Breaking up is hard to do
Is there a backer?
NOBODY’S SAYING ANYTHING, at least not on the record, but if Barnard Jacobs Mellet’s (BJM) lucrative Private Clients Services (PCS) business separates from the group there could be a twist in the tail. A Sens announcement and media statement shed no light on what’s going on. The understanding is discussions are under way that could result in PCS effecting a management buyout.
But there’s probably more to it than that. All SA’s banks and other financial services players run private banks or private clients businesses. If you run a good service it’s an attractive business to be in. But with so many private client operations, the attraction is in consolidation. Joining two firms – more importantly, two books of wealthy clients – offers economies of scale that should open up profit margins. That seems at least part of the motivation for what’s going on at BJM.
It’s no secret that over the years approaches have been made to buy out PCS from the rest of the BJM group. It’s a valuable business – regarded as BJM’s “crown jewel” – so the group has held on. But a buyout is different: the business is only valuable if you have committed, satisfied staff. But here’s the twist. We understand PCS might have a backer, possibly another private clients operation that would fund part or all of the buyout if necessary. What we don’t know is who it is.
The next big question is what sort of number would a buyout entail? Early rumours of the possible buyout rocketed BJM’s share price up in a straight line by more than 25%. But we can only speculate on a price. Leaving out a possible premium, suggestions are PCS could be worth a third to half of BJM’s market capitalisation of R360m. That would be a tough price for even well-paid senior management to meet, so the suggestion there’s a financial backer makes sense.
However, we do know some PCS staff were a little miffed at what CEO Andile Mazwai so euphemistically called the “flexible compensation model” – essentially, small salary increases for staff and drastic cuts in share payments. Directors’ packages were also cut.
But it’s not hard to see that might have led to some discontent at PCS, which grew revenue by around 6% over its financial year (to end-March) while group revenue dropped by 2,5%.
The next few weeks promise interesting action at BJM.