The cracks in Bill Ven­ter's em­pire

The com­pany’s re­cent weak per­for­mance is not a rea­son to write it off, writes Colleen Goko

Financial Mail - Investors Monthly - - Front Page - Pic­ture: iS­TOCK

Fam­ily-run com­pa­nies are a tricky busi­ness. Af­ter all, there is no guar­an­tee that fu­ture gen­er­a­tions will have the com­mer­cial acu­men and know-how of the founders. Very quickly, bil­lions can be turned into mil­lions, and worse, or be squan­dered into nonex­is­tence.

The JSE is lit­tered with great and less great ex­am­ples of what fam­ily-run com­pa­nies can achieve. What is the po­si­tion of Al­tron, the former dar­ling of the IT and tele­coms sec­tor?

Founded in 1965 un­der the name Al­lied Elec­tric by a young Bill Ven­ter, the com­pany had a to­tal staff com­ple­ment of six. In 2001, 3½ decades later, Bill handed over the reins to his son Robbie. At the time, Al­tron had 12 625 em­ploy­ees and a mar­ket cap of R1,9bn.

How­ever, at present, as the com­pany cel­e­brates its golden ju­bilee, its mar­ket cap is at the same level of about R1,9bn — yet the JSE all share has grown more than five­fold to its cur­rent heights of about 53 370 points.

It’s an un­der­whelm­ing per­for­mance which has led many to ques­tion whether they are wit­ness­ing the dis­so­lu­tion of the Ven­ter em­pire.

In the re­cent past, the sit­u­a­tion has been par­tic­u­larly wor­ry­ing. Al­tron’s share price has plunged 65%, from R21,25 a year ago to R7,10. By con­trast, those of the com­pany’s peers have soared. For ex­am­ple, the share price of fel­low mem­ber of the elec­tronic and elec­tri­cal equip­ment in­dex Con­sol­i­dated In­fras­truc­ture Group has risen 8% in the past year. Re­unert has also in­creased in value by 8%. In fact, so dis­mal has Al­tron’s per­for­mance been that the com­pany an­nounced it would be chang­ing its struc­ture from fam­ily-man­aged to in­de­pen­dently man­aged.

What lies be­hind this fall in the busi­ness’s for­tunes?

Kaplan Eq­uity An­a­lysts MD Irnest Kaplan says the blame for the cur­rent trend at Al­tron can­not be placed solely at the fam­ily’s feet. “Some­times fam­ily-run busi­nesses put in place mech­a­nisms to pre­serve con­trol, as Al­tron has done, with the ma­jor­ity of the vot­ing shares owned by the Ven­ter fam­ily. If things are go­ing well, there is no prob­lem with this, and other share­hold­ers en­joy the ride. This has been the case with Al­tron for many years with grow­ing prof­its and div­i­dends,” he says.

But when things go wrong, says Kaplan, a fam­ily’s con­trol comes un­der in­tense scru­tiny.

“Some­times, the pride of the fam­ily can in­ter­fere with the ob­jec­tiv­ity re­quired to take the right busi­ness de­ci­sions.

“In the case of Al­tron, I don’t think its cur­rent trou­bled sit­u­a­tion is solely a func­tion of be­ing a fam­ily-run busi­ness, [but] it may have con­trib­uted,” he says.

You have to dig into Al­tron’s busi­ness to get a sense of its weak spot. In re­sponse to ques­tions from In­vestors Monthly, CEO Robbie Ven­ter iden­ti­fied four ar­eas in the group that have posed chal­lenges.

“The first is our elec­tri­cal in­fras­truc­ture busi­ness, Pow­ertech, par­tic­u­larly Pow­ertech Trans­form­ers, which is re­liant on Eskom for a big per­cent­age of its or­ders.

“The sec­ond chal­lenge is from Al­tech Mul­ti­me­dia, which was sig­nif­i­cantly af­fected by re­duced or­der in­take in its core set-top box busi­ness in Africa as a re­sult of de­lays in the roll-out of var­i­ous African dig­i­tal ter­res­trial

❛❛ In fact, so dis­mal has Al­tron’s per­for­mance been that the com­pany an­nounced it would be chang­ing its struc­ture

tele­vi­sion pro­gramme,” he says.

Third on the list is Al­tech Au­topage, once a heavy­weight cel­lu­lar provider but now a com­pany that has suf­fered as prof­itabil­ity fell when the industry came un­der pres­sure.

Fourth, says Ven­ter, is the Al­tech Node — the video-on-de­mand busi­ness that has been mak­ing losses. “[Node] will be closed as of 31 Oc­to­ber,” Ven­ter con­firms.

Kaplan says sev­eral things went wrong for Al­tech at the same time — but while some of it wasn’t the com­pany’s fault, in other cases, it ap­pears to have been due to “mis­judg­ments”.

In par­tic­u­lar, the Al­tech Node has come in for se­vere crit­i­cism as con­sumers steered clear.

“At the time of the launch I felt that the of­fer­ing at the price did not seem com­pelling to me, so I wor­ried who would buy it.

“Per­haps the man­age­ment did not re­act fast enough to the var­i­ous chal­lenges in th­ese trou­ble­some ar­eas.

“How­ever, it is easy to say that with hind­sight,” says Kaplan.

Com­pany founder Bill Ven­ter had no com­ment to make.

His book In Pur­suit of a Dream — Bill Ven­ter and the Al­tron Story il­lus­trates the pas­sion and tenac­ity that took a young boy from Kens­ing­ton, Jo­han­nes­burg to busi­ness suc­cess. Ven­ter first aban­doned the se­cu­rity of a gov­ern­ment job at the post of­fice for some­thing big­ger and bet­ter. His next job was at Hen­ley Ca­bles, where he worked as an as­sis­tant site engi­neer. His real op­por­tu­nity came with Stan­dard Tele­phones & Ca­bles. “Their di­ver­si­fi­ca­tion in the fields of elec­tron­ics, elec­tronic com­po­nents and telecom­mu­ni­ca­tions of­fered sig­nif­i­cant scope for my am­bi­tions,” Ven­ter writes.

The com­pany en­cour­aged him to con­tinue with his stud­ies, par­tic­u­larly in sub­jects such as maths, physics and elec­tri­cal de­sign and wire­less trans­mis­sion. An av­er­age day for him then con­sisted of a full work day fol­lowed by evening classes four days a week. Later, hav­ing started his own busi­ness, he would go on to re­ceive a grad­u­ate de­gree from the Univer­sity of Jo­han­nes­burg, an MBA from the Univer­sity of Wales, and a doc­tor­ate, again from the Univer­sity of Jo­han­nes­burg. The fo­cus of much of his re­search was into “fami­li­ness in busi­ness”.

The com­pany may be strug­gling, but an­a­lysts warn that one should not to write it off.

Farai Mapfinya, head of eq­ui­ties and port­fo­lio man­ager at JM Busha As­set Man­agers, says that with a longer-term in­vest­ment hori­zon Al­tron could yet prove its worth to in­vestors.

“We think a com­bi­na­tion of strate­gic and ex­e­cu­tion short­com­ings has hurt the busi­ness sub­stan­tially in re­cent times.” Mapfinya says it’s not a “to­tally bro­ken busi­ness” that can’t still be res­cued.

“It could be a pro­tracted pe­riod of chal­lenges but we think that over the long term, there is some money to be made still within the sta­ble.

“Busi­ness cy­cles al­ways turn, and we think that if the com­pany is able to ride this chal­leng­ing pe­riod the busi­ness can turn the cor­ner in the fu­ture.”

For one thing, Al­tron does have some good-qual­ity busi­nesses go­ing for it — Bytes and Net­star fore­most on that list.

Robbie Ven­ter says that in fu­ture, Al­tron wil fo­cus on th­ese core as­sets.

“Al­tron will be tak­ing steps to re­duce its ex­po­sure to the manufacturing industry and fo­cus on its core IT and tele­coms as­sets. Th­ese are the ar­eas where we have proven to have a com­pet­i­tive ad­van­tage, have the po­ten­tial to grow and can achieve a good re­turn on cap­i­tal,” he says.

Ven­ter’s goal is to re­build a leaner, more ag­ile busi­ness.

In re­cent in­ter­views, he has stated that he will step down from his po­si­tion as CEO only once Al­tron is on a stronger foot­ing. “The busi­ness has en­joyed much suc­cess over the years and has also suc­cess­fully man­aged many phases of change.

“Al­tron has pub­licly stated this year that it will be tran­si­tion­ing from a fam­ily man­aged busi­ness to an in­de­pen­dently man­aged busi­ness,” he says.

De­spite this change, he is adamant that as it stands, the plan is for the Ven­ters to re­tain its ma­jor­ity (vot­ing) share­hold­ing.

Kaplan says Al­tron could go either way, de­pend­ing on the re­me­dial ac­tions the com­pany takes. “I would say there is a good chance that CEO Robbie Ven­ter will lead a rea­son­able re­cov­ery, and I think there is po­ten­tially a fair amount of up­side in the share price from cur­rent lev­els of around R7 to R8,” he says.

Al­tron could do worse, how­ever, than to look back at how it got here.

Says Kaplan: “One needs to ask the ques­tion: how did they get to be­ing a R20bn busi­ness over the past few decades? The an­swer is that they were a pas­sion­ate, de­ter­mined and highly ca­pa­ble fam­ily for a very long time.

“I have no doubt that the group will emerge much health­ier and more prof­itable – al­beit a bit smaller”.

IM

■■

❛❛ A com­bi­na­tion of strate­gic and ex­e­cu­tion short­com­ings has hurt the busi­ness sub­stan­tially in re­cent times

Robbie Ven­ter … took over in 2001.

Founder Bill Ven­ter … con­tin­ued his stud­ies part-time af­ter work.

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