Themba September, Corporate Renewal Partners
18 October 2004
Developments In The South African Turnaround Industry
Conference: Managing A Turnaround, Wits Business School, 18 – 22 October 2004
23 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
SA Turnaround Industry
Driving Forces
Developments in the SA turnaround industry cover various areas …
OVERVIEW
Underperforming & distressed
businessesConstraints
New management
Industry Players
Financiers
Advisors
Government
Faculty
Industry associations
… with (1) the formation of industry associations and (2) new business rescue legislation of major significance.
Developments In The SA Turnaround Industry:
Overview
Industry Structure
Industry Constraints
Industry Driving Forces
The Market For Turnarounds
Industry Task Group
ABASA
TMA (South Africa Chapter)
43 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
Industry Associations
TMA (South Africa Chapter)
ABASA (Association of Business Administrators of South Africa
Management
Organisational Stakeholders
Employees
Shareholders
Capital Market Stakeholders
Banks
Unions Suppliers
Customers Government
Host communities
Product/Market Stakeholders
INDUSTRY STRUCTURE
The most significant structural development has been initiatives to organise the turnaround and business rescue industries
Turnaround practitioners
New Management
Business Administrators (in terms of new business rescue legislation)
Banks and other providers of loan capital
Financiers
Investors - private equity firms, investment bankers, institutional investors
Turnaround consultants
Advisors
Management consultants
Professional services
Accountants
Lawyers
Credit insurance
Legislators
Government
SARS
Legislation
Faculty/Academic
Research
Under-performing &
distressed businesses
Industry Players
Distressed Business And Its Stakeholders
Developments In The SA Turnaround Industry:
Overview
Industry Structure
Industry Constraints
Industry Driving Forces
The Market For Turnarounds
Industry Task Group
ABASA
TMA (South Africa Chapter)
63 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
Constraint Resolvable?
Long Lead Time Before A Turnaround Is Triggered: Boards and management tend to wait until a crisis has
developed
When banks intervene with workout action, it is normally too late too
Turnaround viability is low once a business has reached the Failing Zone in terms of the Z-Score
Education via industry associations and conferences will help
New business rescue legislation may bring heavier penalties for trading under insolvent conditions
Lack Of Turnaround Equity Finance: No specialist turnaround private equity firm in SA
Those that do finance turnarounds tend to focus on under-performing rather than distressed companies
Lead-time for due diligences tends to be too long for a company requiring urgent refinancing
As part of new business rescue legislation, government announced the possibility of a R2bn business rescue fund
New private sector initiatives to start turnaround private equity?
Timing of turnaround intervention, and lack of finance represent the two biggest constraints to growing the turnaround industry
INDUSTRY CONSTRAINTS
73 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
Constraint Resolvable?
Antiquated Insolvency Legislation: Judicial management a failure Insolvency regulation scattered across the Companies Act, the Insolvency Act
and the Close Corporations Act
To be addressed through new business rescue legislation
Stringent Labour Legislation: In view of the high unemployment rate government understandably does not
support retrenchment as mechanism to reduce costs Hence the stringent labour legislation that apply by virtue of the Labour
Relations Act (LRA) Recent amendments to the Insolvency Act reiterate government's commitment
to saving jobs and the protection of employees when a company experiences financial difficulties
For instance, if a distressed business is sold, all employees from part of the deal
New business rescue legislation not expected to lead to changes in the LRA
Attitude Of SARS (SA Revenue Services): Not allowing past and assessed losses Seen as a stumbling block preventing entrepreneurs and financiers stepping
forward to participate in business rescue
May be satisfactorily addressed since SARS has reportedly committed itself to the new business rescue legislation
In addition, there is a number of statutory constraints
INDUSTRY CONSTRAINTS
83 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
Constraint Resolvable?
Lack Of Organised Industry: No industry voice e.g. with regard to new business rescue
legislation
No standards, formally co-ordinated education, training and certification
No co-ordinated marketing and promotion
No rules of engagement regarding conducting workouts between turnaround practitioners and banks
No admission criteria and disciplinary measures to make formal business rescue work
Adverse publicity in cases where turnaround practitioners are seen to “make hay while the sun shines”
Mixed feelings of SA business towards turnaround practitioners
To be addressed through the formation of:
Turnaround Management Association (South Africa Chapter)
ABASA (Association of Business Administrators of South Africa)
Lastly, the turnaround industry’s lack of organisation is self-inflicted through past inaction
INDUSTRY CONSTRAINTS
Developments In The SA Turnaround Industry:
Overview
Industry Structure
Industry Constraints
Industry Driving Forces
The Market For Turnarounds
Industry Task Group
ABASA
TMA (South Africa Chapter)
103 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
New business rescue legislation is expected to become the most important future driving force of the industry
INDUSTRY DRIVING FORCES
For more information on the nature of new business rescue legislation, please see Jan van der Walt’s presentation “Contrasting Informal Turnaround With
Turnaround During Formal Insolvency”.
1. Political Driving Forces:
New Business Rescue Legislation
Government places a high premium on job preservation and saving businesses
Hence new draft business rescue legislation to replace judicial management
Will allow for turnaround to take place within a legislative framework for the first time
However, timing is unknown and the approach is fragmented:– Draft Insolvency and Business Recovery Bill – approved by cabinet in March 2003– Unified Model – as above - the present Department of Trade and Industry/Professor David
Burdette initiative for business rescue legislation as part of company law reform Business Administration Act – the present Department of Justice/Patrick Daly/Banking Council
initiative for new business rescue legislation under the Insolvency Act Nedlac initiative – business rescue conference arranged but cancelled
113 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
Transformation of the liquidation industry is expected to have an important bearing on shaping new business rescue legislation
INDUSTRY DRIVING FORCES
1. Political Driving Forces (2):
Transformation Of The Liquidation Industry
Government is of the opinion that the liquidation industry:– Should give way to the national interests of job preservation and business rescue– “And not merely to those of liquidators, secured creditors and their lawyers".
Accordingly, government is planning to introduce reform:– Will include “statutory regulation and the appointment of panels of turnaround specialists to try
to save an ailing company rather than liquidate it”.
Present Ministerial Committee of Enquiry into the Liquidation Industry:– Prompted by corruption, mismanagement and lack of BEE
– Led by advocates Seth Nthai and Lindiwe Nkosi-Thomas
123 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
In a way, government is already involved with turnarounds via the Department of Labour and the NPI
INDUSTRY DRIVING FORCES
1. Political Driving Forces (3):
Social Plan
The Department of Labour’s Social Plan allows for employers and workers to request assistance to prevent or minimise job losses when large-scale retrenchments are in the offing
Social Plan's Technical Support Facility functions under the auspices of the National Productivity Institute (NPI)
Private sector turnaround professionals (BEE preferred) are sponsored by NPI to conduct turnaround work
More information: www.socialplan.co.za
133 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
Industry is organising itself to promote its practice, and to be aligned with new business rescue legislation
INDUSTRY DRIVING FORCES
1. Political Driving Forces (4):
Organised Industry
Task Group for Organising the Turnaround and Business Rescue Industries:– May – August 2004
– Spawned TMA and ABASA
Turnaround Management Association (South Africa Chapter):– To promote the profession of turnaround management of underperforming and distressed
businesses
– Status: in formation
ABASA – Association of Business Administrators of South Africa:– Formed in response to new business rescue legislation
– Status: Registered, executive elected
These industry associations will help shape the future of the turnaround industry in South Africa.
More about TMA (SA Chapter) and ABASA later in the
presentation
143 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
The market for turnaround has declined due to improved economic health
INDUSTRY DRIVING FORCES
2. Economic Driving Forces:
Economic Indicators
Compulsory company liquidations represent a lagging indicator of the potential market for turnaround.Voluntarily company liquidations are disregarded as these are not necessarily as a consequence of financial distress.
2004 level is about a quarter of the level of 1992 - 1999
August 2003 figures increased as a result of the impact of a strengthening Rand on export companies
Declined thereafter due to decreasing interest rates
153 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
Yet, there is still life in the informal turnaround sector
INDUSTRY DRIVING FORCES
2. Economic Driving Forces (2):
Rising Performance Standards
Increased incidence of private sector shareholders becoming less tolerant of mediocre performance
This trend extended itself to the state as shareholder:– South African Post Office - successful turnaround by Maanda Manyetse
– Transnet - turnaround launched under Maria Ramos
– Denel
Increasing Acceptance
Increasing acceptance of informal turnaround as a viable alternative to liquidation
“Internationally, there is a substantial growth in the management and funding of turnarounds” – Corporate Turnaround (Stuart Slatter and David Lovett) 1999
163 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
Job preservation is an important objective of new business rescue legislation
INDUSTRY DRIVING FORCES
3. Social Driving Forces:
Unemployment
41,2% unemployment rate (expanded definition i.e. including the unemployed not actively looking for work)
27,8% official unemployment rate (only active job seekers)
As a result, a business rescue culture is developing amongst distressed businesses' lenders:
Rescue rather than liquidate Banking Council press releases pledging support
4 out of 10 South Africans are unemployed.
173 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
Turnaround funding is being re-examined, and formal turnaround education is strengthening
INDUSTRY DRIVING FORCES
4. Technological Driving Forces:
Turnaround Funding
New business rescue legislation has prompted the banking and private equity fraternity to look at strengthening distressed debt transactions and turnaround funding
Government’s R2bn turnaround private equity fund?
Formal Turnaround Education
Turnaround management course planned at UP in 2005 (Professor David Burdette)
Turnaround management taught at Rhodes University as part of Strategic Management course (Professor Neil Harvey)
Certified Turnaround Professional exam planned (associated with TMA)
ABASA admission exam planned (may be the same as the CTP exam)
183 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
Industry is more and more networking and educating through conferences and web site technology
INDUSTRY DRIVING FORCES
4. Technological Driving Forces (2):
Turnaround Conferences And Workshops
Events In October 2004 Alone: This 5-day conference on managing a turnaround
Vincent Marino’s 4-day workshop on turnaround strategies for the struggling business
4-day TMA 2004 annual convention in New York (900 delegates) on the evolving role of turnaround management
Turnaround Industry Web Site
Turnaround Management SA hosted by Corporate Renewal Partners since April 2004 www.corprenewal.co.za
Turnaround news, events, opinions, links, references, industry info, industry associations; new business rescue legislation info; liquidation statistics and news
Developments In The SA Turnaround Industry:
Overview
Industry Structure
Industry Constraints
Industry Driving Forces
The Market For Turnarounds
Industry Task Group
ABASA
TMA (South Africa Chapter)
203 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
We believe that active industry associations and new business rescue legislation will boost the turnaround market
THE MARKET FOR TURNAROUNDS
Present
Low interest rates
Low liquidation statistics
Relatively low bank books
Low level of turnaround activity
New business rescue legislation
Promotion by industry associations
Increase in interest rates
Future
Higher level of turnaround activity
Developments In The SA Turnaround Industry:
Overview
Industry Structure
Industry Constraints
Industry Driving Forces
The Market For Turnarounds
Industry Task Group
ABASA
TMA (South Africa Chapter)
223 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
The Task Group for Organising the Turnaround and Business Rescue Industries represented most stakeholder groups
INDUSTRY TASK GROUP
Seated: Stephan Claassen (FNB), Lawrence Ngobeni (University of Pretoria - alternate for Professor David Burdette) (Secretary), Themba September (Corporate Renewal Partners) (Chairman), Mervyn King (Brait), Ricardo Graham (Maximus Turnarounds).
Standing: Inus du Preez (FNB), Sarel Lategan (Standard Bank - alternate for Christo Faul), John Evans (Deloitte), Robin Taggart (Nedbank), Patrick Daly (Daly Incorporated), Kevin Cochrane (Nedbank - alternative for Anna Isaac), Krisjan Barnard (Absa - alternative for Trevor Murgatroyd), Jan van der Walt (Corporate Renewal Partners), Les Matusen (Credit Management Solutions - alternate for Rowan Gordon), Jan Bicker-Caarten (RMB), Martin Leigh (RMB), David Gewer (Werksmans).
Absent: Paul Winer (Werksmans), Michael Vacey-Lyle (FNB).
Work Group Of The Industry Task Group(Supported by 80 Advisory Group Members):
233 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
The Task Group (May – September 2004) spawned two industry associations
INDUSTRY TASK GROUP
For a thorough discussion of the timeline of financial distress – please see Jan van der Walt’s presentation “Contrasting Informal Turnaround With
Turnaround During Formal Insolvency”.
Management-led
Correction
Informal Creditor Workout
Business Rescue Liquidation
Failure
Troubled Company
Timeline Of Financial Distress
Turned Around/Restructured/Sold
Highest Success
High Success
Low Success
Minimal Success
Failure
Failure Failure
Time
X
Informal Processes Formal Processes
TMA (Turnaround Management Association)
ABASA (Business Rescue Regulatory Association)
ABASA
Association of Business Administrators of South Africa
A regulatory body for formal business rescue within the legislative framework as envisaged by new business rescue legislation.
TMA (SA Chapter)
A voluntarily association to: Promote the turnaround
industry For purposes of information
exchange, networking, education and raising the standards of turnaround across both the informal and formal sectors
Developments In The SA Turnaround Industry:
Overview
Industry Structure
Industry Constraints
Industry Driving Forces
The Market For Turnarounds
Industry Task Group
ABASA
TMA (South Africa Chapter)
253 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
ABASA will regulate formal business rescue through admission criteria and disciplinary powers
Memorandum, Articles of Association and Rules are registered
Introductory letters to Departments of Justice, and Trade & Industry drafted
Been introduced to the Ministerial Committee of Inquiry into the Liquidation Industry
Interim Executive was elected on 11th October 2004 – its first meeting will be on Monday 8th November 2004
Interim Executive will progress contact with government, drafting of a Draft Business Administration Regulatory Bill, and membership recruitment
Status
ABASA
During the interim period: Attorneys and chartered accountants -
3 years experience and members of their associations
Liquidators on Master’s Panel for at least 8 years
Individuals with degrees in law, commerce, or management:
Bachelors degree plus 8 years Honours degree plus 5 years Masters degree plus 3 years
After the interim period:The above replaced by passing an exam.
*) Other membership categories include honorary, practicing corporate and non-practicing corporate membership
Interim period: 1st December after expiry of 24 months since Business Rescue Act promulgation
Admission Criteria For Practicing Members *)
The master of the high court will appoint a Business Administrator …
… on order of the court…
… after nomination of a turnaround expert from the Turnaround Panel by the party bringing the application…
…but creditors have 7 days to replace this person with their own appointment from the Turnaround Panel if they wish to do so
Membership of ABASA will be required to serve on the Turnaround Panel
How it could work (DoJ/ Daly/Banking Council model):
Business Administrators
263 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
The Interim Executive was elected a week ago on 11th October 2004
ABASA
ABASA Interim Executive
David Burdette Mervyn King Lawrence Ngobeni Themba September
Patrick Daly Martin Leigh
Jill Oliphant
Jan van der Walt
Developments In The SA Turnaround Industry:
Overview
Industry Structure
Industry Constraints
Industry Driving Forces
The Market For Turnarounds
Industry Task Group
ABASA
TMA (South Africa Chapter)
283 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
“TMA is the premier professional community dedicated to corporate renewal and turnaround management”
TMA (SOUTH AFRICA CHAPTER)
International headquarters in Chicago
TMA's 6,500 members in 32 regional chapters comprise a professional community of turnaround practitioners, attorneys, accountants, investors, lenders, venture capitalists, accountants, appraisers, liquidators, executive recruiters and consultants
Members adhere to a Code of Ethics specifying high standards of professionalism, integrity and competence
Its Certified Turnaround Professional (CTP) program recognizes professional excellence and provides an objective measure of expertise related to workouts, restructurings and corporate renewal
www.turnaround.org
TMA handout material is available for all delegates.
293 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
How to participate in the formation of the South African Chapter of the Turnaround Management Association
TMA (SOUTH AFRICA CHAPTER)
You
Chapter-In-Formation Status
Submit basic information: done Submit list of prospective
members to TMA by November 2004
Membership pledge (intention to become a member in January 2005)
Submit
Formation Steering GroupJoin if
interested
8 executive and 8 non-executive members on the Board
Arrange election
Elect only if you have
pledged
Register as member January 2005: Member: $275 Government/Academic: $115 Full-time student: $65
Register
Provisional Chapter Status
Elected board and executive in place (November 2004)
Written legal opinion (Nov 2004) Registered section 21 company
incorporating the TMA’s by-laws (January 2005)
Please email your pledge to become a TMA (SA Chapter) member in Jan 2005 to [email protected] with name, cell & landline numbers, and industry before 31 October
2004.
SA Chapter Formation Process(For more information please see www.corprenewal.co.za, section Turnaround Management SA, subsection TMA (SA Chapter):
303 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry Conference: Managing a turnaround Wits Business School 18 – 22 October 2004
Cell: 083 325 9575 www.corprenewal.co.za
Themba September
Managing Director: Corporate Renewal Partners
Cell: 083 325 9575
Land line & fax: 011 477 4414
Web site: www.corprenewal.co.za
Email: [email protected]
Questions?