All quiet on the deal front
Most firms have hunkered down in the hope of riding out the Covid-19 lockdown, but a couple of small new deals have been struck
There has been a paucity of corporate activity during the Covid-19 shutdown — unless investors regard the delaying of dividends and postponing of financial results as noteworthy events.
And the deals that have been brokered have not made headlines. As small as these transactions are, they do at least represent a semblance of "business as usual" amid the persistent pandemic pronouncements.
Most market watchers expect pending deals to be placed on the back-burner during the the lockdown. No company is going to rush into deals if assets could become markedly cheaper in the foreseeable future. By the same token, a fairly rapid recovery in economic activity could mean bargain- basement opportunities being lost.
Perhaps the most intriguing proposal of the lockdown is the unbundling and separate listing of technology conglomerate Altron’s UK-based Bytes Technology Group (Bytes UK) on the London Stock Exchange.
This forms part of a strategy to release value for shareholders that has been in play since Value Capital Partners took control of Altron in late 2016.
Altron believes its share price does not reflect the "true value" of Bytes UK — noting the business "has increasingly developed a growth trajectory and strategic levers that are different to the rest of the group".
What’s more, Altron points out that Bytes UK operates in a different geographical capital market with a highly rated peer group.
Bytes UK — which focuses on software licensing, security solutions, cyberconsulting solutions and public cloud migration — represents a fair chunk of Altron’s total business.
Bytes UK has delivered a 10-year compound annual growth rate of 20% in revenue and 24% in pretax profit. In the 2019 financial year, Bytes UK contributed 41% of Altron’s revenue and 23% of its earnings before interest, tax, depreciation and amortisation.
If things go according to plan, Bytes UK will also have a secondary listing on the JSE.
Altron says that even in the midst of the Covid-19 pandemic, it believes it is appropriate to prepare for the unbundling and listing. The process could take between nine and 12 months.
Another interesting proposal involves Christo Wiese-controlled financial services boutique Mettle — which recently called off a buyout transaction with Genfin — bumping up its stake in UK-based lending subsidiary Reward Finance Group (RFG).
Mettle will buy additional RFG shares from Truly Alternative Limited (TAL) for £2bn, boosting its stake in the venture to 82.5%.
RFG — which provides asset-secured short-and medium-term loans and invoice discounting to the UK’s business market — has been a star performer for Mettle. It has overshadowed the muted performance of its SA financial services operations. In the past interim period RFG generated a profit after tax of £1.7m — suggesting some success in the company targeting small and medium enterprises not adequately serviced by traditional banks.
The proposed deal essentially facilitates an exit for RFG executives Thomas Flannery and David Jones (who held their interests in RFG via TAL) after a new executive team was put in place.
Meanwhile, diversified services company Accéntuate has proposed selling off its chemicals business, Safic, for R10m to a group of executives.
This will allow Accéntuate to focus on its core flooring business as well as reduce borrowings.
Safic’s net asset value was R91.6m at the end of June 2019 — almost three times more than Accéntuate’s current market value. But Safic also suffered a loss of R23.3m.
At the time of writing, rumours were also swirling that Brian Joffe’s investment company, Long4Life, had snaffled a stake of just over 1% in hotel group City Lodge, which has seen its market value plunge by over 60% in the past three months.
Long4Life is cash-flush, and has been on the lookout for new opportunities to diversify its "lifestyle"-themed portfolio, which includes interests in sports and outdoor retailing, health and beauty, and specialist beverages.
Joffe has previously — while still boss of Bidvest — slowly built strategic holdings in a number of listed companies. Possibly the best example would be pharmaceutical group Adcock Ingram, which Bidvest now controls through subsidiary BB Investment Co.
Early views of Long4Life’s rumoured City Lodge foray are that the hotel group may well benefit from fresh strategic insight in an increasingly competitive affordable accommodation space in SA.