Biding time, thinking big
The J&J Group is a small unit of high-powered and well-connected individuals. Until recently, and not counting its handful of associate vehicles, it consisted of the unrelated J and J, and two others.These were Jay Naidoo, an influential and respected former cabinet minister, and Jayendra Naidoo, ex trade unionist, civil society activist and founding director of the National Economic Development and Labour Council (Nedlac), which described him as an astute negotiator and dealmaker on his departure.Working with them have been the mercurial Dr Duarte da Silva, formerly electronics sector analyst at Merrill Lynch; and sometime Merrill colleague and financial sector analyst James Slabbert.And then there were five. Seasoned Transnet executive Chris Jardine – himself a doctor – joined J&J with the short-term goal of helping to manage the multiplicity of investment opportunities the group is eyeing.Says Jardine, “The group has broader aspirations to build a world-class African information technology operation.”The aim is not only to make money, but to do so while building capacity and making a difference on a continent of “huge opportunities”.There are ways to do this, says Jardine: through organic growth, or through acquisition. “The former will take long,” he says, pointedly.Later, he elaborates. “There are opportunities to put companies together to build a platform, and it gives you the ability to construct for high-margin business. But service and product sellers are very different animals, and in merging companies of different cultures, deals come unstuck.”So, while this is an option, a single, outright and large deal looks much more likely.When such an opportunity is realised, Jardine looks likely to be a key player. He`s coy about the exact position he expects to fill, but says: “I`ll play a meaningful role. If it`s big, I`ll play a big role.”And big it will be. “You have to be sizeable to give credence to what we want to do. Putting a figure on it just puts a cap on it,” says Jardine.Da Silva is less shy. As a first step, he talks of over R1 billion in revenue. Whether that might be R10 billion he can`t (or won`t) say. Either way, the gleam in his eyes speaks volumes. Soaking up the cultureDa Silva says Jardine came into the company to buy into and share its values and vision. “After three months at J&J, I feel part of it now,” confirms Jardine.Da Silva elaborates on the strategy. “I`ve been involved in private equity before. A common mistake was putting in place people, executives, that didn`t share the same vision as investors.”“In the next six to nine months,” predicts Jardine, “all big players will have done some empowerment deal. Our differentiator is that we`ll put in executives that not only look after the demographics, but also add value to the business from a commercial perspective.”Da Silva picks up the thread: “So we want to take an active operational role in anything into which we invest a ‘meaningful` stake,” he says. “As a shareholder, that`s your only protection.“But once [the executives] are there, they must look after the best for the business. So instilling those shared values are key to the corporate governance balance that`s needed.”When Jardine talks of “putting in executives”, he`s not just talking in the third person about himself, of course. Both modesty and prudence would counsel against it. J&J, he says, has targeted executives and account managers at various levels, and across industries, to create a pipeline of likely candidates to place into its investments. All but a few are black.“When doing a deal we wouldn`t want to put only one person on the board,” says Da Silva.An example can be found in Icoza, an ISP recently formed, active since 1 October 2002 as the first black-owned first-tier ISP in the country. J&J has a majority equity stake, and has three people on a five-strong board.Workable partnership – not just taking over – is the goal, and J&J will sit down and see how strategy can benefit both parties.“That`s why doing a deal takes time,” says Da Silva. Dealmakers and –breakersJardine and Da Silva are coy – no, they laugh aloud – about attempts to draw out names of potential targets. But they are happy to talk about the criteria they`d look for in a potential acquisition. Jardine starts listing them.“It must be a platform for critical mass. As much as services are high-margin, you need a good product mix, because services lead to product sales, and vice versa.”Sector choice is important, because “there must be the potential for serious upside”.The J&J Group is adamant that any venture will have serious African aspirations. It must be able to identify new markets and new sectors. “We think that`s where we can add value,” notes Da Silva.They`re not thinking small either. “We won`t go for five percent, so we need the potential for a sizeable chunk,” Jardine says.“There must be a good return on investment, and a good return on effort. It must make money, but it must do so for everyone. We`re not into transferring value; we want to create it.”And it must be sustainable. “We don`t want to see black empowerment exiting after a few years,” says Jardine.“The talk about enrichment,” says Da Silva, earnestly, “of course we`re into enrichment. I`m a capitalist. We all are. We don`t want to see enrichment at the expense of everyone else, however.”Jardine is adamant that any deal would involve being able to work with the board to effect changes. Da Silva underscores this, saying that if common chemistry was missing it would be a deal breaker. “Without that, we might as well simply trade shares on the stock exchange.”Which, of course, they do. However, trading shares in a company is rather different to creating or transforming one.Inevitably, the question of financing arises. Da Silva is good at this, and he`s done it before.“Good commercial prospects attract cash,” he says. More specifically, he notes that Old Mutual holds 25 percent of J&J. “They are always our first port of call. To date, we haven`t struggled to find suitable investors.”Even in IT?“It`s harder now, because the sector has experienced huge turmoil, and many people don`t understand it. We do,” he says. Fore!Looking at the long-term growth chart, he says there is little risk just yet that IT will be reduced to just another unexciting low-margin sector. “If you look at the long-term trend, from 1970 onwards, the nineties boom will be a blip, but the sector will continue to grow at between 11 and 15 percent. That`s not an engineering sector. So some companies do deserve higher p:e ratios. I think it`s still a growth market, and consolidation can only alleviate the margin pressure.”Big – even the biggest – opportunities are certainly there. Empowerment is an imperative, consolidation a must.Da Silva notes that companies that focus on cost, rather than growth, will be winners in the next round, and that doesn`t narrow the number of companies in need of attention down by much. Add the substantial experience and credibility of an executive like Chris Jardine, and J&J might well be able to create the next Dimension Data.As a slogan, Da Silva`s rough is: “We`re a South African company, first and foremost. We just happen to have empowerment credentials.”Refreshing in this gloomy climate, these people think big. Perhaps J&J also wants to work on a cricket pitch or a golf course. As corporate ambition goes, that`s not half bad.
02 February 2003
The J&J Group is a small unit of high-powered and well-connected individuals. Until recently, and not counting its handful of associate vehicles, it consisted of the unrelated J and J, and two others.
Working with them have been the mercurial Dr Duarte da Silva, formerly electronics sector analyst at Merrill Lynch; and sometime Merrill colleague and financial sector analyst James Slabbert.
ITWeb Premium
Get 3 months of unlimited access
No credit card. No obligation.