Black like me?
Black economic empowerment (BEE) has come a long way from when BEE deals first became de rigueur, and companies “sold” shares to a handful of people who didn't really need to be a part of the deal. Before long, such deal were criticised for being get-rich-quick schemes.
Currently, the trend is towards getting as many shares into the hands of previously-disadvantaged people as possible. Companies such as Vodacom and MTN are doing a good job of ring-fencing shares through special purpose vehicles, and enabling access to finance to help people buy shares.
These deals are by no means perfect; far from it. Much still needs to be done to educate people about what it means to hold shares and use those shares to vote in change at shareholder meetings.
However, there is still a need for simpler deals: empowerment plans that allow black companies to get a leg up, access financing to grow through a bigger brother and, at the same time, add value to the company doing the deal.
Kelly Group's acquisition of Torque IT two years ago was an example of this type of deal. Torque IT was a decent-sized player in the IT training space. Being bought out by Kelly, however, gave it access to a much larger client base, allowing it to cross-sell its offerings in order to fast track growth.
By buying out the training company, Kelly also added another valuable arm to its recruitment offerings. Now companies could use the recruitment company as a one-stop shop for staffing needs, and get them skilled up in key IT functions.
Kelly could also use the skills shortage in the sector to its advantage, satisfying key needs of companies that would otherwise not have the talent they needed to implement business strategy through IT.
It was a marriage made in heaven. Torque IT certainly seems to have added value to Kelly, as it is one of the few business units that was able to turn a profit during the slump. The story looked like a “happily ever after” fairytale.
Things fall apart
Except that the deal wasn't the anticipated success story it should have been. The happy marriage has broken down, and the parties are currently separated, with the whole mess heading for a rather acrimonious divorce.
As part of the buyout, two years ago, Torque IT CEO Mthunzi Mdwaba was set to take over running the Kelly Group at a later stage. He became deputy CEO of the listed company, and continued running Torque IT to make sure that it met its promised revenues and could deliver on its targets.
Mdwaba, whose peers consider him to be a leading light in the IT industry and one of its key entrepreneurs, was set to take over as CEO of Kelly, which has a market capitalisation of R475 million, next month.
It looked like the perfect succession plan, and could well have become a case study that would put many companies in the sector to shame for not thinking of the move themselves.
The story looked like a “happily ever after” fairytale.Nicola Mawson, senior journalist, ITWeb
However, a vague announcement towards the end of last month hinted that all was not well with the relationship. Mdwaba was stripped of his title as deputy CEO, and dropped as a board director.
While he remained a Kelly staff member, he has been languishing around at home on paid leave, doing goodness only knows what, instead of making sure Torque IT meets its targets.
Some of the facts around his “removal” are slowly starting to come to light, but the news is being distributed unofficially by sources and the true picture will take some time to come out. So far, it looks like Mdwaba and current CEO Grenville Wilson did not see eye-to-eye about running the company.
However, it is too early to draw a definitive conclusion, because Mdwaba's disciplinary hearing may - or may not - happen later this month.
Hopefully, after that, Kelly will tell the market what is actually going on; as a listed company it certainly has a duty to its shareholders to act in a transparent manner. The issue needs to be looked into from a corporate governance point of view, and should be a lesson taught in university classrooms on how not to communicate with shareholders.
Yet, Kelly's lack of transparency - even when asked pointed questions - is small fry compared to the real fall out that can be expected from this mess. The sad truth is, whatever the net result of the Kelly-Mdwaba debacle, it is a blight on SA's empowerment landscape.
There are goodness only knows how many small, black ICT companies out there that could add huge value to our economy if only they can get a leg up. Now, however, these companies will think more than twice about signing a promising deal with another company.
Black companies may well wonder if they will end up in the same boat as Mdwaba: ousted by the company he got into bed with just two years after entering into an empowerment deal.
This brouhaha is going to set back transformation in the industry, and it's going to cost the economy in skills transfer, job creation, and lost opportunities to use a big brother as a boost to grow to the next level - which is vitally important for SA's continued economic development.