Bidvest aiming to clean up overseas
Retiring CEO says hygiene service will be big part of expansion
● Bidvest’s hygiene services business will be a big focus area for the group’s future international expansion, particularly in the UK and rest of Europe, as the industrial conglomerate aims to become one of the dominant players in that sector.
PHS Group, the largest hygiene service provider in the UK, which also operates in Ireland and Spain and which Bidvest recently acquired for just under £500m (about R10bn), is expected to play an important role in the group’s expansion plans.
Departing Bidvest CEO Lindsay Ralphs, who retires at the end of September after 28 years with the group, said this week: “We do think that there is a gap in the hygiene service industry around the world.
“There is no really big, massive, strong, dominant player and we have managed to acquire the largest hygiene service businesses in the UK, and with this pandemic hygiene has really been escalated up in everybody’s minds.”
It is a global industry “that will grow dramatically, I would imagine … as people realise the risks of touching stuff when they go shopping or to a meeting. People are becoming a lot more conscious of hygiene.
“We are very comfortable with that industry and that would be a big focus for our future expansion.”
Ralphs, who was speaking after the release of annual results for the year ended June, said Bidvest would apply the lessons it learnt when founder Brian Joffe “internationalised” the food service business, which was spun out as a separate listed company called Bidcorp in May 2016.
“We learnt a huge amount with our food service expansion. We ended up in 39 countries around the world in four hubs. We really understand how to go about it very well.”
But the hygiene service business’s international expansion focusing on PHS Group will be a slow and steady process.
“This [PHS] is a big acquisition. We will consolidate it, we will get a lot of synergies out of it, we’ll improve it. And then slowly and surely we will expand it,” he said.
Explaining the Bidvest expansion philosophy, Ralphs said: “We don’t like being a small fish in a big pond. When we expanded our hygiene service business and we decided to hit on the UK, because that is where the opportunity came up via a private equity exit from PHS, we were very comfortable that it was a no 1 player.
“You don’t want to be this little fish fighting against these big monsters in a foreign country. It would be gradual and we won’t overextend ourselves from a financial perspective, but there may be one or two decent-sized deals that we would have to do in order to have a decent position in a particular country.”
Dirk van Vlaanderen, associate portfolio manager for Kagiso Asset Management, said the “list of South African corporates who have successfully executed an M&Aled international expansion plan is actually quite short”, with Bidcorp and SABMiller standing out as examples of success stories.
“Recently, South African corporates have not covered themselves in glory, with big international bets that have turned out to be disasters. We hope Bidvest will take the same measured, cautious approach shown with their food service expansion to help ameliorate the inherent risks in an M&A-led growth strategy.”
Van Vlaanderen said that Bidcorp was built on a “strategy of bolt-on acquisitions and consolidating a very fragmented food service industry”.
“Scale was built up slowly by buying smaller, reasonably valued businesses and growing them over time. A similar strategy could also be successful for Bidvest, but will require a very disciplined approach to dealmaking in an industry that is already far more consolidated than the food service industry was for Bidcorp many years ago.”
Van Vlaanderen said this would likely require Bidvest to look for fewer, larger deals, “which could come at higher valuations than a large number of smaller, lower-priced targets”.
He said a concern was how the facilities management market would be changed after the Covid-19 pandemic, “with more people working from home and possibly lower demand for cleaning and hygiene services”.
The group’s focus on its international hygiene business comes as it decides to shed other operations.
Bidvest will sell both its car rental business and BidAir Services, which provides ground, passenger-handling and water services to airlines, as both segments are likely to be facing a long road to recovery.
Ralphs said rather than invest significantly in rental vehicles “sitting idle at airports”, the group would look for other investments.
The decision to sell BidAir was because there were only two years left on the licence it has with the Airports Company SA and to bid to renew it, BidAir would have to invest significantly in new equipment.
In addition, the group will reduce its 27% interest in JSE-listed Comair to virtually zero after the airline’s business rescue process is completed.
Ralphs, who has been part of the Bidvest group since its early days, said he does feel a “little emotional” about his retirement, but this was countered by the succession planning that began in March last year with the appointment of Mpumi Madisa as CEO-designate. Madisa, like Ralphs, has been at Bidvest a long time — 15 years in her case.