Torque con­verter

Early mover ad­van­tage pays off for Md­waba

Finweek English Edition - - In The Spotlight -

BY CLOSE OF BUSI­NESS on the day of our in­ter­view, Mthunzi Md­waba had in­creased his eq­uity in Torque IT – South Africa’s largest ICT so­lu­tions firm – from 31,3% to 38%. “An­other black eco­nomic empowerment deal in­volv­ing a multi­na­tional firm in which my con­sor­tium is poised to snatch a size­able eq­uity stake is on the cards,” Md­waba said ca­su­ally.

It turned out that two of Torque IT’s share­hold­ers had di­vested from the firm, prompt­ing Md­waba to ramp up his stake, as al­lowed in a con­trac­tual clause that gives him first right of re­fusal. With 38% eq­uity, he be­comes the sin­gle largest black share­holder in Torque IT.

And that more or less sums up Md­waba’s growth strat­egy. In a 2004 in­ter­view with Time mag­a­zine, Md­waba said his great­est pas­sions were trans­for­ma­tion, lo­cal de­vel­op­ment and the growth of peo­ple. In a real sense, his stew­ard­ship of Torque IT has been vari­a­tions on those themes – buoyed, of course, by an in­sa­tiable de­mand for IT ser­vices and the ben­e­fits of empowerment.

He sold a por­tion of the com­pany to Kelly Group about a fort­night ago for R37,8m in a move he says will fa­cil­i­tate re­cip­ro­cal growth for both com­pa­nies. That means Md­waba can now pro­vide Kelly with ap­pren­tices grad­u­at­ing from Torque’s IT learn­er­ship pro­gramme, in line with his pen­chant for empowerment and skills uplift­ment in black com­mu­ni­ties.

His strat­egy mov­ing for­ward is one grounded in an ex­pan­sion of Torque’s pres­ence out­side SA. Md­waba has al­ready steered the com­pany into 23 coun­tries other than SA, in­clud­ing fran­chises in Kenya. This year Md­waba set up part­ner­ships in Nige­ria and Ethiopia and is cur­rently es­tab­lish­ing a pres­ence in Zam­bia.

Md­waba has per­haps made a for­tune by be­ing one of the most gifted op­por­tunists in empowerment. Even more fas­ci­nat­ing for the en­ter­tain­ment lawyer turned en­tre­pre­neur is that he holds no for­mal train­ing or qual­i­fi­ca­tions in ICT. In fact, he once told an IT mag­a­zine he em­barked on a ca­reer in law be­cause lawyers, along with doc­tors and teach­ers, were revered in the poor East­ern Cape vil­lage where he grew up.

His un­cer­e­mo­ni­ous de­par­ture from Pri­me­dia in Novem­ber 2000 (where he was MD of the group’s mu­sic divi­sion) was the turn­ing point in his ca­reer. Says Md­waba: “I was em­ployed by Pri­me­dia CE William Kirsh with the man­date to im­prove the fi­nan­cial per­for­mance of its mu­sic divi­sion. Only months into my job I was told Pri­me­dia would be ex­it­ing its mu­sic in­ter­ests, as it formed part of the com­pany’s non-core busi­ness. I was dis­il­lu­sioned to the point that I vowed never again to work for some­one else.”

A year later, and purely by chance, Md­waba (41) met Torque IT’s Gary Chalmers at an MBA class. That was in Jan­uary 2001. Al­most in­stinc­tively he felt the world of IT (and not law) of­fered the chal­lenges he was looking for. So when the op­por­tu­nity to buy Torque IT came knock­ing in April 2001 he grabbed it with both hands. How­ever, it wasn’t an in­stant meal ticket. The fact that it had just posted a cu­mu­la­tive loss of R36m was in it­self a daunt­ing prospect. Md­waba’s first chal­lenge was to build

a black-em­pow- ered com­pany in a sec­tor dom­i­nated by white com­pa­nies. With that goal in mind his black con­sor­tium pitched a R9m deal to Torque IT – an of­fer its then par­ent com­pany, JSE-listed IT counter Mustek, read­ily ac­cepted.

Says Md­waba: “I hedged my risk on SA’s grow­ing de­mand for ICT skills. But most strate­gic in my busi­ness plan was the un­rav­el­ling eco­nomic pol­icy that would in fu­ture give black-owned and -con­trolled firms pref­er­ence to procur­ing Gov­ern­ment’s ICT busi­ness.”

How­ever, eight years ago no­body would have pre­dicted Gov­ern­ment would be so strin­gent with its pro­cure­ment pol­icy. So it was risky when Md­waba threw R9m into the pot.

The sec­ond chal­lenge was to make money. “The com­pany had good ser­vice de­liv­ery cre­den­tials but was per­ceived as be­ing ar­ro­gant. Be­sides, it had a bloated staff head­count that only served to du­pli­cate re­spon­si­bil­i­ties. But those chal­lenges where sur­mount­able.”

As part of his turn­around strat­egy, Md­waba dis­pensed with the lux­ury of a mar­ket­ing and ad­ver­tis­ing bud­get. Se­nior man­age­ment (in­clud­ing Md­waba) had to for­feit their salaries for close to a year. Within two years of Md­waba tak­ing over the busi­ness, Torque was able to post a profit – a feat mainly cred­ited for earn­ing him the 2004 ICT Per­son­al­ity of the Year award. Be­tween Jan­uary 2001 and year-end 2004, Torque had grown 104% and 34% year-on-year.

His les­son? “My take is that you don’t need a men­tor to take risks be­cause op­por­tu­ni­ties vary. The prob­lem in SA is that most as­pir­ing en­trepreneurs are averse to risk. They’d rather buy a stake in a prof­itable com­pany and wait for div­i­dends.”

In ad­di­tion to Torque, Md­waba has a 26% stake in IT group Stotech and a 30% hold­ing in ad­ver­tis­ing firm Young & Ru­bi­cam (Y&R). He also holds a size­able prop­erty port­fo­lio, in­clud­ing of­fice parks in Lyn­nwood and one hous­ing Torque IT’s head of­fice in Rivo­nia.

Risky busi­ness. Mthunzi Md­waba

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