Suitors Were Lined Up For Piece Of Waco
Decision to sell to private equity firms rather than list has met with widespread disappointment
There is no doubt industrial group Waco International, which said earlier this week that it had been sold, had been serious about listing.
The JSE confirmed yesterday that it had already given its formal approval for the listing and said the prospectuses had already been printed.
When Waco stepped back into the limelight last year with the announcement that it would list, and revealed its phenomenal transformation over the past five years, potential suitors lined up on its doorstep.
Several of these, including successful bidders CCMP Capital Asia and JPMorgan Partners Global Fund, are private equity companies, which typically set their sights only on targets with high growth prospects.
Another potential suitor with an eye for a good investment is apparently Bidvest, which on Tuesday would neither confirm nor deny that it submitted a bid for Waco. Bidvest boss Brian Joffe, who has built a massive empire in a short time armed with an effective acquisition strategy, is believed to have been a Waco employee many years ago.
Waco has gone through a drastic transformation, successfully distancing itself from its dubious past as part of the W&A conglomerate, which was plagued by allegations of fraud, among other things.
The company ”” which supplies construction equipment and services such as scaffolding in SA, and manufactures modular houses in Australia and the UK ”” has achieved average earnings growth before interest, tax, depreciation and amortisation of 27,7% a year for the past three years. Its revenue of between R2,5bn and R3,5bn has grown substantially in the past few years due to organic growth and acquisitions in both SA and abroad.
John Burke, the JSE’s head of issuer services, says Waco’s decision not to list is disappointing.
Dirk KotzÃ© of Coronation Fund Managers says Waco is one of a small number of large companies in SA that are not listed. (Others examples are MacSteel and Pioneer.) From this point of view, KotzÃ© says, Waco’s decision is disappointing.
Excluding Telkom, the listing would have been the largest in the past three years.
The listing would have offered shareholders exposure to the construction sector, which is expected to expand in leaps and bounds over the next few years, in a company generating a substantial cash flow. It would have also offered shareholders exposure to Waco’s modular building activities, which offer substantial growth potential in the future.
Waco focuses on two lines of business. One is scaffolding and related activities such as shoring. Modular buildings is the other.
The two lines contribute almost equally to the group’s revenue, but modular building has grown more rapidly. It involves the manufacture of basic building elements, such as walls and ceilings for schools or hospitals. They are then assembled on site.
Waco recently landed some significant overseas contracts for their modular buildings. Modular building is not yet a widely accepted concept in SA, but has potential as a far quicker and cheaper way of putting up buildings.
Waco has delivered handsome returns for its owners, a consortium of private equity funds of which Ethos Private Equity is the largest investor, followed by Capital International Management and Citicorp.
The second acquisition by private equity firms signals perhaps that there is substantially more value for Ethos and the other investors to be had from Waco.
The new owners have agreed to allow Waco CEO Royden Vice and his existing management team to continue with the strategy and staff that are in place. Senior managers, including Vice, now own 15% of Waco.
A listing further down the line remains an option, Vice says.
It is not only price that persuaded Waco to cancel the listing ”” although the winning bid happened to be the highest, at R5,4bn, says Vice.
Other factors that were considered included whether Waco will be able to remain headquartered in SA and whether the company would remain intact. Most of the other bids required a breakup of the company to some extent, Vice says.
Vice says that one of the benefits of belonging to a private equity organisation again is that Waco will be able to operate fairly fleet-footed. On the other side of the coin, private equity investments are highly geared and driven by growth prospects, which creates “enormous pressure to perform”. At the same time, Vice says, the move by CCMP Capital Asia ”” the firm’s first acquisition in Africa ”” and JPMorgan Global Fund means that there is still substantial growth potential and value in Waco.
Much of Waco’s performance over the past three years is attributed to Vice, appointed to the CEO position in 2002. Vice founded Afrox Healthcare and is the chairman of Consol Glass and a nonexecutive director of Murray & Roberts.