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
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
33 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
SA Turnaround Industry
Driving Forces
Developments in the SA turnaround industry cover various areas …
OVERVIEW
Underperforming & 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.
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
53 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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
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, 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
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
73 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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 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
83 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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: 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
93 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
Constraint Resolvable?
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
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
113 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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
123 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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?
133 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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: www.socialplan.co.za
143 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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
153 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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 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 rate
163 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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
173 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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.
183 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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)
193 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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 www.turnaround-sa.com
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, Southern Africa Chapter
213 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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
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
233 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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
243 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
The Task Group spawned two industry associations
The timeline of financial distress:
INDUSTRY TASK GROUP
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
263 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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
273 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
Themba September(Chairman)
The Interim Executive was elected on 11th October 2004
ABASA Interim Executive:
David Burdette
Mervyn King(Deputy Chairman
Lawrence Ngobeni(Secretary)
Patrick Daly Martin Leigh Jill Oliphant
Jan van der Walt(Treasurer)
ABASA
283 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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
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
303 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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”.
313 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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.
323 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
Jan van der Walt(CEO)
The initial Board and Executive was elected on 29th April 2005
TMA initial Board and Executive:
Milton Kahari(Director: Programs)
Ken Chitando(Treasurer)
Colin Batchelor(Director: Membership)
Frans Maritz Vincent Marino
Patrick von Spreckelsen(Secretary)
Robin Taggart(Non-Executive Chairman)
David Gewer
TMA, SA CHAPTER
333 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
A full 2005/06 Board and Executive will be elected on 22nd 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
343 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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
353 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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.
363 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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
373 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
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
383 The Trails, 127 Linden Rd. Sandown 2196, Sandton
Developments in the SA turnaround industry WBS 2005Cell: 082 853 1414Phone/fax 011 477 4414
www.corprenewal.co.za [email protected]
Cell: 082 853 1414
Land line & fax: 011 477 4414
Web site: www.corprenewal.co.za
Web site: www.turnaround-sa.com
Email: [email protected]
Questions?
Corporate Renewal Partners
MD: Corporate Renewal Partners
MD: Turnaround South Africa
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