AUGUST 2021

Finding calm in the chaos…

Is it time to reframe our outlook on what the business world looks like and accept that we will need to navigate a very different landscape moving forward? The answer is a resounding yes! As a business, we review a book a month and have recently finished the book Legacy (James Kerr) which is a brilliant read unpacking what makes the All Blacks the most successful sports team in history. In Chapter 2, Kerr refers to the military acronym of VUCA: Volatile, Uncertain, Complex and Ambiguous. If ever there was a time to integrate this acronym into your business DNA, now is that time.

We could go on ‘ad nauseum’ around the uncertainty we all face and the laundry list of challenges that we need to consider as part of our daily ritual. The question is then, ‘to what end?’. Business was tough for all of us before COVID-19. It was even tougher if you are a South African business navigating an extremely tough economic outlook both pre-, and post, lockdown. With so much up in the air, there is only one logical place to start…you must identify what your options are based on your current reality.

Wishing you success and resilience

Andrew & Rick

Putting reality on the table…then doing something about it

(By Andrew Bahlmann CA(SA) – Chief Executive: Corporate and Advisory)

One of my mantras in business, and life, is to ‘put reality on the table’. At times like this, opinions can be dangerous. The process of ‘putting your reality on the table’ is fuelled by asking, and answering truthfully, some tough questions. Then, you need to take action.

‘Don’t wait until you are ready to take action. Instead, take action to be ready.’ (Jensen Siaw)

In our world of mergers and acquisitions (M&A), we always ask our clients one question?

DO YOU WANT TO SELL YOUR BUSINESS?

There are 3 possible answers to this question:

Yes
No
I don’t know

Seems straightforward enough, right? The next step is the most important step, and that is to delve to the next level down on each of the answers above:

1) Yes:

Do I want to sell 100% of my business?
Do I want to sell only a portion of my business to ‘de-risk’ and keep growing my business with another partner?
Am I prepared to stay in the business?
Have I got a succession plan in place?
Am I and my business ready to sell?
How much is my business worth?
Is there an active market for my business?
What are buyers looking for?

2) No:

Do I have a growth and exit strategy?
Should I have a growth and exit strategy?
Do I want to look at growing my business over the next few years by acquiring more business?
Do I want to consider taking some value out of my business balance sheet and placing it in my personal portfolio based on the current volatility and uncertainty in the market?
Would I consider using a strategic partner’s balance sheet to grow more aggressively and increase the value of my business in a much shorter period?
Are there strategic investors or partners out there that would look at my business?

3) I don’t know:

What are my options if I do or don’t sell?
Is there a market out there that is looking at acquiring a business like mine?
Is there an opportunity to grow my business through acquisition?
Should I consider taking some value off the table to de-risk my personal exposure to my business?
Do I have a growth and exit strategy?
Should I have a growth and exit strategy?

The list of questions for each category of answers could go on and on. Obviously, there are no right or wrong answers, but rather a mind map of relative questions and answers that become exponentially complex without knowing the realities of the market.

What makes the decision to sell your business particularly challenging is that the decision must be taken in absolute terms. It is a ‘yes’ or a ‘no’. Your business is either in the market looking for a buyer, or it isn’t. Unfortunately, the only way of finding out whether there are buyers out there for your business, what the value is and the degree to which you can de-risk can only really be ascertained by taking the bold step of engaging the market.

Based on the pressure behind this big decision, DLI has created a solution for large private clients, Private Equity Firms and Listed Entities with the launch of its Corporate Evaluation and Marketability Assessment (‘CEMA’). The CEMA creates an accurate and market-aligned playbook from which our clients can make calculated decisions around their growth and exit strategies.

August 2021 Newsletter

JULY 2021

Welcome back

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

July 2021 Newsleter

Insight by Andrew Bahlmann

Success in selling or buying a business is easily defined … or is it? It depends on whom 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 debate that hindsight is a powerful tool. If this is the case, why haven’t we learned 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 it's 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 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 the 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 businesses, 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 are 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

:https://dealleadersint.com/latest-webinar/view-latest-webinar-1-july-2021/

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 entrepreneur’s 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: https://vimeo.com/581150886/f5b20410b2

Our Deal Activity in July

JUNE 2021

Welcome to our brand-new newsletter under our new brand.

All we can say is wow! It is crazy to think that it has been 4 months since we sent out our last newsletter. In those four short months so much has happened on so many fronts. We hope you like the content and insights that we will be sharing along with what we are experiencing in the markets. We always look forward to hearing from you and welcome any feedback that you may have on how we can keep setting the bar higher and higher.

Wishing you every success,

Andrew & Rick

Deal Leaders Updates

Deal Leaders International name change

Deal Leaders Africa changed its name and brand to Deal Leaders International (DLI) on 1 June 2021. At the same time, we launched our Corporate & Advisory business to focus on larger transactions and servicing the large corporate, listed and private equity markets.

The launch of Deal Leaders International Corporate & Advisory

We built our business focusing on the niche of privately-owned businesses primarily in the mid-market. However, over the last 18 months, we have been approached to work with larger clients including listed entities and large privately-owned businesses. This demonstrated to us that our approach had a place in a market traditionally dominated by the large investment banks and corporate finance houses. A growing demand in 2021 served as the catalyst for us to launch our Corporate & Advisory business under Andrew Bahlmann, with Rick Grantham heading up our Mid-Market business. We were very proud to launch our first DLI Corporate and Advisory webinar on the 1st of July 2021. It was a resounding success and the market reaction has been amazing and exciting at the same time. If you missed the webinar and would like to receive a copy of the recording, please contact Lorna at lorna@dealleadersint.com.

The rollercoaster that is 2021…

We kicked off the 2021 year with a similar filter to the way that we ended last year. No end in sight as far as the Covid-19 pandemic was concerned, a non-existent vaccination rollout plan, an economic and political minefield that continues to throttle business in South Africa to the point of desperation and the dreaded load-shedding plaguing us once again. I am sure that you are expecting the rest of the article to go down the rabbit hole above. Well, you will be relieved to know that it will not! As business owners and corporate South Africa, we need to take a step back and realise that throwing in the towel is not an option. Believe it or not, there is a great deal of opportunity that we need to continue to focus on, playing our part in rebuilding our collective economy. The last few weeks have been particularly positive for the country as well as for us as DLI. We aren’t talking miracles yet, but we are seeing traction in fighting corruption, massive steps in addressing our power challenges and a continued interest in quality South African business from local and international acquirers. We forget that there are challenges in every country around the world. Despite us questioning why anyone would be investing in a South African business (with all our challenges), we forget that countries and economies far worse than ours continue to attract acquirers and investors. I’m not wearing the rose-tinted spectacles just yet. Being fortunate enough to belong to several international networks, servicing in excess of 22 countries, we experience first-hand that every country has its challenges with the fallout from the impact of Covid-19 being devastating for all. This leads us to our first article that has been written by Matthew Diepenbroek. Matthew is part of our research team in the Corporate & Advisory team and put his hand up to contribute to this milestone newsletter. Thank you, Matt!

Insight by Matthew Diepenbroek

Not All Doom and Gloom

In April 2018, our president set a goal to attract $100 billion in direct foreign investment into South Africa over the next 5 years. According to World Bank and SARB figures, South Africa made a strong start in 2018, recording $5.57bn in investment, an increase of 446% on the year before and followed that up with a respectable $4.62bn in 2019. Then came Covid 19 and the world shut its doors, choosing to focus on their own economies as consumers were forced to stay home and the leisure and tourism industries all but collapsed. But still, South Africa recorded investments from abroad of $3.4bn and that feeds into a bigger picture we as South Africans should take notice of.

It is easy to think that in a year when the world turned inward, that our president’s pledge on foreign direct investment targets would be a fading echo drowned out by the bickering in Parliament. Despite this, foreign entities continue to choose to invest in a bout of confidence that possibly went unnoticed between the usual worries about load-shedding, corruption scandals, and how to cope with the kids being in the house 24/7. It is important to identify what a realistic goal looks like here. We are not attempting to convince the entire world to invest in our country, but rather nurturing a select handful of relationships toward sustained and meaningful investment.

This is something of which we as DLI must constantly remind ourselves – we are not going to convince everyone we engage with to consider investing in our clients’ businesses, but that is not our aim. Our aim is to search through several different streams in search of the golden nugget. This then allows focusing our efforts where true value lies. It is in identifying and nurturing these kinds of relationships that we start to see the greater impact underlying Ramaphosa’s pledge. It only takes a handful of these shows of confidence, and a stable and transparent business environment before we start seeing momentum and economic growth feed off each other.

Over the last 18 months, DLI has engaged in a conversation with over 700 international investors discussing potential investments in South Africa. Of these, only about a third of them said they would not consider investing in South Africa under any circumstances, whether by mandate or unfamiliarity with the region. That still leaves about 450 potential rivers to explore in search of our proverbial golden nuggets, despite a global pandemic that continues to throw up obstacles, including our current third wave.

So, let us put reality on the table. In the last few months, we have observed a few large international entities continuing to invest in SA. One can point to the takeover consideration by Heineken of Distell, acknowledging the opportunity to scale up operations after the South African distiller has invested in world-class manufacturing operations. Additionally, we can highlight the $50bn earmarked by US Private Equity firm Sassoon Group for investments in South Africa over the next 5 years, having already invested in Bluedrop Energy and targeting further investments in infrastructure and renewable energy. That is not to mention Swedish mining technology companies Epiroc and Sandvik’s respective acquisitions of South Africa’s MineRP and Kwatani, two companies borne out of South Africa’s globally respected mining industry. Deals such as these remind us that South Africa produces businesses of an extremely high calibre.

It should therefore be understood that these decisions are not only good for job growth and increased economic opportunities but are also statements by prominent international companies of their confidence in South Africa in the coming years. From a macroeconomic viewpoint, this is something that will continue as international investors seek growth outside of low-yield developed markets. South Africa, alongside other emerging markets, offers growth opportunities as populations increase and ongoing development continues – but it is differentiating ourselves as an easy-to-do-business environment that needs to be our focus. This is why policy stability and transparency are so critical to encouraging further investment, and why we should be aware of international sentiment when it comes to policy decisions. This is something that will need ongoing discussions, including direct feedback from international investors looking to our shores to make informed decisions.

Beyond the jobs created and economic stimulus, an overseas investor looking to acquire a company in South Africa will need to consider a whole host of information and assess several risks. Simply acquiring another company involves understanding the cash flows that the company will likely produce over the next 10,15 or even 20 years, the sensitivities those cash flows have to the business cycle, understanding each of the assumptions that go into forecasting those cash flows, assessing the additional capital expenditure and working capital requirements, and then understanding the opportunity cost of investing that sum into a risky venture. None of this even touches on the country risk, the currency risk, or the changing political and economic environments that SA is faced with.

So, while it may be tempting to ask why anyone would invest here when the headlines seem to continuously point out the multitude of issues, it is always important to consider three things:

Firstly, negative news tends to get more engagement, and thus more ad revenue. Just because the headlines all seem to be depressing and pessimistic does not necessarily mean that all hope is to be abandoned.

Secondly, we do not factor particularly highly in the global news cycles and so most potential investors know very little about what is going on here. This presents both a challenge and an opportunity. There is not a lot of knowledge around doing business in South Africa, particularly when it comes to Broad-based black economic empowerment (BEE). Many of our conversations can begin with clarifying simply where on the globe South Africa is but very often end with discussions on the growth in emerging markets compared to low-yielding developed markets. The one thing that remains consistent in each of these conversations though, is they usually end up with the acquirer considering South Africa in a new light – and, at the end of the day, the more we can reduce market ignorance the better our chances of unearthing those golden nuggets.

Finally, those that are already investing here continue to do so not because they do not see the risks, but because they see the potential. DLI is simply attempting to play its part in driving these investments, not by trying to change the entire world’s mind about the risks involved in investing here, but rather by identifying those that are willing to look beyond the risk and see the vast potential rewards on the horizon.