ON THE SPOT:
Long4Life’s Brian Joffe talks about its Chill acquisition, shares and underlying value
Business Day asks Long4Life CEO Brian Joffe how Chill fits into this nascent consumer empire?
Long4Life’s lukewarm reception from the market has not noticeably changed with the news that it is to buy Western Cape drinks group Chill, in the second-biggest deal of its brief history since coming to market in April 2017.
Business Day caught up with Long4Life CEO Brian Joffe earlier this week, asking, How does Chill fit into this nascent consumer empire?
This business has got to a point where it needs, I suppose, a bigger daddy. They’ve got some very good brands they want to expand into the rest of SA where they aren’t.
Obviously, there are costs in moving these products all over the place, so geography is quite an important reality in the distribution of these businesses. They’ve started to develop some export business where we think we can add some legs.
Fitch & Leedes is the brand name that springs to mind but others aren’t really household names, are they?
Well, it depends which household you’re talking to. If you take Gauteng, you probably wouldn’t have heard of Score, nor had I to be honest … but if you’re in the Eastern Cape, you may have a different view of what that means.
We’re talking about quite a big business: it does a large amount of work for Diageo. If you talk about the NAV [net asset value] of R135m and what you may end up paying as a maximum amount [R734m] there’s quite a big difference.…
Remember the cash generated in the period belongs to us. And the multiple we’re talking about ... is seven times ebitda [earnings before interest, tax, depreciation and amortisation] for a business that’s growing at 30% a year. You’re buying an earnings stream, not just assets.
What were the negotiations like? I imagine if people get a call from you, they might get nervous.
This particular asset was ... sold in an auction process. So this is not a bargain, if you want to call it that.
I just want to make one observation and this is not my quotation, but Coca-Cola doesn’t have any bottlers. If you take what’s happening in the consolidation of the bottling business, it’s not done by Coca-Cola, it’s done by the independents. Those businesses are worth an absolute fortune.
Do you get on with management?
I think these guys are superior quality guys, in my view, and I don’t often say that about people in an acquisition.
Half of their take in this deal was in shares.
That’s at R5.21 – above where Long4Life’s shares are trading now. How did you arrive at that price?
Depending on how you want to value the assets, when we started out in March, the cash value was R5 a share. Since then we’ve made three acquisitions and unless the acquisitions are worth less than R5 a share then the value of the share should be at least R5. The market has a different calculation and there are more sellers than buyers at the moment, which is obviously the cause of where we’re at.
What do you make of that? Has your ego been slightly wounded?
If you’re not a seller, a low share price is an opportunity to buy. If you’re a seller, the price should be higher. At this point in time, Long4Life is six months old — it’s a baby in relation to hopefully where it gets to.
So from our point of view, we’re happy. When you buy something that is bigger than yourself — for example, Holdsport — one’s got to expect that you have a certain amount of sellers, but hopefully at a point in time, the market will adjust to having more buyers than sellers, at which point you’ll phone me up and tell me I’ve got a big ego.
I’d never do that ...
It happened with Bidvest, for example. We did the unbundling, the two component pieces were worth something like 30%-40% more so the share price wasn’t necessarily reflecting what the underlying value was.
How does it work with existing management of the businesses you’ve bought? Do they just get on with things?
From a philosophical point of view, that’s always been my view: that the business is decentralised. We want to structure those businesses into smaller business units so that we can focus more carefully on what we want to do. If you take, for example, the acquisition of Holdsport, it didn’t result in us buying one business — we’ve divisionalised it into four businesses. In the case of Sorbet, we’re divisionalising that into six businesses. At the end of the day, we’re going to land up with a sport and recreation division, we’re going to have a health and wellness division, we’re going to have a beverage and food division, so they’re going to be managed by independent, entrepreneurial people.
For you is that the key to successful companies?
I hope so. The issue is that, of course, we’re buying some of these things in a market that’s very depressed, but I’m certainly optimistic we’ll see some kind of a turn at some point in time. SA has got this built-in mechanism to somehow or other come back. And it will. It’s like share prices; it is what it is, until it’s something different.