Business rescue and Section 12J save appliance brand
SOUTH Africa’s leading home appliance repair and maintenance brand is poised for spectacular growth, thanks to the success of two pro-business processes introduced by local lawmakers.
The firm used both the Department of Trade and Industry’s “business rescue” legislation and the SA Revenue Service (Sars) Section 12J tax incentive scheme to shake off recent trading difficulties and emerge revitalised, ready to create jobs and contribute meaningfully to the broader economy.
MasterCare, established in 1974, ran into trouble three years after its 2009 acquisition of Early Bird Services from Ellerines Holdings. The firm faced a perfect storm of post-acquisition challenges, including overstated revenue estimates, old and underutilised infrastructure and unprofitable stores.
As cash flow dried up management was left with one of two choices, either close doors and go into liquidation or enter into a business rescue arrangement to see whether the business could be saved. Management opted for the latter, and Neill Hobbs of Hobbs Sinclair was appointed as the business rescue practitioner in 2012.
“Hobbs and his team looked at every aspect of the business and realised its vital role in the domestic home appliance repair industry,” says Wesley Rabie, the current chief executive of MasterCare.
“They optimised the business model and created a ‘leaner and meaner’ operating infrastructure to deliver sustainable growth”.
He credited Hobbs Sinclair with creating the space necessary for the management team to focus on the business plan rather than obsessing over day-to-day operational issues. The only missing ingredients were a clear strategy and capital – enter Anuva Investments, a section 12J-compliant Venture Capital Company, which acquired a majority share in MasterCare in 2015.
The combination of business “smarts” and “fresh” capital put MasterCare on a totally different business trajectory.
“Capital is one thing,” says Rabie. “But we benefited from the business acumen of Neill Hobbs as well as inputs from the ‘captains of industry’ behind the Section 12J venture capital company”.
He adds that the five-year minimum investment term for such investment creates a strong incentive for investors to get involved. “As the business rescue process unfolds you reach a point where a clear direction and an injection of fresh capital becomes an imperative for business success,” says Larry Worthington-Fitnum, co-founder and director of Anuva Investments.
The business rescue process and subsequent Section 12J investment saved 80 jobs at MasterCare and prevented countless job losses in the broader repair industry. “We currently support more than 140 small service agent businesses across the country, as well as a handful of spares suppliers – often as the agent’s largest client,” says Rabie.
The MasterCare experience shows that liquidation should only be considered as a last resort.
“Business rescue gave us the opportunity to take a company that had been around for almost half-a-century, recognise the value in the business model and turn the company around,” says Rabie.