The world is changing fast and to keep up you need local knowledge with global context.
Kenton Fine is the London-based executive chairman and founder of Servest, a R10bn turnover, 45 000 employee multinational group. In 1998, at the tender age of 29, Fine listed the company on the JSE – and four years later had to fight off a hostile takeover attack from Brian Joffe’s mighty Bidvest, doing so by delisting with the help of African Merchant Bank. That temporarily blocked his global ambitions with the fledgling UK operation sold to pay down debt. But once the privately owned business had settled down, Kine relocated to London to have another tilt. Today that startup has a solid foothold in the UK market with annual turnover of £300m – contributing significantly to Servest’s R700m in annual operating profit. Here’s the story of the proudly South African 47-year-old who says he’ll never stop shooting for the stars. – Alec Hogg
Best of BizNews. Flashback: October 2015
I’m in Kensington, London with Kenton Fine, who I haven’t seen since the late 90s when you listed Servest on the JSE. If I recall, you weren’t even 30 at that stage…
That’s right, Alec. I think I was the youngest CEO at the time, August 1998, so I was yet to turn 30, which I did do at the end of August 1998. Yes, I think the last time we probably spoke was in 2002, which was the same year that we de-listed off the JSE.
Interesting story there as well – you started telling us all that you were going to be the next Brian Joffe, but the reason for delisting had something to do with Joffe as well…
That’s right, yes. Well, at that stage we actually modelled ourselves on the fairly, famous Rentokil Initial business and although the market in South Africa likened us to the Bidvest business, which was already involved in services.
Bidvest took a stake in your company?
What happened was they took a stake in the business, unbeknown to us, and ultimately took a bigger stake in the business, which we soon got to know about. The intention from their side was to try take the business out, and to integrate it entirely. Ultimately, it ended up in a fairly hostile situation. We had to think about our future and the way we wanted to protect our independence. Our future, going forward, was to put together an offer to the shareholders, a competing offer to the Bidvest offer, which our shareholders eventually backed. That resulted in a simultaneous leverage buyout or management buy-in and a delisting off the JSE, which occurred in about September 2002. In a way, I look back now and it was almost, I guess a liberation moment because it freed us up to really focus on the business out of the public eye. We had to sort out a few things within the business, and we regrouped. It’s been a long, good ride since then.
What did you start off doing?
My very first business was a circa two million Rand a year turnover, washing and hygiene business based down in Durban – guys we’d come across and we had bought that.
That’s where you’re from, Durban?
I’m from Durban originally. At that stage, we had moved down to Cape Town after I had sold my first business, a waste management business, in the backend of 1996. I contemplated life and then eventually settled on the Servest model, creating a broad-based services organisation again, based on that Rentokil Initial business, which at that stage was a, it had an 18 – 20 year track record of 20 percent compound annual growth and a very broad-based services. It was the start of the management facilities services trend really. Businesses had been around offering single discipline services at that stage, and certainly, some business groups had acquired a number of services, but we wanted to create a focussed services play, and that was our mantra.
So you took Servest private again in 2002 – who supported you?
We had a, there was a small boutique AMB (African Merchant Bank), a private equity house that took or ended up with around about two-thirds of the equity in the business. Four years later, we bought them out and we sold to RMB Corvest and Safika, our empowerment shareholder, with a collective 50 percent. That relationship continued all the way until around three months ago when KTH, who are our new BEE shareholders, acquired a 51 percent stake in the Group. It’s been an incredibly successful run for the AMB guys and for the RMB Corvest guys. They’re incredible partners for us as were Safika and now KTH – we selected them through a Beauty Parade and long, lengthy negotiations. They’re a very powerful outfit. We are very excited about the new relationship.
You are personally based in the UK at the moment where you a big operation. When did you decide to move?
We had been involved in the UK since the late 90s, and post the delisting of the Stock Exchange, the leverage buyout and so on. We were made an offer for our UK business and it was, I guess for the Private Equity backers after we delisted, a way to take some of the risk out of the transaction and take the easy money. So we sold the business, which my ambitions back a little bit in terms of creating this global growth business.
How old were you when you decided you wanted a global business?
Well, I guess at the inception of Servest, you know, shoot for the stars. I think the real ambition started then. In 2007, I said to my colleagues in SA, its gone well since the buyout. We’ve now brought in RMB Corvest and so on. I’m going back across the UK to kick-start this global growth idea. Except this time around I’m not going to travel once every month, which is what I did for many years. I became a loyal supporter of South African Airways – in economy class. I came across here and kick-started it directly, on the ground. I ended up acquiring a very small business. Rob Legge, he used to work with us previously and in fact, the business was a small element of our previous iteration in the UK – a small franchised, cleaning operation, which he had developed a bit. It was a bit small for us but I thought Rob and the team were great guys to back. So I took that business in 2007 from £14m in revenues to the business in the UK with £300m in revenues, employing 18 000 people.
We are a mid-sized player. We’re not a big PLC. We’re not a mighty empire, but it’s £300 million, and going for £500 and, ultimately a billion, no doubt, in the next number of years. We’re a very credible competitor in the market place. We’ve won some incredible contracts, the likes of the BBC – we do their catering services throughout all their facilities in the UK. We also clean the Houses of Parliament. It’s quite a fascinating thing for a South African Group to be doing these sorts of things. That was the reason for coming over. South Africa is still home – love it to bits – but the UK is a big market worth around £120 billion a year, in our services facilities management space.
I wanted to take some risks and let the Africa Group be run by highly competent colleagues and they’ve done an incredible job running it. I wanted to rebuild the UK Group, so my current role today, as Group chairman, I work very closely with two CEOs, my co-founder Dennis Zietsman, who is still involved in the Group as deputy chairman and he still lives in SA. He’s planning to come over to the UK as well, in due course.
How big are you overall. £300 million here – your South African operation, how big is that?
The South African business is bigger, in functional terms it’s around 25 000 permanent staff – it’s an African business. So it’s a reasonable sized operation. I guess, in the year ahead, the Group’s total, including the Pound business, is probably R10bn revenue business with a total of 45 000 permanent employees. In EBITDA terms we should do R700m or so, in the coming financial year.
Had you stayed listed what kind of market cap do you think you would have been at now?
The one thing that we have done from day one is, especially since we delisted, was our capital structure was highly leveraged. We’re not overly leveraged but we use very smart types of leverage, which the public market, I think, would be adverse to. So whilst we’re happy to have debt at three times equity, maybe three-and-a-half times, the public market wouldn’t accept that. So to answer your question, we could well have been the same size, but that would have been at a significant equity dilution cost. Having been what we’ve been through, being listed, a hostile takeover bid, new control structures – it probably wouldn’t have happened. I think the simple answer is I think we’ve achieved what we wanted to achieve so far. We probably wouldn’t have achieved as much in a public listed business.
Would you ever list again?
Well, never say never, Alec but the reality is we have significant access to capital, all forms of capital – equity capital and debt capital market – we have a bond program market in South Africa, which is really a privately listed note. We’ve replicated that in the UK with the Canada Pension Plan Investment Board, one of the world’s pre-eminent semi-sovereign funds. They’ve invested in a single note program, a seven-year program, so there’s significant power in the capital structure, to continue growing the Group. Quite frankly, being listed, we don’t think so. Tradability in the stock we don’t really need. We’re long-term holders as management, so it’s highly unlikely.
Tell us a bit about your background. You did mention earlier that you’re from Durban.
Yes, I grew up in the City of Durban. I’m the youngest of three boys, who grew up in a scrap metal trading business. Destined to go into the family business and I did in fact, join after completing school – my school years at Kloof High School in 1986. Two years of National Service – in that second year I did a part-time management diploma with Damelin. I then joined the family business in 1989, at the age of 20. It lasted three months because, I’m not sure if I was fired or if I left. I’m still trying to work it out….but I think, in short – no, I wasn’t fired. I identified an opportunity.
I approached the family to back me and my father said look, we’ve been in the scrap metal industry for 85 years. If you want to do it then do it on your own. Which was like a red flag to Kenton as a young 20 year old. I found two angel investors to back me and kicked off my waste management operation, which was really built on the back of the City of Durban privatising their sewerage tank emptying service. I saw it as an opportunity and I grabbed it with both hands and ran for it and grew that group over an eight-year period to a reasonable sized waste management operation, before selling it to a listed trade competitor. Enviroserv. I took a few months out and then started Servest.
I’ve been married for 22-odd years. I have two beautiful children and a beautiful wife. We are a very tight knit family, a very close-knit family, very blessed and love South Africa to bits. People say, “Why have you left South Africa?” I haven’t left South Africa. South Africa is very much home for us. I’ve demonstrated that by putting my money where my mouth is. I’ve emigrated from a Reserve Bank perspective because that just gives a South African flexibility with capital movement. But that only has to do with my business interests. I deploy a significant amount of my wealth in South Africa. I have a huge belief in it. I know the Rand is weak right now but I tend to take a long-term view. I am an optimist.
We have some issues in the country. Let’s face facts. But we have many good and great people working hard at those issues. As the analogy with the rugby team… occasionally you have to make changes and you have to make some harsh changes, but that’s for the betterment for all South Africans. I have tremendous hope and passion for the rest of the continent as well because that is another big growth area for us.
Where else are you represented on the African Continent?
We operate in ten countries, and we’re quite selective. It’s not a shotgun approach. We’re very selective, in terms of the economies we operate in, infrastructure, Governments, and so on. We operate in Nigeria, Ghana, Zambia, Namibia, Botswana, and Mozambique.
You’re cherry picking where, not hotspots like Burkina Faso or Zimbabwe…
We have been in Zimbabwe. A bit of a tough experience there. I think we like to do things methodically, very carefully with a lot of diligence. We’ve burnt our fingers in a few places but we’re going well, and certainly the next ten or 20 years, for us, South Africa is going to be a big part of our growth story.
Do you employ many South Africans in your UK operation?
Interestingly, one of our senior guys is a South African and I happened to bring him across to the UK, with the previous business. Other than that, there are South Africans that operate here but not South Africans that we necessarily brought over. On the other hand, we have a couple of Brits working in our African business. Our chief operating officer is a Brit. He’s been in SA for many years. No, I think we have a pretty good access to a pool of talent here, in the UK, for people from all over. Our senior sale commercial director is an Australian, so it’s not as if we’re going forward with South Africans in particular.
Many South African businesses look at the UK, see the Rand at 21 to the Pound, and believe it’s impossible to fund a UK business from Johannesburg. Do you have to start raising funds in Britain, if you’re going to have a British business?
I think the right thing to do is always try to match your capital structure within the country, and the currency with whom you’re operating with, as closely as possible. Obviously, if you’re kicking-off you can’t. You need to write out some big cheques and there have simply been some big transactions of late like Brait acquiring big, hefty stakes in a couple of large UK businesses. I guess the way we did it was we deployed reasonable capital. But looking at it now, a modest amount actually, in relation to the capital structure and the size and the value, and so on of our UK business.
It’s just been, you acquire the stake, you generate cash, use local borrowings, and grow it on that basis. We have infused it with additional capital injections along the way because we’ve been quite acquisitive here in the UK, so we have applied additional capital, provided from both the Group in SA and RMB Corvest which continues to own a direct stake in the UK business. That was tactical and they’ve retained that stake.
Capital scarcity is an issue for any business, for any group of any size, anywhere in the world. Capital is a scarce commodity and you just need to work out the best ways of raising it and the appropriate cost, and risk reward profile and so on. We’ve seen some pretty big commodity groups having to dig their hands in their pockets and put capital in, to protect their credit ratings and all sorts of things like that. There’s no easy solution. It’s a step-by-step process.
The steps that you’ve taken since opening in the U.K., in territories other than Africa. Have you moved into other parts of Europe?
We’re in Ireland. Of course, you get the Republic of Ireland and you get Ireland, so there is a difference there – Ireland is part of Europe, so we operate a bit in there. We’ve done some consulting work in mainland Europe, on the back of clients of ours in the UK saying, “Listen, we’ve got operations out there. Can you help us and so on?” It’s certainly on the cards for us to go into Europe in due course. It’s very definitely something we need to do. Middle East – a place like Qatar also, we’ve done some work, given our tremendous capacity in the landscape turf specialist arena. We’ve built a number of the pitches for the soccer World Cup, so we’ve been tasked and we’re doing some work in those areas. On the lookout, but not too far and wide at this stage.
It’s an incredible story. How old are you now?
I’ve just turned 47.
Warren Buffett as a line you have another 40 years to go. What does the future look like?
People ask me this question often because clearly, if I wanted to sell my stake in the Group or if I wanted to sell the Group at some point in time, that would be a significant event for a lot of people who are shareholders. The reality is that you hear the term ‘serial entrepreneur’ and personally, I don’t like the term at all. Certainly, if anyone called me that, I would reject that notion. Having said that; in fairness, we do a lot of deals within the Group, so maybe that was panned a little bit. For me it’s all long-term. This is only my second business and if I go back to my first business, it was waste management and from there we got involved in other services. It’s all about the focus, long-term goals, and God willing/health willing, I would love to still be doing this for decades to come.
There’s no ‘holy grail’ moment. There are ways of releasing capital along the way and taking dividends to ensure that you have the financial independence and all the things that are fairly typical for entrepreneurs, and for people to want to try to achieve. For me, Servest is a real purpose in life and I love the fact that I chose South Africa. We make a real difference. If you look at the impact we have on people’s lives in South Africa and in Africa, in particular, I’m just so passionate about the economy that I really don’t ever want to relinquish it. If you see the incoming parties/shareholders like KTHC, they’re passionate about deploying capital and working with us. That’s fascinating to see so why would I ever want to give that up? The same goes for the U.K. It’s like having two children. People often say, “I love my two kids equally.” It’s the same with these two groups/geographical regions, we’ve chosen. Alec, perhaps in 20 years’ time, you and I will be sitting here, having another interview and doing a catch-up again. That would really be fantastic.
Some of the harder questions: BEE on the one hand – you have Kagiso. But what about labour relations? Often, we hear from South African business executives they struggle with the labour legislation…
I’m by no means a socialist or anything like that, but there is a fairness in life and I think that corporates have a responsibility in the markets we operate, to do the right thing. We absolutely embrace BEE in all aspects. Can we do better? Of course, we can do a whole lot better than we’re currently doing but we’ve demonstrated by bringing in a partner who owns 51 percent of our group, which we founded/created. We need to do more with our people within the group at senior level. We need to do even more with our supplier base, so for us this is all about embracing all of that. In terms of labour: invariably labour issues arise when people are perhaps not treated fairly. I know you do have pockets and you have different situations where the perception might be that legislation has gone overboard. It might be a bit of greed or whatever the case might be.
It’s very easy for us that have done well out of the country, to discard and not really take proper notice of people in our business. People who make it happen all day, every day. People who work 24 hours, odd hours, or weekends, making our clients happy and generating revenues. We need to do our bit. We need to do as much as we can. We have the same situation here in the UK with government in the UK recently announcing a new living wage, which is going to take our wage/salary costs up significantly over the next five years, from around £6.80 an hour to north of £9. That’s a very significant increase in an economy which has very limited inflation. Again, we need to do our best. We’re engaging with our clients in that regard to see if we can work our way so that we can do our bit. I guess I have a more pragmatic view and we’re experts at managing labour. We’re expert at managing people and we have very few issues actually, when you consider how many people we employ.
Are you unionised?
There are pockets of unions but it’s not a widespread issue in our lives. The industries in which we operate are fairly well regulated and there is national bargaining that takes place for different pay scales etcetera, which helps. It’s the right thing, though – paying people right, provident funds and implementation of such things.
One of the big problems that businesses have is keeping people engaged. A recent global survey that Gallop showed that in SA only 15 percent of the staff employed qualify as ‘engaged’. A big chunk of the balance are disengaged and in fact, many are actively disengaged. What do you do, in particular, that will make your employees good enough to go in and do the outsourced services business, which the companies would otherwise have done themselves?
That’s an interesting stat. It’s quite an alarming stat, if you think about it. I would hope that perhaps they were wrong, but I’m not going to attack their stats. It is all about how you treat your staff, though, and your philosophy and style. Whether it’s recognising the lowliest individuals in the lowest rank possible with awards…it could be very small, minor awards such as training, making sure that they have the right uniforms if they’re working in a hot environment, etcetera. Some of our staff work in very hot environments. Make sure they have the right uniforms and the basics such as their welfare. Just look after the basics, Alec.
The hygiene factors?
Yes. Well, everything…just being sensitive to those individuals working out there in harsh environments. On the opposite end of the scale, we have individuals who work in chilled centres here in the UK at -350C. Some of these people work in very demanding conditions so it’s about recognising your people, embracing your people, and looking after them as much as you can. On the macro scale, we operate in such a fascinating industry. Many people don’t understand how big the facility management service industry is globally. The service industry comprises something like between 60 and 70 percent of global GDP. It’s enormous. It does cover a whole range of things. It’s an enormous part of our daily lives, so it’s a very exciting industry to be in and if you’re in the right business, you’re growing and creating opportunities, you’re also creating opportunities for those people. And hopefully they’re more engaged by being with a vibrant, growing, dynamic group. They’re able to advance themselves and increase their earnings power, etcetera.
Advancement. Clearly, that has to be uppermost in many people’s minds when they join your group because if you come in at the bottom level to clean toilets, you don’t want to do that for the rest of your life. When you lie awake at night, how do you make sure that the smart guy who comes in at that level is actually going to be able to maybe one day, be the CEO?
It’s just recognising those individuals and what they do. We have some very tangible examples of where individuals have literally come in at fairly modest levels and have really, climbed into fairly senior positions within the group. If the individual shows commitment, hard work, dedication, and loyalty etcetera, the sky is the limit and nothing’s going to hold them back from achieving wonderful, great things.
I guess it’s the same thing with young South Africans who want to come to something better, expand their horizons, work in the First World. If they were to ask you, I presume you’d be giving them the same advice.
Well, I would be saying that it’s not necessarily coming to something better. It’s something different and it’s about pushing yourself in life. It’s the same reason why I’ve come across. It’s about pushing yourself. I could have been quite happy in Johannesburg or Cape Town, running the group from there and still running as Chief Exec, and not relinquishing control of the company. I haven’t done that. I’ve pushed myself so that I can create opportunities.
Why have you done that?
I’m very competitive with myself. I set myself very lofty ambitions and I take risks. I push myself to explore, to take risks, to come across here, and to create another group here. My colleagues thought I was coming to retire, eight years ago. It’s quite funny, looking back. Now they realise that’s not the case. My advice to those youngsters is to take the opportunities. Take them with both hands and run with them. Not because the grass is greener on the other side, but rather to broaden their own horizons, perception, and learning experience. We learn as we go through life. We carry on learning. Push yourself. Don’t get in a comfort zone. I could still be back in Durban, running my first business back there without taking the opportunity. I think it’s important to push yourself, expand your horizons, learn as much as you can, and take risks. Take personal risks. Things are changing. The days of working for corporates forever and a day are changing. You need to be dynamic in yourself, take the challenge, and run with it.
Why the UK and not America?
It’s probably more familiar, culturally. Language: obviously, America, but I think there are a number of reasons. It’s easy to get to – an overnight flight to Johannesburg etcetera.
You say you did that you flew in the back of the plane – for how long?
I still do it. The group’s policy is ‘we are very much an Economy Class group’. We don’t have a high margin industry and we cannot afford to fly Business Class.
You must sleep well on planes if you can manage that.
Well, I do. A number of colleagues travel backwards and forwards but it’s so important to lead from the front because the moment you start changing that style and that philosophy, it starts creeping into all aspects of the group. That’s where, I think, we have a fairly good competitive advantage over our competitors
You need to tell us what your sleeping pills are when you get onto an airplane.
I actually don’t. I learned a trick. I keep myself awake until about midnight, maybe watch a movie or something, and doze off until about 3am if I can. The most important thing is the power nap before you land. You have to get half-an-hour power nap in. I know it’s easier said than done, but that’s my trick to it. It’s great. It costs £600 or £700 versus a Business Class ticket of £2 500 or £3 000. My colleagues laugh at me. Well, sometimes they don’t laugh at me. They curse me, but it’s a very important part of our style and philosophy within the group.
What are you working on right now?
Well, we are very acquisitive so at any one stage we have a number of acquisitions on the go. We concluded one a couple of weeks ago here in the UK. We concluded one also a couple of weeks ago in SA. There’s another one, which we should conclude soon in SA. Smaller, bolt-on type of acquisitions – nothing transformative in any significant way. Those are the types of things that keep us pretty involved. Otherwise, we’re growing our market share. We have quite a big focus on the public sector here in the UK right now because they recently changed their framework structure and we’ve been accredited as one of the ten players under the Crown Commercial Service to bid on certain public sector contracts. So that’s a big one for us. Africa: continuing to look at niche opportunities – very specific opportunities. Keeps us busy.
Some favourites. Your favourite other executive, outside of your group.
You mentioned Warren Buffett at the outset. What I really enjoy about Warren is he said something to the extent that he started too late in business and was probably 11 years old. I quite enjoyed that. That shows something about his approach, long-term patient approach to business and backing the right people. Perhaps Warren Buffett would be a very good one.
Favourite other company.
I like innovative companies. Despite the size of the Googles of this world, the companies that are really prepared to innovate, take risks, and do things differently… Of course, the other hugely successful businesses are SABMiller and massive South African groups that have been really successful.
Your role model.
I would actually say my wife and my kids, if that makes any sense. I have to match them in many ways. I know that may sound strange.
Let’s say business role model. We have your life role model, so in a business sense…
A business role model would be someone generic, someone with integrity who is honest, open, transparent, fair and nice.
Given all of that what would you do if a Volkswagen Dieselgate hit you? If that happened somewhere in your group, what would you do?
Alec, the reality is that with a group of our size, reach, and scope, things like that do in fact happen. It’s very sad when it happens. We have isolated examples such as internal fraud, etcetera. Again, it’s just your culture, your style, your philosophy, your education, and drumming it into people to do the right thing and focus on the right thing. I would hope that we would never have something of that size because it does sound like an enormous integrity issue, which is going to hit not only VW but actually, German industry as a whole. It’s probably worse than us losing our first opening Rugby World Cup game to Japan’s so-called minnows whom I have to congratulate, as painful as it is.
Favourite rugby player – talking about rugby.
Francois Pienaar I guess, for his incredible 1995 World Cup. That would probably be the right guy.
Uber or taxi?
What car do you drive?
I’m not going to tell you about my one in the background but otherwise, an Audi.
IOS or Android?
IOS – what is that?
The Apple operating system.
Apple or Microsoft on your laptop or desktop?
The Rugby World Cup. Do the Springboks have a chance?
They have to have a chance. They’re the South African team. Despite everything else, the guys pull together. They really have to hunker down. I liken the analogy of sport and business and the reality is that sometimes, you have to make changes. You have to do the tough thing, but you have to work as a team. If you’re not going to work as a team, you’re not going to get anywhere. They have the capacity to do it. They’re up against the best. It’s really a good series (the minnows coming through), but it’s a lesson in life. Watch out for the smaller, more nimble players in business. They will come and eat your lunch so the moment you start getting lazy, dumb, or whatever you want to call it, you have yourself a problem. Hence, our Economy Class flying approach to life. Keep your feet on the ground and keep focus because the minute you’re not, you’re going to start losing market share. We’ve seen the biggest businesses in the world oblivious to changes, such as Kodak. We all know what could happen.
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