Old-style firms with a finger in every pie are a thing of the past
• Investors no longer tolerate unfocused, sprawling conglomerates headed by founding figures
Mike Rosholt, who died in March, dominated Barlow Rand for almost three decades.
Barlow Rand was the kind of conglomerate we don’t see any more in SA — although they certainly still flourish in India and South Korea.
It controlled the then Tiger Oats, cement maker PPC, electronics firm Reunert, which had the lucrative contract to assemble landline telephones, and was one of the big six gold miners through Rand Mines.
Without Rosholt’s courage and intelligence to guide it, Barlow Rand went through the first of several unbundlings in 1993. The slimmed-down business called itself Barloworld, after the house magazine.
Barlows was itself part of a conglomerate, as Old Mutual held a strategic stake in the share along with Safren, which owned the improbable combination of Sun City and a fleet of cargo ships, as well as Nedbank and Mutual & Federal.
However, it was Sanlam’s Sankorp subsidiary that was the most complex conglomerate of the 1980s. Headed by Marinus Daling and Attie du Plessis, it didn’t have much focus though. Where it could, it liked to give the impression it was in the business of Afrikaner empowerment. It made a hash of its investment in Nissan Motors but after much panel beating, the likes of Gencor, Sappi, Alexander Forbes and Murray & Roberts (notwithstanding its more recent disasters) gave at least acceptable returns to Sanlam policy holders.
Even a can of worms called Checkers that Sankorp bought from Natie Kirsh is now a key component of Shoprite.
The kind of dinosaur conglomerates that used to roam in SA are now extinct. This is primarily because money that was trapped in SA can now be invested more easily abroad. And investors don’t put up with unfocused conglomerates for long. Anglo American used to control FNB and owned a large chunk of the then South African Breweries (SAB). Now it has assets in a handful of mining sectors, and even from there some shareholders want it to cut back. It could sell out of coal or iron ore, for example.
It is hard to remember that SAB used to control retailers such as Edgars and OK Bazaars, furniture manufacturer Afcol (now buried somewhere in Steinhoff), as well as Plate Glass, a windscreen-repair chain. Only the lucrative Coke bottlers were kept in — although some purists might argue they don’t belong in an alcohol business either.
The conglomerate does live on, though, and the best exponent of the new version is Brian Joffe.
We had a discussion on the issue early in my career when he operated out of a couple of rooms next to a pub in Parktown. He didn’t see managing a business as turning up once a year to approve the dividend.
He believed a complex business needed a full-time CEO left to do deals as he or she saw fit. It was a long way from the boardroom lunches and back slapping that characterised the Anglo and Barlows approach.
Joffe wasn’t even the original. His role model was Manny Simchowitz, his boss at W&A, although Joffe is a more subtle corporate raider.
And unlike Kirsh, Simchowitz and Joffe did not focus on one industry but a whole range. The common theme might be “cash generators” rather than, say, retailers.
Bill Lynch at Imperial had a different spin on the conglomerate, taking something in every piece of the value chain in the motor industry and its cousin, logistics — something today’s incumbent, Mark Lamberti, is likely to dismantle.
Of course, Bidvest and Imperial belong to an earlier generation. Financial engineers have already split the Bidvest food business into a separate listed company.
Ironically, the businesses that most resemble the old-style conglomerates are some of the black economic empowerment firms. African Equity Empowerment Investments (AEEI) has technology and fishing in one basket, and Kagiso has a blend of radio stations, funeral policies and the real AECI.
These businesses perhaps have more in common with private equity funds than conglomerates. There is a time to buy and a time to sell.
The latest iteration of the conglomerate is a focused business such as African Rainbow Capital. The Ubuntu-Botho consortium has used a portion of the return from its successful Sanlam investment to set up a diversified financial services business, a term used quite broadly as it includes insurance broker Indwe, pensions administrator Alexander Forbes and niche asset manager Colourfield as well as A2X, one of the new stock exchanges competing with the JSE.
There are also portfolio investments in a single industry. RMI started this way, with its holdings in Outsurance, Discovery and MMI.
It added a UK direct insurer, the Hastings Group.
However, RMI recently changed its name from Rand Merchant Insurance to Rand Merchant Investments.
CEO Herman Bosman has got the Joffe bug and wants to do more himself in businesses he controls. Bosman has invested R300m into four fintech businesses and a further R600m in asset managers.
However, the contribution to the business from these two areas remains negligible. It is attractive as a diversified insurance play — and the only indirect route into Outsurance.
Internationally, General Electric (GE) is still a highly regarded conglomerate, although it is fraying at the edges.
The quasi-banking business has gone, as has the high-profile NBC television network. Former GE boss Jack Welch, like his local counterparts, is seeing his house pulled down.
However, Tata in India and Samsung in Korea still fly the flag for the conglomerate.
The financial role played at the centre is often very useful.
IRONICALLY, THE BUSINESSES THAT MOST RESEMBLE THE OLD-STYLE CONGLOMERATES ARE SOME BEE FIRMS