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Themba September, Corporate Renewal Partners 18 October 2004 Developments In The South African Turnaround Industry Conference: Managing A Turnaround, Wits.

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Presentation on theme: "Themba September, Corporate Renewal Partners 18 October 2004 Developments In The South African Turnaround Industry Conference: Managing A Turnaround, Wits."— Presentation transcript:

1 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

2 3 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: SA Turnaround Industry Driving Forces Developments in the SA turnaround industry cover various areas … OVERVIEW Underperformin g & distressed businesses Constraints 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.

3 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)

4 3 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: Industry Associations TMA (South 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 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 SARSLegislation Faculty/Academic Research Under- performing & distressed businesses Industry Players Distressed Business And Its Stakeholders

5 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)

6 3 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: 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 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

7 3 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: 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:  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

8 3 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: ConstraintResolvable? 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

9 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)

10 3 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: 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

11 3 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: 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

12 3 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: 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:

13 3 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: 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

14 3 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: 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  August 2003 figures increased as a result of the impact of a strengthening Rand on export companies  Declined thereafter due to decreasing interest rates

15 3 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: 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

16 3 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: 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.

17 3 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: 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)

18 3 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: 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  Turnaround news, events, opinions, links, references, industry info, industry associations; new business rescue legislation info; liquidation statistics and news

19 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)

20 3 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: 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

21 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)

22 3 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: 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):

23 3 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: 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”. 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

24 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)

25 3 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: 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

26 3 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: The Interim Executive was elected a week ago on 11 th October 2004 ABASA ABASA Interim Executive David BurdetteMervyn KingLawrence NgobeniThemba September Patrick DalyMartin Leigh Jill Oliphant Jan van der Walt

27 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)

28 3 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: “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  TMA handout material is available for all delegates.

29 3 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: 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 Group Join 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 your pledge to become a TMA (SA Chapter) member in Jan 2005 to with name, cell & landline numbers, and industry before 31 October SA Chapter Formation Process (For more information please see section Turnaround Management SA, subsection TMA (SA Chapter):www.corprenewal.co.za

30 3 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: Themba September Managing Director: Corporate Renewal Partners Cell: Land line & fax: Web site: Questions?


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