Break­ing up is hard to do

Is there a backer?

Finweek English Edition - - Companies&markets -

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.

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