Gestalt specialists will partner with you to play a meaningful role in assisting you in structuring the best possible B-BBEE transaction for your business.
We advise you on your most effective options to restructure the business as well as the transaction. Our specialists facilitate negotiations and the implementation of the investment or sale of shares to a suitable B-BBEE compliant investor/partner to maximise the benefit to your scorecard and competitive advantage.
The Gestalt process enables you to better understand the risks, opportunities and restrictions related to such a transaction to ensure sustainable success.
Here’s the highlight of our service: A success fee is only payable if and when a transaction is concluded; and is determined by the value of the final transaction.
Among the clients Gestalt facilitated B-BBEE transactions for are Aon SA, Sandown Motors, Armcoil Africa and Norconsult AG.
A number of vital considerations must be undertaken to improve the probability of success. For this, we highly recommended scheduling an Ownership Workshop to explore the many benefits of introducing a B-BBEE Partner to your business.
The quantum of equity available to a B-BBEE partner is important, as different levels of shareholding may mean different levels of benefit. The minimum participation for some recognition and to avoid the penalty of dropping a Level on the scorecard is 10%. The minimum for access to the mining industry!!! Under review up to 30% and most government and parastatal tenders is 25.1%. A 30.1% black women ownership provides significant strategic benefit, as the business is recognised as a Black Women Owned Entity.
This would place the business in a highly competitive position to deal with most large companies and the state. The next level of recognition is 51%, which would be even more beneficial, but requires existing shareholders to give up outright control of the business.
The Codes provide scorecard points based on the structure of the B-BBEE shareholding, so it’s important for the structure to maximise the score. This requires consideration of black women as well as a broad-based or employee-based participation. The bonus points available should also be taken into account.
It is often extremely challenging to obtain a realistic value of a business, especially small to medium sized owner-managed businesses (SMEs). Entrepreneurs often measure the value of their business based on the effort and sacrifice that they had to make or the lifestyle benefits accumulated. It must also be noted that a transaction valuation has to allow the BEE investor to settle their acquisition debt in a period of between five and eight years, to be realistic.
Once the structure and business valuation is determined, the matter of funding must be dealt with. It is realistic to expect the BEE investor to provide external funding for an investment, but the cost and risk of such funding should be carefully evaluated – a transaction that simply enriches a bank is not ideal for the parties concerned.
This is a key consideration in any BEE transaction: What is expected from the BEE partner and is it realistic? Deals are often concluded with unrealistic expectations and lofty promises, only to crash and burn. It is equally important that the expectations are realistic, managed, monitored and incentivised. A well-structured transaction will have a solid performance agreement that could lead to the proper unwinding of the transaction if the BEE partner fail to deliver against it.
The BEE partner that knocks on the door is seldom the best possible partner. Partner selection is a thorough and comprehensive process of finding excellent candidates, evaluating them against well-developed criteria and selecting the best possible partner for your enterprise or business.
To evaluate the suitability of the candidate, it is paramount that the owners and managers of the business have a vision and strategy of where the business is going. The evaluation of the BEE partner should cover their ability to contribute to this business growth strategy.
Selecting a partner that has the ability to contribute in the market sector in which the business is active is acutely important. This could include a consideration of their business and personal networks, their current investment portfolio and several other indicators that may contribute to answering the key question: Is this the best partner for the business now?
It is not uncommon that current shareholders wish to plan an exit from their business or at least to unlock some wealth in the short- to medium-term. It is, unfortunately also not uncommon that this is approached incorrectly and that the structuring of a transaction becomes difficult. A properly planned and executed exit strategy can be managed to the benefit of all parties.
The empowerment of staff may sound altruistic and morally sound, but many businesses have unfortunately realised that a well performing staff member does not necessarily translate into a value adding shareholder. Our view is that employee participation is an exceptional idea in certain circumstances and for a limited percentage of 3% to 10% – but it can be counterproductive if not structured correctly. Government is also very wary of some of the broad-based and employee ownership schemes.
Ownership Feasibility Studies
Finding the right partner can really help grow your business, being stuck with the wrong one can destroy it. It can be hugely valuable to understand the options, alternative opportunities and pitfalls before you embark on such a critical path.
Sometimes the rules change and a transaction is no longer optimised. We can assist by conducting an assessment of and existing or proposed ownership structure to review its compliance with the regulations and its effectiveness for the business.
Sale of Assets, Equity Instruments, and Other Businesses
Statement 102 of the Amended Codes allow for Ownership recognition from the sale of an asset, division or property to black buyers. Not only can this provide long term ownership recognition, it could also bolster procurement, for example by selling a subsidiary or property.