| Acquisitions |
The Angliss acquisition was followed by the purchase of the Viamax fleet management and leasing business from Transnet, South Africa’s government-owned transport and logistics group. The purchase adds further momentum to the strategic diversification process at Bid Auto and became effective in September.
The success of Bidvest down the years has been driven by a blend of both organic and acquisitive growth. We will maintain this proven model. Bidvest will continue buying the right business, at the right price, when the right strategic fit is evident and where Bidvest can add value through the application of its entrepreneurial model. These considerations underpinned both the Angliss and Viamax transactions. |
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| Private equity |
Bidvest is an international company and operates in a global environment that has been fundamentally affected by the activities of the major private equity funds. These activities have inflated the pricing of acquisitions and sharpen the challenge of finding and unlocking value.
South Africa has only been exposed to the private equity phenomenon for a relatively short time and it is doubtful whether all the dynamics of the new environment are as yet fully appreciated. |
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| Value under scrutiny |
Traditionally, boardroom discussions focus on earnings. In a business climate increasingly influenced by private equity activities, cash flows and valuations will become equally important.
Large questions are raised. The valuation methodologies adopted by private equity investors are sometimes at odds with traditional benchmarks. Do stock markets accurately value the assets of a listed business? |
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| Jobs under fire |
Costs and jobs are also crucial issues as the private equity model is frequently driven by cash flows and the need for short-term cash returns. Every business has to be efficiently run, but is instant cash generation an efficient model in a growth-minded business or a growth-focused economy? Job losses to facilitate a highly profitable exit will certainly be a “hard sell” in a jurisdiction such as ours. Radical reductions in training investment would also cause controversy.
International private equity investors are rarely sensitive to domestic market issues such as these as the main driver of these developments is global liquidity – creating a conundrum for national policymakers who may want to attract foreign investment, but not at the cost of local jobs.
Bidvest is in a fortunate position. We don’t have to chase acquisitions to grow. Continued momentum is assured by an organic focus and businesses that remain strongly cash generative even while investing in future growth. |
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| Privatisation |
The question of local versus international priorities is also relevant in a policy domain such as privatisation.
In smaller economies, policymakers tend to view privatisation as the sale of state assets to foreigners. This lopsided perspective should be challenged; especially in the South African context.
Our corporate sector has benefited from strong earnings growth. Many local companies have the resources to engage in substantial transactions. We should not underestimate the business skills found within our private sector. Local business is close to local issues and knows what it takes to unlock local potential – key considerations when engaging in any turnaround strategy.
Selling to foreigners is second prize. Local privatisation transactions to businesses that understand South Africa’s policy dynamics are much preferred.
Hopefully, our strategic situation will encourage government to give privatisation much greater priority. If sustained economic growth is the cornerstone of official policy then locally focused privatisation is a tool that cannot be ignored. |
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| Policy direction |
Clear policy direction is called for when considering ways of maximising the private sector’s contribution to national prosperity, improving South Africa’s global competitiveness and assisting government with service delivery.
State monopolies often compete against private enterprise. If government aims to facilitate job growth, then companies with high-growth potential cannot be hobbled by unfair competition such as this. Government and business should be partners, not competitors.
Government has a key role in the economy. Where investment is needed in the national interest, government can provide it. In high-risk areas where returns are doubtful, business may be hesitant to become involved. Government can lead by making the initial investment and laying the groundwork. But why would government want to remain in industries where private sector companies have long demonstrated their ability to achieve efficiencies and offer improved services? |
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| Policy issues |
At some stage, all policymakers have to strike a balance between the strategic quest for economic growth and the need to combat inflation. Experience shows that high growth in a developing economy is rarely accompanied by low inflation and when a choice has to be made, developing nations usually opt for growth.
In South Africa, the policy imperative is job creation, which may induce the authorities to allow the occasional breach of the 6% inflation “ceiling”. Bidvest has no major concerns over this long-term policy risk in view of government’s record for sound management and our Group’s history of solid returns in a mildly inflationary environment. |
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| Strategic information |
| As a large employer and major corporate group we are subject to strategic planning risks. Our businesses invested R2,0 billion in capital expansion in 2007. Given less regulated environments such as ports, investment would have been substantially higher. Budgetary decisions of this magnitude are not only based on the experience and judgement of the board and senior managers, but on the data available to the decision makers. |
