Following the dissolution of the Union and the formation of the Republic, the Apartheid system ensured that South Africa’s commercial world became the near-exclusive domain of the caucasian population. After the demise of this divisive system, the new democratic government sought ways to promote a more equitable distribution of wealth through various affirmative action projects. The BEE business deal is one such option and has benefits for all involved.
The three-letter acronym stands for black economic empowerment. Those letters are often used in conjunction with a numeric rating indicating a company’s progress toward achieving such empowerment. A sufficiently high rating carries comparable privileges such as access to lucrative state contracts. Also, those high scores can earn one the status of a preferred supplier to other companies aiming to improve their rankings. A BEE business deal could be the solution for a company wishing to grow its market and seeking someone to facilitate that growth.
In theory, this type of transaction is straightforward. An agreement on the part of the vendor company to surrender a portion of its shareholding will gain black economic empowerment credentials and access to new markets to aid its growth. In practice, these transactions are invariably more complex and require considerable management expertise. The proposed new partner will rarely have the finances to purchase the stake outright. While the vendor company could agree to provide finance, it’s advisable to limit exposure. Alternatively, the new partner could approach a bank to finance the BEE business deal or set up a “special purpose vehicle” (SPV) to raise the cash. Naturally, the SPV should be ring-fenced from all other non-related transactions.
As with any sale, a mutually acceptable price will become a prerequisite at some stage. However, it is in the interest of both parties to ensure that whatever sum they may find acceptable is the outcome of an accurate valuation. In this instance, there is an element of chance. The value will be influenced by the behaviour of the share price and dividends paid during the often protracted transaction period associated with a BEE business deal.
While this type of sale is not without its difficulties and may take a while, the potential benefits of such a partnership are substantial. Furthermore, there has seldom been a better time to find a suitable BEE partner. Even before the COVID-19 constraints, the nation’s economic growth was alternating between flat and negative. Lockdown has only made things worse. However, falling share prices might devalue a company. Still, they can also make it more affordable to anyone who wishes to purchase a partnership through a suitable BEE business deal.
Selling your company or even a part of it is always a challenging task. Dealing through a typical broker will still leave you handling much of the process whilst attempting to deal with your company’s day-to-day operational needs. When, as in this case you plan, a merger, you need an expert to market your offering, find a partner who will genuinely aid your growth, and sew up the legal and financial ends.
Deal Leaders International offers a unique, innovative and proven successful approach to securing a BEE business deal and a partner with the knowledge and contacts to help you expand into new markets.