t own equity in the company being sold,
- has a business to run and targets to meet,
- has to manage all of the due diligence (DD) preparation,
- must interact and manage multiple bidders in multiple DD phases simultaneously (while having to run their business),
- is critical to the acquirer for the business to hit its growth objectives post transaction,
- is required by the selling shareholders to meet their growth targets if there isn’t a successful transaction, and
- must always remain motivated, energised, and supportive of the process (whether it is successful or not).
Lastly, look at the process through the eyes of one of the multiple bidders and reflect on why this is so challenging for them. Having to commit time, resources, and investment to explore the acquisition opportunity, with no guarantee of exclusivity, transparency and success is an extremely tough call to make.
By simply wearing each other’s hats and understanding the collective requirements and objectives, a great deal more can be achieved in a constructive framework that would increase the previously mentioned 30% alignment ratio to something much higher.
We believe that collaborative trust is a framework that must be adopted much earlier on in the process to ensure a more successful transaction for all stakeholders. Ironically the elements that make up the business sale/acquisition process stay very much the same. It is the order and framework in which they are carried out that have the biggest positive impact.
The strategy moves away from viewing each of the 3 stakeholders’ non-negotiables in isolation from one another to a scenario in which they are viewed collectively, relative to one another, and not in the traditional “win-lose” framework. When the process is built around this framework, the outcome is significantly better for everyone involved.
July in Review
Webinar – 1 July 2021
Rethinking the mergers and acquisitions value proposition for equity exit transactions between R200million and R2billion webinar
We were proud to host our very first DLI Corporate & Advisory webinar this month that targeted large privately owned business, listed entities and their subsidiaries, as well as Private Equity firms. There is a growing need to do things differently in the market, and our new “Collaborative Trust” approach is resonating with the market. We explored insights into why our partnership approach, entrepreneurial methodology and global reach is in growing demand from local and international markets. We were privileged to be joined by two international speakers on our panel.
Firstly, Gregg Pendlington, Director of Dow Scofield Watts Corporate Finance (DSWCF), who was instrumental in forming the Pandea Global M&A Network, (of which DLI is the Africa partner) gave insights into the power of our network and international transaction capabilities.
With foreign direct investment being so critical to the South African economy, we were also joined by Alexis Caude who is the Managing Partner of Adenia Partners out of Mauritius and France. Adenia Partners have recently concluded the successful acquisition of the Herholdt’s Group, one of DLI’s Corporate clients. With a focus on Africa, Alexis provided interesting insights into why they looked at South Africa, and why they have set up a Johannesburg office.
If you were unable to attend the webinar, please find the details and the recording in the link below:
Virtual event: 28 July 2021
How you can secure and maximise your financial independence beyond your business – an entrepreneur’s ultimate achievement.
Rick Grantham joined Citadel and Phatshoane Henney Attorneys to present a webinar titled “Financial Freedom From Your Business” – how you can secure and maximise your financial independence beyond your business; an entrepreneurs’ ultimate achievement. At Deal Leaders International we have always recognised the very close link between the sale of all or part of one’s business, and one’s wealth. This webinar was all about exactly that. Steyn Strauss finished off the session with some extremely valuable insights into the legal aspects of deal completion – very clearly presented with some great tips. The webinar was a relaxed affair with some great take-outs.
For those of you that missed the event, please feel free to view the recording from the link below:
Our Deal Activity Over the month of July
In the Press
Global Business – CGTN News – 28 July 2021 (video clip)
Global Business – CGTN News – featuring Andrew Bahlmann (posted to DLI YouTube Channel)
Looting following Zuma’s arrest raise SA’s risk premium (Finweek – 23 July 2021)
EOH sues ex-bosses
Corporate governance under spotlight as EOH sues ex-bosses (IOL – 4 July 2021)