RADIO INTERVIEW on RSG GELDSAKE

10/10/2006 - Kevin Homann is interviewed by Ewalt (RSG Geldsake)

Ewalt

Vanaand se hoofberig word met trots geborg deur Bidvest en dit is Kevin Homann Direkteur van Spirit Capital wat by ons aansluit. Spirit het ‘n interesante berig uitgesit oor verandering in die swart [onhoorbaar] magtigings transaksies nie natuurlik op genoteerde maatskappye nie, maar kleiner privaat maatskappye dat daar ‘n neiging is nou om die hele besigheid te verkoop. ‘n Honderd persent van die ekwiteit, nie net op die drumpel van 25% nie. . Kevin welkom by ons …

Kevin Homann

Thanks very much Ewalt.

Ewalt

Now how long has this been in evidence that you have seen this sort of trend developing?

Kevin Homann

Ewalt I think it has been happening over the last couple of years that a lot of private business owners have found that, you know, they have been encouraged to bring in a minority BE partner and a lot of them feel that it is not the optimal thing for them and they would like to consider the sale of 100% of the business instead of bringing on a partner who may not be actively involved in the business and they may not have a good idea of exactly what value that partner can bring to the table.

Ewalt

Now, that is … it is interesting because it obviously does make the financing of these sorts of transactions a little bit simpler, but is that a very important driver do you think?

Kevin Homann

I think the movement in considering 100% sale is more an emotional decision on behalf of the private business owner, but, as you point out, you know, it does simplify the financing of the transaction quite drastically by doing a 100% sale as opposed to potentially a 26% sale. It allows the purchaser to gear the business and it allows them to access sources of capital that they wouldn’t be able to access were they to buy a 26% shareholding.

Ewalt

Absolutely true! Now, the one concern that springs to mind of course is the fact that with the sale of any business, not necessarily anything linked to any economic in Black Economic Empowerment transaction, but the sale of an entire business, you mentioned the issue that the seller often has in a part sale, is whether the person who is selling, is going to be able to maintain the business. Obviously, that risk doesn’t dissipate in any sense, it remains so, it becomes even greater with the sale of the entire business. Do you find that there are transitional arrangements … agreements for the seller to stay in active service, let’s say for a year or two or three?

Kevin Homann

Yes absolutely, you know, the risk in a private business is that a lot of the expertise leave every night with the private business owner. So there is often situations where in order to maximise the exit value for the private business owner, he needs to give some kind of commitment to the purchaser over a period of time to hand over the business and to allow the purchaser to become familiar with the daily operations of the business.

Ewalt

Now what sort of arrangements do you generally find there and, particularly, I am thinking more on the duration of that sort of arrangement?

Kevin Homann

They range in anything from a year upwards to generally not less than a year, because it takes a while for a purchaser to become familiar with the day to day running, so anything from a year upwards and it could extend to three years and the mechanism is generally one of two mechanisms or a combination of both, so it would either be a Service Agreement that would be in place with the exiting business owner, and possibly a profit warranty as well, so there is a blend of those two elements from a transactional perspective.

Ewalt

Now Kevin, you made mention of the fact that it is an emotional type of decision. Do you have a feel for what the exit plans are for the sellers? Are they planning to re-enter similar businesses? Are there restraints put in place in any case … are they just taking a break?

Kevin Homann

Generally there are restraints in place, so to the extent that the seller is not involved in that particular business, they generally restrain from entering into competitive businesses. Yes so it is a fluid situation, it is a negotiation between the parties and you find that the exiting shareholder … there is a range of things that they could look at. A lot of the time it is someone who is nearing a retirement age and has decided that an empowerment transaction is one component, but potentially linked that to a sale of 100% at the same time.

Ewalt

Very interesting developments there Kevin. Thanks for chatting to us this afternoon.

Kevin Homann

Thanks, Ewalt.

Ewalt

Dit was Kevin Homann van Spirit Capital vanaand se hoofberig was met trots geborg deur Bidvest.

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