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Themba September, Corporate Renewal Partners 1 August 2005 Developments in the South African Turnaround Industry Conference: Managing a Turnaround, WBS,

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Presentation on theme: "Themba September, Corporate Renewal Partners 1 August 2005 Developments in the South African Turnaround Industry Conference: Managing a Turnaround, WBS,"— Presentation transcript:

1 Themba September, Corporate Renewal Partners 1 August 2005 Developments in the South African Turnaround Industry Conference: Managing a Turnaround, WBS, 1 – 5 August 2005 An industry perspective

2 Developments in the SA turnaround industry:  Overview  Industry structure  Industry constraints  Industry driving forces  The market for turnarounds  Industry Task Group  ABASA  TMA, Southern Africa Chapter

3 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax SA Turnaround Industry Driving Forces Developments in the SA turnaround industry cover various areas … OVERVIEW Underperformin g & distressed businesses (and their stakeholders) Constraints New management Industry Players Financiers Advisors Government Faculty Industry associations The formation of industry associations and (2) new business rescue legislation are of major significance.

4 Developments in the SA turnaround industry:  Overview  Industry structure  Industry constraints  Industry driving forces  The market for turnarounds  Industry Task Group  ABASA  TMA, Southern Africa Chapter

5 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Industry Players (providers of capital and services) Industry Associations Turnaround Management Association, Southern Africa Chapter) ABASA (Association of Business Administrators of South Africa Management Organisational Stakeholders Employees Shareholders Capital Market Stakeholders Banks UnionsSuppliers CustomersGovernment 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, IDC 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 Distressed business and its stakeholders

6 Developments in the SA turnaround industry:  Overview  Industry structure  Industry constraints  Industry driving forces  The market for turnarounds  Industry Task Group  ABASA  TMA, Southern Africa Chapter

7 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax ConstraintResolvable? 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 directors 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  Government- sponsored 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

8 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax ConstraintResolvable? 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:  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 In addition, there is a number of statutory constraints INDUSTRY CONSTRAINTS

9 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax ConstraintResolvable? 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 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 admission criteria and disciplinary measures to make formal business rescue work  Turnaround Management Association, Southern Africa Chapter  ABASA (Association of Business Administrators of South Africa) Lastly, the turnaround industry’s past lack of organisation is self-inflicted through past inaction INDUSTRY CONSTRAINTS

10 Developments in the SA turnaround industry:  Overview  Industry structure  Industry constraints  Industry driving forces  The market for turnarounds  Industry Task Group  ABASA  TMA, Southern Africa Chapter

11 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax New business rescue legislation is expected to become the most important future driving force of the industry INDUSTRY DRIVING FORCES For more information on how new business rescue legislation may impact on turnaround management, please see Jan van der Walt’s presentation “Contrasting informal turnaround with turnaround during formal insolvency”. Political driving forces – 1: 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 – 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 Department of Justice/Patrick Daly/Banking Council initiative for new business rescue legislation under the Insolvency Act  Expected to be incorporated in the new Companies Act

12 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Transformation of the liquidation industry is expected to have an important bearing on shaping new business rescue legislation INDUSTRY DRIVING FORCES 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”.  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 –Outcome unknown –To be followed by an interdepartmental task team?

13 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Government is already involved with turnarounds via the Department of Labour and the NPI INDUSTRY DRIVING FORCES 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:

14 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Industry is organising itself to promote its practice, and to be aligned with new business rescue legislation INDUSTRY DRIVING FORCES Political driving forces – 4: Organised industry  Task Group for Organising the Turnaround and Business Rescue Industries: –May – September 2004 –Spawned TMA and ABASA  Turnaround Management Association, Southern Africa Chapter): –To promote turnaround management of underperforming and distressed businesses –Status: Provisional Chapter status by October 2005  ABASA – Association of Business Administrators of South Africa: –Formed in response to new business rescue legislation initiatives –Status: Registered, executive elected, awaiting government approval 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

15 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax The market for turnaround has declined due to improved economic health INDUSTRY DRIVING FORCES Economic driving forces – 1: Economic indicators – low bankruptcy activity 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.  2004/05 level is about a quarter of the level of  August 2003 figures increased as a result of the impact of a strengthening Rand on export companies  Declined thereafter due to decreasing interest rate

16 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Yet, there is still life in the informal turnaround sector INDUSTRY DRIVING FORCES 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 –SAA – turnaround under Khaya Ngqula –Denel – turnaround under Victor Moshe, then Shaun Liebenberg Increasing world-wide 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

17 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Job preservation is an important objective of new business rescue legislation INDUSTRY DRIVING FORCES Social driving forces: Unemployment  40,5% unemployment rate (expanded definition i.e. including the unemployed not actively looking for work)  26,5% 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.

18 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Turnaround funding is being re-examined, and formal turnaround education is strengthening INDUSTRY DRIVING FORCES Technological driving forces – 1: Turnaround funding  New business rescue legislation has prompted the banking and private equity fraternity to look at strengthening distressed debt transactions and turnaround funding  Turnaround private equity funds to be formed? Formal turnaround education  Certified Turnaround Professional exam planned (associated with TMA)  ABASA admission exam planned (may be the same as the CTP exam)  Turnaround management course planned at University of Pretoria (Professor David Burdette) to prepare students for CTP exam  Turnaround management taught at Rhodes University as part of Strategic Management course (Professor Neil Harvey)

19 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Industry is more and more networking and educating through conferences, publications and web site technology INDUSTRY DRIVING FORCES Technological driving forces – 2: Turnaround conferences and publications  This annual 5-day conference on managing a turnaround  Turnaround series in Professional Management Review  Annual TMA convention in USA (900 delegates) on turnaround management Turnaround industry web site  “Turnaround Industry SA” hosted by Corporate Renewal Partners since April 2004 at  Turnaround news, events, opinions, links, references, industry info, industry associations; new business rescue legislation info; liquidation statistics and news

20 Developments in the SA turnaround industry:  Overview  Industry structure  Industry constraints  Industry driving forces  The market for turnarounds  Industry Task Group  ABASA  TMA, Southern Africa Chapter

21 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax We believe that active industry associations and new business rescue legislation will boost the turnaround market THE MARKET FOR TURNAROUNDS Present:  New business rescue legislation  Promotion by industry associations  Increase in interest rates Future: Higher private sector level of turnaround activity – 2007 onwards  Transnet  SAA  Denel  Low interest rates  Low liquidation statistics  Relatively low bank books Public sector Private sector

22 Developments in the SA turnaround industry:  Overview  Industry structure  Industry constraints  Industry driving forces  The market for turnarounds  Industry Task Group  ABASA  TMA, Southern Africa Chapter

23 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax 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): Grass-roots involvement from 100 participants from all constituencies in the turnaround and business rescue industries in South Africa The Task Group for Organising the Turnaround and Business Rescue Industries was active from April – September 2004 INDUSTRY TASK GROUP

24 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax The Task Group spawned two industry associations The timeline of financial distress: INDUSTRY TASK GROUP

25 Developments in the SA turnaround industry:  Overview  Industry structure  Industry constraints  Industry driving forces  The market for turnarounds  Industry Task Group  ABASA  TMA, Southern Africa Chapter

26 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax ABASA is an industry-proposed business rescue regulatory body ABASA mission - to:  Regulate activities of Business Administrators (its members) in terms of new business rescue legislation  Administer admission criteria based on: –Qualifications and experience during an interim period –Thereafter, exam on turnaround management, law and accounting as per TMA’s Certified Turnaround Professional exam: Curriculum customised for South Africa Courses offered by tertiary institutions  Ensuring professional conduct and ethical behaviour reinforced by disciplinary measures  Train and educate Become a (future) member if you wish to take charge of a distressed business as a Business Administrator under future new insolvency laws. ABASA

27 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Themba September (Chairman) The Interim Executive was elected on 11 th October 2004 ABASA Interim Executive: David Burdette Mervyn King (Deputy Chairman Lawrence Ngobeni (Secretary) Patrick DalyMartin LeighJill Oliphant Jan van der Walt (Treasurer) ABASA

28 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax  ABASA was set up on request from individuals in government (but not by government itself)  It is a registered Section 21 company, and an interim executive is in place  ABASA is in the process of requesting regulatory powers through government legislation: –Either as self-regulatory –Or regulated by dti or DoJ  Regulation may be influenced by the outcome of the Ministerial Committee of Enquiry into the Liquidations Industry  While awaiting a decision on regulation, ABASA is there to: –Provide advice if advice is asked from government –To support and lobby for new business rescue legislation  Membership recruitment will commence once clarity have been received from government regarding the way forward ABASA ABASA is in the process of requesting regulatory powers through government legislation

29 Developments in the SA turnaround industry:  Overview  Industry structure  Industry constraints  Industry driving forces  The market for turnarounds  Industry Task Group  ABASA  TMA, Southern Africa Chapter

30 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax The TMA is a voluntarily trade association for service and capital providers to the turnaround industry TMA mission - to:  Serve as a forum for convening turnaround professionals from all disciplines: –to exchange information, ideas and knowledge on the turnaround business  Promote high standards of practice and improved methodologies in turnaround management  Foster professional development opportunities for turnaround professionals  Serve as a clearinghouse of information and research pertinent to the turnaround business TMA, SA CHAPTER “TMA is the premier professional community dedicated to corporate renewal and turnaround management”.

31 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax  Rather than reinvent the wheel, affiliation allows for: –Working within proven and well-defined structures –Sharing in the knowledge and experience of the international turnaround fraternity  TMA, SA Chapter is a 100% SA initiative: –The local chapter is owned and controlled by SA turnaround industry participants –It's board of directors and office bearers are totally independent of the international organisation it is affiliated to –TMA International is directive only with regard to: Good governance principles Ensuring that chapters do embark on programs (of the chapter's own choice) that are beneficial to the turnaround industries in local jurisdictions. Membership growth: TMA, SA CHAPTER The Industry Task Group decided on affiliation to the pre- eminent turnaround organisation – the Turnaround Management Association The SA Chapter is a SA initiative with full independence.

32 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Jan van der Walt (CEO) The initial Board and Executive was elected on 29 th April 2005 TMA initial Board and Executive: Milton Kahari (Director: Programs) Ken Chitando (Treasurer) Colin Batchelor (Director: Membership) Frans MaritzVincent Marino Patrick von Spreckelsen (Secretary) Robin Taggart (Non-Executive Chairman) David Gewer TMA, SA CHAPTER

33 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax A full 2005/06 Board and Executive will be elected on 22 nd September 2005  Non-executive Chairman  CEO  Deputy-CEO  Treasurer  Secretary  Director: Membership  Director: Programs  Director: Public Relations  Director: Sponsorship  Director: ACTP Relations & Education  Director: Pro Bono Activities  Director: Newsletter  Director: Web site  2x Non-executive Directors TMA, SA CHAPTER

34 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax The TMA will launch a SA customised version of the Certified Turnaround Practitioner programme  The ACTP offers the sole international programme of certification for professionals engaged in the turnaround, crisis management, restructuring and renewal of troubled businesses  To become a Certified Turnaround Professional (CTP), practitioners must meet stringent standards of education, experience and professional conduct For more info, please refer to Professor David Burdette’s presentation on the ACTP. TMA, SA CHAPTER

35 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax International TMA membership profile: Service providers: 71%Capital providers: 23%Academic/Government: 5% TMA, SA CHAPTER TMA aims to reflect the international membership profile in Southern Africa The TMA is certainly not an organisation for turnaround practitioners only.

36 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Membership is open to all interested in corporate renewal and turnaround  Regular members *) : $275/annum($150 for remainder of 2005)  Government: $115/annum  Academic: $115/annum  Students: $ 65/annum *) Regular members are turnaround professionals from all disciplines except for government, academic and students  Members receive: –Monthly copies of the Journal of Corporate Renewal –Discounts on local and international events TMA members regard the biggest benefit of membership to be that of networking opportunities, followed by advancement of professional knowledge. TMA, SA CHAPTER

37 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax TMA, SA Chapter is in the process of achieving Provisional Chapter Status Status:  Current status: Chapter-in-formation  2005/06 Board and Executive election: 22 September 2005  Aiming for Provisional Chapter status by October 2005  Aiming for full chapter status: October 2006 Programs planned post September 2005:  Establishing the Certified Turnaround Professional programme  Support for new business rescue legislation  Conferences  Breakfast seminars  Pro bono activities  Golf days  Web site and newsletter TMA, SA CHAPTER

38 3 The Trails, 127 Linden Rd. Sandown 2196, Sandton Developments in the SA turnaround industry WBS 2005 Cell: Phone/fax Cell: Land line & fax: Web site: Web site: Questions? Corporate Renewal Partners MD: Corporate Renewal Partners MD: Turnaround South Africa


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