The market’s morbid fascination with Ayo
The departure of the company’s two top executives deepens the mystery over why Ayo’s deal with BTSA is taking so long
Has there ever been a better example of a corporate snafu on the JSE than the events unfolding at recently listed Ayo Technology Solutions? Such developments would scare the skinny jeans off the hardiest punter.
Most alarmingly, CEO Kevin Hardy and chief investment officer Siphiwe Nodwele — both appointed only in December — resigned with immediate effect last week.
The market is watching in morbid fascination to see how a company that was punted to grow via acquisition and aggressive market-share gains will find strategic traction without its two top executives.
The resignations of Hardy and Nodwele followed hard on the heels of a shake-out of the nonexecutive directors — seemingly at the behest of 29% shareholder the Public Investment Corp (PIC).
Though the PIC appears to have gained boardroom influence, new nonexecutive chair Wallace Mgoqi has links to African Equity Empowerment Investments (AEEI), which holds a 49% stake in Ayo. Mgoqi, a former chief land claims commissioner and Cape Town city manager, was previously chair of Sekunjalo Investments, the forerunner of AEEI.
Market gossip suggests Hardy and Nodwele have taken the fall for Ayo not being able to timeously conclude a deal to buy a 30% stake in British Telecoms SA (BTSA) from AEEI for R950m.
The R950m proceeds were likely to be paid out, in part, as a special dividend to AEEI shareholders — the biggest of whom, by far, is media magnate Iqbal Survé.
Others maintain Hardy and Nodwele simply could not stand the heat of persistent media scrutiny, especially around critical questions such as the PIC’s participation in Ayo’s prelisting capital-raising exercise.
There is speculation that BTSA has been spooked by the "noise" around the Ayo listing and might wish to keep its distance for now.
The reason for the delay in concluding the BTSA deal, of course, may be innocuous.
Since AEEI acquired the BTSA stake in 2008, virtually no financial information has been disclosed around the business, purportedly for strategic and competitive reasons. The pertinent question at this juncture is whether British Telecoms (BT) is keen, or even willing, to allow Ayo to publish "sensitive" financial information in a deal circular.
Insiders are adamant the Ayo-BTSA deal is still on the table on the same terms, and that the delay merely relates to longer-than-expected administrative exchanges between Cape Town and BT’s offices in London and Hong Kong.
Indications are that the deal should be completed before the Christmas holidays.
But there are lingering worries around the delay. The deal should, on paper, have been a straightforward one between two related parties. What is more baffling is that Hardy is a former MD of BT Africa and Nodwele — according to the Ayo prelisting statement — oversaw transactions worth more than R1bn during his tenure at technology giant EOH.
If these connected executives could not close the BTSA deal, then what hope does acting CEO Naahied Gamieldien have?
Tangibly, the delay will have a bearing on prelisting profit forecasts made at the time of Ayo’s listing on the JSE in January.
In short, the contention was that BTSA would benefit from Ayo’s strong empowerment credentials, while Ayo would benefit from BTSA’s blue-chip client list.
The prelisting statement outlined this clearly: "It is anticipated that certain of BT’s existing primary customers will move to Ayo Technology, in order to leverage off Ayo’s preferential procurement position, as a result of the company being 51% black owned and 30% black-women owned."
Ayo pencilled in revenue of R4.4bn and attributable profits of R750m (242c a share) for the year to end August. A breakdown in the prelisting document showed that existing BTSA business would generate R944m, with an additional R860m generated from its stronger empowerment status.
Ayo’s existing business was expected to generate R549m in revenue but would score another R2bn in top line from "additional market share (empowerment, sales restructure, acquisition strategy)".
For financial 2019 Ayo projected revenue of R7.7bn and more than R1bn at bottom line. The breakdown showed BTSA’s existing business generating R1.4bn, with the expected revenue increase through empowerment being R1.3bn. Ayo’s existing business would generate R671m and add a whopping R4bn from additional market share.
These were huge stretches in top and bottom line, and they obviously hinged on Ayo not only winning new contracts but making sizeable acquisitions.
Ayo raised about R4.3bn ahead of its listing, but has not made any significant acquisitions aside from a recently concluded contract with energy giant Sasol. So scratch those revenue and profit forecasts — completely.
Insiders think two or three deals could be announced in the next few weeks. But with the BTSA deal unfinished and key executive seats empty, even a flurry of acquisitions is unlikely to placate a sceptical market.