Empowerment-hungry Chairman of the VWV Group, Mark Steinhobel, shares lessons learned on the road to sealing a dream BEE deal.
Experiential Communications agency VWV started its hunt for a BEE partner long before it was on the agenda, let alone an issue, for most white-owned companies. In fact it was a process begun in a different century for the agency with our first steps towards the goal taken in 1998. But 10 years and four protracted negotiations with very different potential BEE partners later, we've finally got it right. Proof indeed that persistence pays off. And with nearly three years of successful partnership under our belt, proof that empowerment not only works, but is an absolutely non-negotiable condition of doing business in a new South Africa.
The first was a well known personality from the ad industry. Great guy, great potential, but after 18 months of having him on the payroll he walked away with two of our black superstars to form his own agency. The company we lined up to provide the money for their shares wanted half the available equity in return for his risk. Then there were the two brothers from Polokwane with the most solid of values, the most successful of businesses, the most impeccable of track records. Sadly they never became partners. They had the money, but bad luck and bad timing conspired against them, and we reluctantly moved on.
Next was the CEO of a major industrial company, a man whose extensive experience and quiet wisdom would have been enormously beneficial to VWV. Any financial institution one should have funded this deal, but the SBDC, the IDC, the NEF, Khula, the UYF, and three different banks that all have empowerment as a major priority couldn't crack it. Not because they didn't want to, but the system has managed to wrap this process in so much bureaucracy that any BEE deal is almost stillborn. And surprisingly unless you're asking for hundreds of millions, nobody is interested.
Along the way, there were three approaches from mega-wealthy black investors or investment groups, but in our naivety we held out for a partner who would participate in the business, and to whom our empowerment would make a real difference.
Doing the Deal: Finally, after nearly 10 years, the god of business confirmed that persistence pays off. Wanda Shuenyane and Jameson Hlongwane were introduced by an old friend, and we never looked back. Shuenyane had run a huge chunk of ABI (one of VWV's clients), and Hlongwane had his own events company, Asiboni Mbala. It looked like a marriage made in heaven. We requested that they include Abey Mokgwatsane, an ex-VWV employee who had been headhunted by SAB, in the consortium, and finally VWV agreed to break its own cardinal rule: that whoever bought the shares would pay with (or borrow) their own money.
After much agonising, the company and I agreed to stand surety for the loan, and the deal was done. Was it easy, when after over 20-years we had finally crawled out from under a mountain of debt? Absolutely not! In fact, one of our key directors and shareholders chose to leave rather than sign on the line. Was it necessary? No question. The deal would simply never have happened without us going on risk.
And of course, it hasn't been plain sailing. Ours is a brutally fragile industry, where mistakes are terribly costly, and often terminal. Any significant shift in shareholding, no matter who the new partners are, is traumatic. New brooms like to sweep clean, and in our industry, that could be clean out of business.
It took just 26 months to pay back the money out of profits, and today, VWV is a very different company indeed. Abey Mokgwatsane is our youngest-ever CEO at just 29, and doing a fantastic job. Today VWV is 52% black-owned, and these figures are increasing. The board of directors is 78% black, and nearly 30% black female. And although VWV had always been colour and gender blind, now less than 45% of the faces are white. The staff is younger, trendier, and more capable, and the management team has more depth than ever.
This is a deal that we would have done regardless of colour; it was the best thing for our business at the time. The fact that our partners were black was a bonus. Having said that, VWV was absolutely clear that the deal was a way that it could actively address the ills of the past.
Empowerment for Dummies 101: So would I recommend selling to an empowerment partner? Absolutely… subject to some caveats:
Don't take the first offer. Spend as much time as you need to find the right partners.
While this may not be possible, try and find partners who will actively participate in your business.
Be prepared to go on risk with them once you've found them, but be sure the business pays you as much as it paid for their shares… eventually.
This is like stopping smoking, or getting married - you have to commit absolutely, or you're wasting your time.
Spend time and money on a watertight shareholder's agreement that protects both you and your new partners.
If you're lucky enough to get the deal right, expect the same level of performance from your partners as you would any other employee.
Be crystal-clear about what you expect of them, and they of you, in every way, and in writing. And then be honest with each other, every single day, no matter how difficult that may seem.
And just remember that no matter how many failed deals you hear about, your business will be immeasurably improved if you get it right.
For further information visit www.vwv.com or call 011 799-2600.