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Be Prudent When Purchasing

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There is something at play that many company leaders just can’t get right – acquiring other companies. Many assumingly lucrative companies were acquired and then failed.

Either there was a lack of full disclosure before the transaction, or the new owners were over confident in their ability to create astronomical profits from those companies.

A mantra I fully subscribe to is, great companies are bought, not sold.

When a company approaches you to sell their business, you must ask why they are selling. Could it be that the ship is about to sink, are they relocating, retiring, bored by their industry or do they foresee calamity.

Back in 2012 Tiger Brands acquired 63% of Dangote Flour Mills, therefore controlling the company; changed the name to Tiger Branded Consumer Goods Plc. However, the company performed poorly.

Three years later, Dangote Industries had to buy it back for a nominal $1 and took over their debts. Tiger Brands had to write off R700 million ($53 million) in loans that it granted the operation.

Timing Is Everything

On the same note, in January 2005, Bebo, a social networking website, was launched. It became one of the most visited sites, with millions of active users. In 2008, AOL came along, excited about the prospects of expanding it. They purchased it for $850 million – making the founders, Michael and Xochi Birch, $595 million richer as they owned 70% of the company.

In May 2013, the company voluntarily filed for Chapter 11 bankruptcy protection. On July 1, 2013, the Birches paid $1 million to get the social network back. Consider the profit they made after receiving $595 million for the company five years before.

In both stories, the former owners bought the companies back for a price drastically less than they sold them for.

How Tech Can Close The Gap In Africa

There were many examples of this type of disaster during the dot-com bubble around the turn of the new millennium. A promising company, owned by Mark Cuban and partners, was on the rise. Back then, Broadcast.com was breaking ground with online live streaming.

Yahoo! got excited about the new concept and jumped into a hole thinking it was a springboard. In 1999, they purchased Broadcast.com for $5.7 billion in Yahoo! stock. Cuban became a billionaire and quickly diversified his newly-found pot of gold into other asset classes.

Broadcast.com soon went bust, becoming one of the spectacular failures of the last two decades.

It wasn’t the most notorious failure though. The worst of all time is AOL again. They acquired Time Warner for $160 billion to create the world’s largest media company. Within 18 months, the company reported a $99 billion loss and the combined value of the company had dwindled from $226 billion to $20 billion. Unthinkable!

With most failed acquisitions, what is often evident is that the entrepreneurial drive is misplaced. The original vision is lost as the company is absorbed into a big corporation that does not share the same founding values and company culture.

To become a gigantic multinational, acquisitions are quicker than organic growth. We cannot avoid acquisitions as a growth mechanism. So, how do entrepreneurs, looking to make an acquisition, institutionalize the vision, drive and company culture that will exist beyond the founder?

Due diligence needs to be done, and the top talent at those companies need to be retained, particularly at an executive level. It is common for major companies to acquire just 80% of another company, leaving 20% for the management and founder. This keeps them motivated and encourages them to stay and help the company to continue to grow. – Written by Paul Mashegoane

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With “Room2Run,” AfDB Launches Securitisation Market For Multilateral Development Bank Sector

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➢ WITH “ROOM2RUN,” AfDB LAUNCHES SECURITIZATION MARKET FOR MULTILATERAL
DEVELOPMENT BANK SECTOR
➢ TRANSACTION IS IN DIRECT RESPONSE TO G20 ACTION PLAN FOR MDB BALANCE SHEET OPTIMIZATION
➢ AfDB COMMITS TO REINVEST FREED UP CAPITAL INTO NEW AFRICAN INFRASTRUCTURE
LENDING, MAKING ROOM2RUN ONE OF THE LARGEST IMPACT INVESTMENTS EVER
➢ TRANSACTION IS SUPPORTED BY NEW EUROPEAN UNION GUARANTEE TOOL (EUROPEAN FUND FOR SUSTAINABLE DEVELOPMENT)

OTTAWA, Canada, 18 September 2018 — The African Development Bank (AfDB), the European Commission, Mariner Investment Group, LLC (Mariner), Africa50, and Mizuho International plc today announce the pricing of Room2Run, a US $1 billion synthetic securitization corresponding to a portfolio of seasoned pan-African credit risk. Room2Run is the first-ever portfolio synthetic securitization between a Multi-Lateral Development Bank (MDB) and private sector investors, pioneering the use of securitization and credit risk transfer technology to a new and previously unexplored segment of the financial markets.

Structured as a synthetic securitization by Mizuho International, Room2Run transfers the mezzanine credit risk on a portfolio of approximately 50 loans from among the African Development Bank’s nonsovereign lending book, including power, transportation, financial sector, and manufacturing assets. The portfolio spans the African continent, with exposure to borrowers in North Africa, West Africa, Central Africa, East Africa, and Southern Africa. Mariner, the global alternative asset manager and a majority owned subsidiary of ORIX USA, is the lead investor in the transaction through its International Infrastructure Finance Company II fund (“IIFC II”). Africa50, the pan-African infrastructure investment platform, is investing alongside Mariner in the private sector tranche. Additional credit protection is being provided by the European Commission’s European Fund for Sustainable Development in the form of a senior mezzanine guarantee.

“Room2Run gives us fresh resources to invest in the projects Africans need most,” said Akinwumi Adesina, President of the African Development Bank Group. “Africa has the most promise, the greatest natural resources, and the world’s youngest population. But we also have the world’s most persistent infrastructure deficits. The African Development Bank has the strategy to address these infrastructure finance gaps—and Room2Run gives us the capacity to make it happen.”

Structured as an impact investment, Room2Run is designed to enable the African Development Bank to increase lending in support of its mission to spur sustainable economic development and social progress. In connection with Room2Run, AfDB has committed to redeploy the freed-up capital into renewable energy projects in Sub-Saharan Africa, including projects in low income and fragile countries.

“On the Impact scale, Room2Run is off the charts,” said Dr. Andrew Hohns, Lead Portfolio Manager and head of the Mariner Infrastructure Investment Management team. “Room2Run answers the call of the G20 for private sector participants to step in and facilitate development finance, providing a template for attracting significant private sector capital into urgently needed projects in developing economies.”

Raza Hasnani, Head of Infrastructure Investment at Africa50 commented, “Room2Run provides an innovative and commercially viable solution to the African Development Bank’s risk management and lending objectives, while paving the way for commercial investors to support and benefit from the growth of infrastructure on the continent. Africa50 is very pleased to participate in this landmark transaction, which is in line with our mandate to drive increased investment in infrastructure in Africa, and to create pathways for long-term institutional capital to flow into this space.”

Room2Run enjoys the support and participation of the European Commission with an investment from the European Fund for Sustainable Development, in the form of a senior mezzanine guarantee. “Only a few days after announcing our renewed Alliance with Africa for sustainable investments and jobs, I am very happy to announce that we are, together with the African Development Bank, launching Room2Run,” commented Neven Mimica, the European Commissioner for International Cooperation and Development. “This initiative is a perfect example of what we are doing to support investments in African low income and fragile countries through the External Investment Plan. Through Room2Run we provide
an additional protection to investments in the field of renewable energy. Through our Guarantee, investments under Room2Run will translate into extending supply to many people currently without electricity whilst creating much-needed new jobs.”

Room2Run also directly responds to calls by the G20 that MDBs use their existing resources to full capacity, as articulated in the 2015 G20 MDB Action Plan to Optimize Balance Sheets, as well as calls for greater MDB efforts to crowd-in private investment. The G20 has called on MDBs to share risk in their non-sovereign operations with private investors, including through structured finance, mezzanine financing, credit guarantee programs, and hedging structures.

The Government of Canada has been a global leader in advocating for MDBs to use their existing resources more efficiently and to mobilize private capital for global development. The goal of the G20 MDB Action Plan to Optimize Balance Sheets is to catalyze significant new development financing from the MDBs throughout the real economy in key development regions. “Attracting more private capital into global development efforts is critical to building economies that work for more and more people around the world,” said Bill Morneau, Canada’s Minister of Finance, “that’s why Canada and our G20 partners have been calling on multilateral development banks to use their existing resources as efficiently as possible, and to look for new ways to attract more private capital. We are pleased to see the African Development Bank come forward with a transaction that directly responds to both of these objectives. Room2Run is an innovative solution to a long-standing challenge.”

Juan Carlos Martorell, Co-Head of Structured Solutions at Mizuho International, adds, “Compared to other synthetic securitizations, a major achievement of Room2Run has been to ensure that ratings agencies, and in particular S&P, reflect the merits of the risk transfer into their rating assessments for multilateral development banks. AfDB’s leadership through this transaction has now set the stage for broader adoption of the instrument throughout the MDB community.”

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Fashion, Fame and Finances With SA Designer, David Tlale

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How would you say the African fashion market is growing?

We are starting to understand the business of fashion; how to create brands that are custom-made in Africa, which is what we need to be doing and I think more than anything else, we need local customers supporting local designers. Another thing we need to start seeing is retailers supporting proudly ‘made in Africa’ or ‘made in South Africa’ products because that’s the only way for us to become game-changers in the fashion industry. When you look at big brands in the US, Europe or anywhere else in the world, they work very closely with their local designers.

Your most expensive indulgence?

Fabric! When I go to a fabric store, locally and internationally, I am like a kid in a candy store. I would rather buy expensive fabric different to whatever is available locally [South Africa], to make sure I can still sell that to my clients. When it comes to fabric, I go all out.

David Tlale. Photo by Karen Mwendera.

What do you mostly spend your money on?

Shoes and handbags.

How have you maintained your brand over the years?

The only way for us a brand to grow is to continue reinventing ourselves every season. As a designer or as an artist, you are only as good as your previous collection. Also, don’t try and compete with anyone, but do and believe what ‘brand David Tlale’ stands for. It happens that from time to time we keep serving them the same thing, like the white blouse. Our customers also want it, but the question is, how do we reinvent it for the next season or the next collection?

The significance of grooming young African designers…?

It is realizing they are the future…the ones going to take the fashion industry to the next level making sure we still have brands from Africa to the global markets…It is important to expose them to the business of fashion because when I grew up, no one took me by the hand and said ‘David, this is how the business of fashion is’. We were told we have to showcase at fashion week but beyond that or before that, what happens? Now we understand that.

What was your first job and what did you learn from it?

I was a lecturer at Vaal University for four and a half years, just before I graduated. I was able to buy my mom new furniture and I bought myself some sewing machines. I am proud to say that my investment into that machinery has made us who we are as David Tlale. We now have a studio and a brand that is growing.

How do you diversify your investments?

What we have done as David Tlale, over the years, is to build the brand and invest everything into this brand. We are now starting to look at other investment portfolios so we are able to get different sources of income, not only from clothing; making sure we invest in the brand, as a lifestyle brand, it be accessories, handbags or perfume. We are working on a lot of things because we want to ensure that in the next few years, David Tlale is a holistic fashion brand.

READ MORE: Lessons To Learn From The Rich And Famous

What is your most recent acquisition?

A printing machine. It is a huge investment we have made for our business making sure that we are able to look different in the industry and can print our [own] fabric.

Your worst investment decision?

To believe in someone who did not believe in my brand…I suffered dearly from it but today I am better. We are on the journey to reposition David Tlale, ensuring we become a luxury brand proudly made in South Africa by South Africans [and selling to] the international markets.

 

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Investment Guide

A Serious Investment For A Funny Man

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How do you keep the crowd interested in your comedy?

Be honest, because they need to realize you are one of them.

What is your business strategy?

You need to be open to what is going on in the industry. There was a time where we were able to plan a year in advance, but we can’t do that anymore. Social media platforms are evolving so fast. You can’t drop the same images and messages on Twitter, Facebook and Instagram. You have got to do it differently… So stay current and on top of things. It is also more than just about the technology; there are networking opportunities springing up.

What is your investment philosophy?

I am a conservative investor. I go for short-term investments rather than long-term investments. I would like to keep it to the medium range of risk.

Financial discipline means…?

Knowing when to say no, no matter how good it feels.

How do you remain financially disciplined?

I struggle a lot.

How have you diversified your investments?

I own a couple of classic cars. I also have a couple of properties.

Your most recent acquisition?

I bought a piece of property on Long Street, Cape Town.

You most regrettable financial blunder since you entered the industry?

Starting the comedy club! It was difficult making a concept like a comedy club work in a conservative space five years ago when I started.

However, it became the best decision I ever made. At the time, it was a huge investment of energy and time to get it started. On one or two occasions, I remember thinking this was too hard. It has been a very bitter-sweet thing but in the end, the advantages are huge and the disadvantages just as staggering…The theory of business is basically failure till you reach the point of success. But failure is a very important part of success. You can’t have the one without the other.

Kurt Schoonraad. Photo by Casey Bertie

How do you decide your fee?

My personal fee is affordable. I think it is important to stay within range. It is very easy to price yourself out of the [market]. We need to understand that the universe has not made all comedians equal. My fee is about R35,000 ($2,600) for a 45 minute-to-an hour set.

How much is it to start a comedy club and what does it entail?

More money than you know how to come up with but you figure it out. It is [just] one of those things. There was no comedy club in Cape Town yet there was one in Johannesburg. It is a no-brainer that comedy needed a home in Cape Town…I had to sell one or two classic cars and my partner also invested heavily in my business. It is at the V&A Waterfront [in Cape Town] so the rent is extremely high. It was worth it because at least 30 percent of our audience is not from Africa. We would have not been able to call on that market had we not been situated where we are.

How do you strike a balance between being an entrepreneur and a comedian?

This must be the thing I am struggling with the most. By just opening up the comedy club, people assumed you have taken up the other side. In the early stages, I found out that there are very huge demands on the business side of things. I work during the day and I perform at night.

Money or fame?

Most definitely, fame.

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