EOH finds its knight in Stephen van Coller
New CEO Stephen van Coller brings a wealth of experience and reputation to troubled EOH — and he is taking a pay cut on what he earned at MTN as he sets out to put things right
The day troubled tech firm EOH announced Stephen van Coller as new CEO, its share price leapt 22%, adding R1.3bn to its market capitalisation.
That’s some appointment.
Currently MTN’s group vice-president for digital services, Van Coller is best known for his decade at the helm of Barclays Africa’s corporate and investment bank, which grew new legs under his watch. Before that he spent almost 10 years at Deutsche Bank, where he was head of its global banking business in SA.
It’s tempting to say EOH has found a knight to save it from the perils of declining confidence and the poisoned chalice of having won government contracts during the Gupta-led years of state capture. Certainly, Van Coller has a solid reputation as a smart, talented executive with a record of stringent corporate governance.
Already, some steps have been taken in the right direction. EOH has sold the 2015 acquisitions that resulted in the revelations and is trying to rebuild its reputation. A complicated margin call resulting in a share sale by two directors in December 2017 caused panic among investors and didn’t help.
Van Coller is the ideal man for the job. His assuredness as a banker and the trust he instils can already be seen at its share level.
"I don’t think I’ve ever seen a share price bounce on a single person arriving, so there must be other things at play and therein lies the opportunity. The stock was clearly undervalued. The fundamental value is more rightly represented now than before," a bemused Van Coller tells the FM.
He wasn’t looking for a job, he says, but he did his homework on EOH and got mostly positive feedback. "Most of the big customers I knew from my banking days gave it good reviews."
He thinks EOH has "a long tail" of customers, using the phrase to describe the way a business can have smaller, niche customers that collectively contribute to the bottom line. "It’s not relying on four or five or six customers … It’s quite a federated business. It’s vertically integrated and unique in some interesting verticals, including in consulting, design and hosting."
He also likes how EOH has always been able to demonstrate a "lot of innovation at scale" while getting "leading-edge ideas implemented".
This, he believes, "gives you a foundation to grow the business", which employs "good, competitive, capable people". He likes its corporate culture, including its focus on youth development and education. "With a little bit of restructuring you have almost got a Bidvest of tech," he says.
I don’t think I’ve ever seen a share price bounce on a single person arriving, so there must be other things at playStephen van Coller
Van Coller says he felt it might have been a year too early to leave MTN. But "when I weighed it up, it was too good an opportunity to let go".
His appointment was praised by technology analyst Arthur Goldstuck. "It’s a solid company with some strong underlying assets. But they do seem to have lost their way and they did need to do something creative and decisive in terms of leadership," says Goldstuck, MD of research firm World Wide Worx.
After years of solid growth, EOH has been plagued by allegations of impropriety for the past two years.
Its main problem appears to be the foolhardy acquisition in 2015 of three businesses owned by controversial businessman Keith Keating. In December EOH announced it had unwound the acquisition of the GCT Group (Grid Control Technologies, Forensic Data Analysts and Investigative Software Solutions); the official reason: "significant underachievement against performance warranties".
The same month, the forced sale of shares held by two directors, Jehan Mackay and CFO John King, caused high volumes of trading. EOH said at the time: "The directors affected did not voluntarily sell their shares, but … the sale was caused by margin calls against these equity-financed transactions."
In 2017 the share dropped 58.5%.
This year wasn’t much better. In June, EOH had another run on its shares, its value falling to just R3.8bn. That month it said it would restructure into two new divisions.
One will retain the EOH brand and include all of its legacy information and communications technology businesses. The new Nextec division will operate in new areas like health care and water, led by Zunaid Mayet, who became CEO in July 2017, after founder Asher Bohbot stepped down.
Then this July, Van Coller’s appointment was announced — which added R1.3bn to its market cap — and Lebashe Investment Group was unveiled as its BEE partner with a R1bn investment.
Today EOH is worth R6.2bn — still about R20bn short of its former glory. The share last peaked in December 2016, from which it’s still down 75%.
The scandals effectively reversed five years of gain, pushing the shares back to January 2013 levels.
While July’s announcements are therefore timeous, naming the cool-headed, confidence-inspiring Van Coller CEO is just what EOH needs to regain its R26.8bn from August 2015.
"For the past 19 years, EOH has been like a start-up. The share price was quite flat for 15 years," he says. But though "start-ups are very nimble and agile, when they explode, their systems and governance requirements lag behind".
Van Coller isn’t daunted by the challenge. "This is my history with banking, shackled with governance forums, but it can bring a lot of value to EOH. My background has been fixing and repairing."
And making money. During his time as CEO at Barclays his division grew from 17% of group profits in 2009 to 38% by 2017.
It’s this kind of assurance that EOH is clearly looking for: a solid pair of hands with a strong corporate governance background to restore to glory one of the county’s biggest IT services companies.
Of the key challenges he faces from September, reputational issues are high on the agenda, "and making sure all the things I am used to as a banker are there".
What it means
After scandals reversed five years of gain, EOH has appointed a CEO with a background in fixing and repairing
The second thing is having a look at where the opportunities lie over the next three years. "Are we building the business to take advantage of these? EOH is very exciting in its industries. There’s a nice balance of big business, corporate finance and operational experience. They will work together."
Previously EOH achieved growth by buying companies. But Van Coller thinks it should now be done organically, especially as the world enters an era of technology as a service. "It is now big enough to grow organically. The future of everything as a service is becoming more apparent."
Currently the corporate world hires talent for specialised services, but what if you could hire them just for the time you need it, he says of the "software as a service" model.
"EOH has built in a way to do this but hasn’t built all the verticals. In 80% of the business there is a good two years of bedding down and getting the shared services worked out. In my experience you need two to three years to organise a service. If you set those up organically, you can do it."
He also wants to rethink EOH’s capital structure — which "could be done better, otherwise you are beholden to the banks" — and "make sure we align management incentivisation with investors". He says: "Getting this right is critical. If they are not aligned with your shareholders, you have issues."
Despite analyst speculation that he is taking the job for a huge payday, Van Coller says he "had to take a large cut" in salary from his MTN role.
But he is motivated with share options that will require him to deliver on his vision. "I’ve actually paid in for the privilege of being the CEO," he jokes.
Coming back to the 22% boost to the share price, it’s worth noting that a week later, another CEO had a 20% swing effect on his company’s valuation: when Facebook lost $120bn, when it failed to match analyst expectations. It’s a vote as much about Facebook’s fading profits and ruined sentiment after the Cambridge Analytica privacy scandals as it is about Wall Street’s confidence in Mark Zuckerberg to lead the company out of all the trouble he keeps taking responsibility for.
It is possible for one person to have such a significant effect on a share price; in Van Coller’s case, fortunately for EOH, in the best way possible.
• Shapshak is editor-in-chief and publisher of Stuff (stuff.co.za)