Benefits of being BEE compliant

BEE isn’t simply about empowerment. ‘You have to be passionate about turning challenges into opportunities that create value for all stakeholders,’ says Mike Donaldson, CEO of RMB Corvest, one of SA’s most successful private equity businesses. ‘And value is not only about capital. It’s about people and providing them with opportunities to enter a sector and give local businesses good growth potential.’ This is significantly different to the non-existent empowerment landscape of 1989, when the founders of RMB Corvest – Neil Page, Dick Merks and Dave Rissik – created the private equity company. It was their vision, and follow-through, almost a decade before BEE codes were officially established, that saw the first BEE finance structure implemented, in 1998. This history confirms the firm as a stalwart, setting the benchmark for its future as a long-term partner for prosperity through empowerment.

Today empowerment is highlighted as one of the most important tools for companies to stay abreast of their competition, and maintain good customer retention, says Donaldson.  ‘Without credible empowerment credentials, most companies in the country today would be extremely vulnerable given the drive by government and corporate citizens to improve their empowerment status.’

This is where RMB Corvest excels. It offers BEE solutions to clients wishing to become compliant and/or grow their businesses in return for part-ownership by black entrepreneurs by presenting funding opportunities for BEE groups that have identified investments. In navigating this environment on their own, companies will have to overcome some complicated challenges. Donaldson says that currently the growth rates and GDP forecasts for SA are relatively benign, and the economic future is uncertain. ‘This makes BEE funding exceptionally challenging. On top of this, there are limited opportunities in sectors and industries that offer the potential for superior returns. And, of course, there are constant changes in BEE legislation.’

Donaldson highlights the four key benefits of an RMB Corvest BEE empowerment venture: securing new contracts for businesses; assisting management to roll out strategies; ensuring an empowered board for the business; and a genuine commitment that allows staff empowerment and the promotion of supplier development. Provest is one such company that realised these, and more, benefits. The mining support services company’s BEE deal was funded by RMB Corvest through Agile Capital – a specialised, independent investment player; with an acquisition of 20%of the Provest Group. In time, this shareholding was increased to some 44%, propelling Provest’s presence in the PGM, gold and manganese mining sectors and elevating its status among blue-chip clients.

Similarly, the Servest transaction, where the buyout of African Merchant Bank’s shareholding in the business was funded by RMB Corvest and Safika Investments. ‘We took this cleaning business into the global market successfully, following which, in 2015, a BEE conglomerate acquired our shareholding in the SA business.’ Yet another RMB Corvest leveraged buy-out was that of Autozone, a retailer of automotive after-market parts. ‘We acquired 45% of the business from Super Group in 2010 along with Agile Capital which acquired 34.5%, and sold it four years later to a major private equity fund. This deal had a very strong BEE element.’

RMB Corvest enters into these types of deals with well-established partners such as Shalamuka, Agile Capital, Dlondlobala Capital, Espin Capital and Lereko Eco. Each has a specific fund profile. Shalamuka, which was established by RMB Corvest and the Shalamuka Foundation, served to fund the Penreach programme, a non-profit, in-service educational development training programme. Around 2 000 teachers, 900 schools and 350 000 learners have benefited.

Agile Capital concentrates on investments that drive sustainable development, with a substantial asset base invested in blue chip, mid-market companies across a range of economic sectors that have good growth potential. Dlondlobala is an 86% black owned investment holding company, of which 71.4%is black-women owned.

Espin Capital invests in cash-generative businesses in sub-Saharan Africa, and Lereko Eco has built a healthy portfolio of investments in diverse sectors. Most of these businesses are focused on having at least a third black women-owned shareholding. ‘To date we have deployed over R2.7 billion in capital through our BEE partners,’ says Donaldson. ‘Our current BEE assets under management are valued at over R3.3 billion, which comprises circa 40%of RMB Corvest’s total assets under management. ‘We also collectively consider all the demographics of BEE important. Through our various platforms we contribute to previously disadvantaged groups, be those women, youth; ownership; management skills; entrepreneurship, community development;  education; and do so across the country and into the continent.’

In fact, most of RMB Corvest portfolio investments encompass some form of BEE. Its industrial portfolio is viewed as an engine for rapid economic growth and development in Africa. ‘We have the financial backing and capabilities to be an important contributor for enhancing South African companies’ ability to expand on the continent,’ he says. The retail and consumer portfolio, one of the largest BEE employer segments, is also considered opportunistic by RMB Corvest.

‘Although the market is currently challenged by tighter margins, saturated markets, new e-commerce entrants and disruptive technologies, this market needs access to innovative finance solutions, which we can provide,’ says Donaldson.  ‘We help them grow their businesses in new markets, and provide funding solutions to enable them to navigate the complexities of this sector in Southern Africa. ‘Similarly our services portfolio, which we tend through financing and investment solutions to improve services and technology relevancy in Africa. And, of course, BEE factors into each of these markets in one form or another, even the most obscure.’

Introducing BEE, for example, may mean the unbundling of a group. Fidelity Guards was such a case when it was part of the broader Fidelity Group of companies. This was an opportunity for RMB Corvest to fund not just the exit of the original management team, but to simultaneously introduce meaningful BEE into the business. A few years later RMB Corvest facilitated the regearing, facilitation of shareholder wealth creation, and co-funding of a new round of BEE negotiations.

‘We don’t have exit-timing pressures, which means we remain as partners,’ says Donaldson, adding that ‘this is what we intend when we say we want to be a long term investor when it makes commercial and strategic sense’.

By Kerry Dimmer