Trans­fer­abil­ity

Build­ing a busi­ness you can ac­tu­ally sell

Finweek English Edition - - ENTREPRENEURS -

IN 1990, niche JSE-listed pack­ag­ing firm Bowler Met­calf was trad­ing at 7c. By this year its shares changed hands at R8,50 and in­vestors picked up a div­i­dend yield of around 3,5%. Head­line earn­ings were grow­ing at a com­pounded rate of 25%/ year over the past 15 years, while rev­enue was ris­ing at a com­pounded 21% over the same pe­riod – a per­fect ex­am­ple of an en­tre­pre­neur­ial busi­ness that’s built longterm sus­tain­able value for its in­vestors.

On an ex­change such as the JSE – where it’s rel­a­tively easy to trade shares pro­vided there’s a will­ing buyer – that value that’s been cre­ated can be re­alised with a phone call to a bro­ker or click of a mouse but­ton. For an en­tre­pre­neur try­ing to build his busi­ness, that idea of value isn’t quite as trans­par­ent.

“Are you build­ing a busi­ness you can ac­tu­ally sell?” is a ques­tion Pavlo Phi­tidis, of small busi­ness ac­cel­er­a­tor Aurik, con­sis­tently asks his en­trepreneurs. Are you go­ing to be list­ing your busi­ness on a stock ex­change or sell­ing it to a lo­cal or over­seas com­peti­tor? What would hap­pen if one share­holder should de­cide to sell his shares to an in­vestor that ex­ist­ing share­hold­ers would be in con­flict with? How would you re­act if your ma­jor com­peti­tor strolled into your board­room one day and an­nounced he held a chunk of equity in your busi­ness?

Malaysian bil­lion­aire Stan­ley Ho re­cently found him­self giv­ing up al­most all his equity in SJM Hold­ings, Asia’s big­gest casino com­pany, af­ter he got into an un­savoury tus­sle with his own fam­ily mem­bers. Ho, the world’s 13th rich­est man, was in dis­pute about how he di­vided up his as­sets be­tween his 16 chil­dren and four wives.

“In the hype of big brands and big busi­ness many peo­ple lose sight of the fact that a com­pany is in essence noth­ing more than a group of peo­ple work­ing to­gether to­wards the com­mon goal of year-end profit. But it’s of­ten that key char­ac­ter­is­tic of a com­pany that de­ter­mines its suc­cess or fail­ure,” says Richard van Helden, co­founder of on­line legal ser­vice LawUn­locked. “With­out a prop­erly de­fined struc­ture reg­u­lat­ing the work­ing re­la­tion­ship be­tween share­hold­ers and direc­tors, a com­pany’s busi­ness can be­come weighed down by in­ter­nal dis­putes, an­i­mos­ity and dead­lock.”

Van Helden sug­gests some key as­pects should be con­sid­ered up front – see box.

PAVLO PHI­TIDIS

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