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Overview

ALT X Case Study: 2006 - 2014 A DA Perspective Presentation at Lusaka Stock Exchange Workshop 24 September 2014. Overview. Background to ALT X The Listing Process Business Assessment Listing Mergers & Acquisitions After Listing Closure. Background on ALT X.

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Overview

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Presentation Transcript

  1. ALTX Case Study: 2006 - 2014A DA PerspectivePresentation at Lusaka Stock Exchange Workshop24 September 2014

  2. Overview • Background to ALTX • The Listing Process • Business Assessment • Listing • Mergers & Acquisitions • After Listing • Closure

  3. Background on ALTX • Approximately 1 million companies in South Africa: • Only 442 companies listed on the JSE • Listed demographics do not reflect demographics of total sample • JSE previously created two Boards to support smaller companies: • Venture Capital (‘VCM’) • Development Capital (‘DCM’) • Structure of Boards flawed – allowed for manipulation by vendors, no protection for investors • JSE established AltXto provide platform (or marketplace?) for businesses and investors alike: • Assessed: AIM, NeueMarkt, Toronto, et al • Defined & implemented structure given above inputs • AltX: created as ‘incubator’ prior to Main Board Listing

  4. Background on AltX • Consider: • macro-economics (cycles) • Specific sectors (mining) (agriculture) 3 Number of Listings 4 1 2 5 • Trends: • Cyclicality • 2007 anomaly • ± 10 main board listings per year • ± 4-5 AltX listings per year • Key: • US Technology Bubble • AltX Commences • SA Listings Boom – Construction driven • US Financial Crisis • 2010 FIFA World Cup

  5. AltX Performance: 2014

  6. The Listings Process Business Assessment Business model, market, management Listing Decision Funding Required Valuation, growth prospects Business Plan Advisory Committee Prospectus & Legal Agreements Funding Structure Fund Raising Road show Economic conditions, market appetite Listing Funding

  7. Business Assessment • Esor Limited (ESR): • Established 1976 as Esor Ground Engineering (Pty) Ltd • Focus on Geotechnical Engineering (pipe jacking & piling) • Projects: Civil Engineering & Buiding Construction Projects • Customers: Government, parastatals, construction companies • Geographical footprint: South Africa, Botswana, Mozambique

  8. Business Assessment Consideration: • Infrastructure spend (should be 24% of GDP) backlog is huge • Niche focus – first into the ground • Construction sector cyclicality • Government Infrastructure target: R 400 + billion Impact of Assessment: • Go ahead Business Plan • Approval at Advisory Committee • Acceptance by institutional investors • Successful listing • What was not considered/missed?

  9. Listing Pre-Listing: • Place R 50 million shares: • R 20 million new shares • R 30 million vendor share • R 2.1 billion applied for R 50 million • Institutional interest (13) • Institutional interest: R 5 million + • Issue 1: shareholder spread • Issue 2: liquidity Normalised Growth Post-Listing: • Successful listing: • Acquisition of Franki • Analyst reports (2007): ESR: R12 + • Global Financial meltdown • Completion of World Cup stadia approaching • 31/12: 200% up • Important concept: reversal to the mean Relative Performance of Esor vs JSE All-Share Index 19/03/06 – 31/12/08

  10. Mergers & Acquisitions Franki Acquisition (2006): • (Largest) Geotechnical Engineering • Africa Footprint • 2005 Turnover: R 318 million • 2005 PAT: R 27 million • Consideration: R 170 million cash plus 10 million shares at R1.60 Patula/Shearwater Acquisition (2008): • Patula: Civil Engineering • Forecasted Turnover: R 484 million • Forecasted PAT: R 103 million (21.26%) • Consideration: R 430 million through the allotment of ESR shares @ R6/share • Shearwater: Civil Engineering • Forecasted Turnover: R 285 million • Forecasted PAT: R 51 million (21.26%) • Consideration: R 166 million

  11. Mergers & Acquisitions Assessment Observations: • Relative margins above average for construction sector (eg.Esor: 10%) • Sustainability of earnings? • Capex requirements? • Implications of delayed payment milestones? • Recommendation: 3 year structure: able to pay for realized profits

  12. Post Listing • Construction cycle ‘upswing’ terminated by World Cup 2010 (and global financial crisis) • Companies involved in the construction cycle adapted strategies that were detrimental in a downward cycle: • Acquisition of assets (e.g. quarries) at premium prices – assets barely survived, let alone delivering profits; • Acquisition of assets (e.g. vehicles) led to financial exposure as debt repayment could not be met; Rescheduling of debt • Peripheral (or secondary suppliers) companies affected by downturn (e.g. steel merchants) – roll-out of new stores increased company’s overheads, obliterating profitability • Delayed tenders (compare with required infrastructure spend)

  13. After Listing • Consequences: • Share price collapse: • Global down rating of shares; • Weaker financial results. • Company Strategies: • Sale of non-performing assets; • Changes to business model • Re-capitalization (debt, equity structures) • Trade sales • Delisting • Longer term effects: • Investors wait-and-see on company performance • Companies to prove strategies are successful • Companies with robust business models awarded

  14. Closure • Listing a company – providing capital for growth phase (acquisitions, development capital, etc.) • Listing - an event that can enhance a company’s growth path • Market conditions to be considered when planning a listing (bull market preferable) • ‘Robust’ business model: • a prerequisite to list irrespective of market conditions • simplifies capital raising • Designated Advisor: • Ensures company’s business is able to raise capital and provide returns for investors • Supports corporate governance • Supports mergers & acquisitions Through all the cycles of the company

  15. Questions

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