Kenton Fine: bunch of ‘SA boikies’ get stuck into €200m global services business

Kenton Fine is the London-based executive chairman and founder of Servest, a R10bn turnover, 45,000 employee multinational group. Fine sold Servest for a whopping £540m in 2018 and announced last week that a group of South Africans are getting together to buy Getronics – a Dutch IT services company – for €200m. On the point that this is the only substantial acquisition that has taken place since Covid-19 hit, Fine says that he is perhaps, within his makeup, a little bit of an 'against the grain' sort of guy. A self-proclaimed 'services guy', Fine says that having been out of the frontline for two years, he was perhaps getting itchy feet in terms of operational involvement and was relishing the opportunity to jump in here – leading from the front with team members Mike Field going in as CFO and Andre Ribbens going in as the chief transformation officer. Fine, who left South Africa for the UK in 2007, feels like he never left and that South Africa is ultimately still his heart and home. It may, therefore, come as no surprise that – even in these Covid-times – Fine has teamed up with two other 'Durban lads' and a Pretoria boy as 'a bunch of 'SA boikies' getting stuck into this €200 euro global services business with estimated annual revenues of €300m. – Nadya Swart .Well, I was due to speak with Kenton Fine. We seem to do this every two years or so, but today you have got a very big announcement. A group of South Africans are getting together to buy a Dutch IT services company for 200 million euros. It's called Getronics. Not a business that would have registered in South Africa yet, although – does it have an operation here? .___STEADY_PAYWALL___.No, it doesn't. It has a partner through its Global Workspace Alliance in over 120 countries globally, and we do have partners in South Africa that we do work with. The company is a very interesting business, founded in 1887. 133 years ago it was at the forefront of the electrification sort of technology back then. Over the years, eventually in the 70s, it morphed into a technology business. But I can give you some more background as to how specifically I came into this particular business. .A little bit of background.I had a look at your company, GSH Private Capital. But let's just go back for a little bit of background: you and I met in 1998 when you were 29 years old and you listed Servest on the JSE. Certainly at that stage, you were the youngest chief executive of a JSE listed company. .You then fended off a hostile takeover bid, left for the UK in 2007 and then sold Servest, which you'd started from scratch in 2018, for £540m. I mean, that's a lot of boodle. Are you reinvesting that money now? Is that the whole intention here? .Let me backtrack a bit. Those are fond memories of back in 1998 – that's many moons ago. And I was very much a younger man back then, Alec. But that's right. We have known each other for a heck of a long time. And then through the Servest journey, when she took the business overseas. .You say I left South Africa, I still feel that I've never left South Africa. I mean, I do live with my wife and our kids in Europe, but South Africa is still ultimately, for us, home and heart. So, I just want to put that out there, you know, the way I feel about the country in a very positive way. .So basically, what happened? We merged or sold the Servest UK business back in 2018. The Servest South Africa business is not part of that construct and it's very much part of a joint ownership with my entity, GSH and KTH – a leading empowerment firm in South Africa, together with my co-founder and a couple of other colleagues. So we're still an only South African business. So 2018, quite right: we sold Servest UK to the Italian groups. A significant enterprise today – that business is around three billion euros in revenue and GSH has retained a stake there. .So, GSH is really just my private capital vehicle and has more latterly been joined by three colleagues: Mike Field who, until a couple years ago, was the CFO of RMB, Andre Ribbens, involved with the FirstRand group, (a group Treasury position), and Grant Coppin – out of the Investec stable. And we've joined forces under the GSH Private Capital banner, which means to say that effectively a lot of that is my private capital money, if you like, family office money – acting as an anchor LP. But with the guys coming in to the extent that we need to raise third party capital – we actually haven't done that yet. But we said we would have that on the horizon. .The funding of the acquisition.To answer your question in a very long way regarding the funding for this particular transaction: some of the capital very definitely has gone into the funding of the transaction, and to be more specific – the value of the transaction is sort of circa 200 million. And then I can go into some of the details again around the history with Getronics: it had quite a tough time in the 2019 year – post a very substantial acquisition of a US business. It ran into some significant liquidity issues. .We were minority investors and were at that stage not actively involved at all, but the management team perhaps bit off a bit more than they could chew, I guess. And the funding institutions – they weren't banks, they were big pension funds and big lenders – took control. And we've effectively, aside from the US business, acquired the Getronics operation, which is Asia Pacific, Europe and a bit of LatAm as well. .So that US business, which was to match or seemed to be too big a challenge at the time, is not gonna be your issue? .Correct. Well, it's in good shape now, as we understand it. So, round the back end of last year – which was mostly fraught with, really, some big challenges with liquidity and so on – the US business was halved off and the lending group retained 100% ownership of it. So, it's in pretty good, robust shape. I mean, we're talking about very significant financial or global sovereign funds and so on that effectively own it. .Correct, it's not part of it. And actually, to be fair, it was more of a product orientated business rather than a services orientated business. The Getronics business is, in its genesis, really a technology services business, which is what attracted me to it in the first instance. As you well know, for 30 years I've been in the services industry, but broadly speaking – in let's call it the lower tech end – and this now takes us into the real sort of technology front. But yes, it's a services business as opposed to the US business, which is a product business, and it's excluded from what we've just acquired. .You could only read so much from the website of a company, but this one certainly does look to be very well positioned for the post-Covid or during-Covid world. And what I mean by that, Kenton, was: they're talking about helping companies become more remote, becoming more technology enabled and so on? .100% right. The interesting thing is that we started discussions with the lender group that were the de facto owners of the business. I think leading up to Covid, they suddenly realised that – hang on a second – they actually needed a buyer, but they needed a buyer with operational skills and expertise. And this is where GSH really came to the fore, because of the skill set that we collectively have together with a few other colleagues. .I have to say South African heritage does seem to sort of come through thick and fast – an entity based out of London called Vaalon Capital, Adam Teeger, a highly competent guy with four colleagues that helped us with this project. So the lender group said, look, we need a team that could operationally get stuck in and involve someone with an appetite. .You know, I've been out of the frontline for two years. I'll be 52 next month. So, perhaps I was getting itchy feet in terms of operational involvement and I'm relishing the opportunity to jump in here. Leading from the front as the capacity executive chairman with our team members: Mike Field is going in as CFO, Andre is going in as the chief transformation officer. We've got the existing team: chief operating officer and chief technology officer. .So there's no CEO and no CFO. And that's where we were able to come in here, put capital on the table – together with energy drive. We've actually been in the business quite uniquely. Before we closed, which was on Monday night (late): we had actually applied capital to the business, we had applied time, effort and energy in getting stuck in to start implementing systems, processes, governance and so on, which the business had unfortunately sort of lost to some extent with some of the turmoil over the last 18 months. .So we've been stuck in there with clients, engaging directly with clients, and I've had a number of discussions – all very exciting because this business deals with the mid-market sector, with companies up to sort of, let's call it 10000 colleagues. That's the sort of sector, it's not a multi mega global operation, but it's just in that sweet spot of that middle sector where we can offer really great services. .It is fundamentally important, as you well know in today's world, for technology – Covid especially has heightened the use. So it's really exciting Alec. I think we have the right time, right place. I think it can only go to greater heights from here. .SA 'boikies' making waves.Looking at the structure of GSH Private Capital, you've got two other Durban lads there with you: Grant Coppin and Mike Field are both well-known from the banking industry in Durban. So you guys are quite sticky people. .Grant and I go back 25-odd years to NBS corporate days. It's a name you'd remember. They were big backers of me with my early waste management business and then later into Servest, together with a guy called Colin Franks, who was the regional CEO down there and, in fact, became the Regional CEO of Investec and Private Bank. And then Mike Field and I, funnily enough, were at school together – Kloof High School. Mike was a couple of years ahead of me, so we weren't really mates at school. But over the years, we kept in touch. .And it's just quite funny: two Durban guys and Andre Ribbens is a Pretoria boy. So, he brings that Pretoria influence. But you know, Alec, the other fascinating thing is that we're using South African based resources. You know, these guys – they don't live in Europe. And the point is that we reckon we are 90% effective during Covid times – doing what we need to be doing – and, of course, the energy drive and everything else will take it beyond 100%, in terms of effectiveness. .The other thing we also are doing, by the way, is we've made some appointments based out of South Africa supporting the key finance functions. We aim to grow that support base – to probably that shared service centre – to probably 25 colleagues in the very near term covering HR procurement, financial controls and so on. So, again, our very thick SA link is coming through and yep, a bunch of 'SA boikies' getting stuck into this 300 million euro global services business..4000 staff members there and I suppose the Dutch are seeing this as a reverse takeover from the former colony. .Well, you know, internally Getronics refers to colleagues as team members, I always refer to colleagues. I don't like the word staff or employees. I just think it doesn't do anybody justice – we are all in this thing together. .Yeah – 4,000 colleagues. To a great extent, it's preservation, it's kind of ensuring sustainability to the business, because I think under any other circumstances – without somebody coming in clearly, firmly with the ambition, with the capital, with the wherewithal and the skill set – I think this company may well eventually have been on the rocks. .So there's 4,000 folk out there – colleagues that are, I think, excited. I've spoken to a number of them. We've spoken to a number of them. There's new energy that's coming into the group. And I don't know if the Dutch are seeing this as a reverse takeover, but the reality is, yeah, we have acquired a Dutch business established in 1887. It's quite a thing. .Well, South Africa was a colony of Holland hundreds of years ago, so I was just making a little quip there. But, as far as your partners have been in the past, RMB Corvest were very instrumental in the whole service story. Are you going to be bringing them into this as well? .I would say that a lot of my support base are on the periphery and we are thinking about it potentially (typically, we don't sit still, as you know, so – a bit of M&A activity in due course, once we've really got our feet on the desk and stabilised things and put it on the right trajectory insofar as we would see it). .So, in terms of new capital – I think that's where those guys will come into play. Clearly, the institutions such as Corvest – the Investecs of this world – they've all been supportive around the fringes here and, in particular, with this particular transaction. Not in a big way, but I think that's more just structurally where they're positioned right now in Covid times. .Clearly, the risk guys are keeping a very close beady eye, and, you know, when it comes to investments that are off spec or outside of mandate, it's quite difficult for Corvest that has made its name in the South African market to a great extent, but then on the backs of others growing offshore. .To answer your question: it's a long way out, it will be a long period of time before we see some direct observation or interest from the likes of Corvest. But, you know, the RMB guys are their sister ship and are also keeping a close eye and playing a strong interest. .They've introduced us to some industry stalwarts, some X Dimension data guys, that we've had a chat to – just to get colour – their perspective on this business and so on. So, yeah, Investec have played their role. There's a couple of other institutions that we've had a long relationship with and we've done well together. We have consistently over time, with many of the business iterations, investment iterations – those institutions have made a lot of money. We've made a lot of money together. So, yeah, for sure. .Is it like a dimension data?.Well, it's interesting. I don't know much really about that data. I would say that Getronics is very well known – first and foremost, within its DNA and its genesis – as a services business. So, product sales comprises a limited part – probably no more than 15% or say 20% of the total revenue stream. And I think that's quite a unique proposition. .You have very large global players in our space that would be, perhaps, more services and consulting – technology consulting orientated. NTT and Didata may be well perceived as perhaps more of a box mover, so to speak. I don't mean to be a derogatory term, but just anecdotally – from what I've heard – and we spoke to one of the founders, actually. .So, it's interesting. It's certainly very similar services, but I think Getronics, perhaps, has the edge of just being focused on services, which, of course, is my 30 year background – I'm a services guy. And yeah, I'm not a technology guy in any shape or form, but I've got some very smart, certainly smarter than me colleagues that obviously are industry experts that understand technology. I'm much more of a services guy..On making such a substantial acquisition in these Covid times.Kenton, this is a very challenging time all around the world and there's not a lot of visibility going forward. What occupied your mind or what thoughts are behind doing such a substantial acquisition at this particular point in time?.I'm giving away, perhaps, a little bit of the inside, Alec, but, you know, to some extent – because we were minority shareholders in the business previously – I could see where the business ended up, it didn't quite do the business case justice. And perhaps there was this competitive nature in Kenton which pops up – and I'm competitive with myself. .So, maybe it was: hang on a second – this is a great business (when we first got involved with it in minority way in 2017), a great business with probably double the metrics, double interesting aspects to it in terms of gross margin, operating profit margin, total addressable global market size, etc. So, I think when the opportunity was there, I led from the front and thought: let's get hold of this, let's do this business right, let's implement the governance structure, the financial controls, etc. that it really needed, and let's make a proper go of it. .I just think, again, going back to my engagement that I've had with clients and we deal with, by the way, some very, very high level clients. I'll give you an example: we run all of the technology systems for Gatwick Airport. We run all of the technology for the RAC in the UK. We run hospital systems with applications that deal with how hospital and buildings in a smart building environment would interact and provide efficiency in terms of, well, a case in point would be: a helicopter arrives at a hospital in Perth and the elevators get sent to the top, it shuts the air conditioning system down so you don't have ingestion of dust and so on, it starts preparing all the hospital stuff. So, it's quite a broad array of capabilities. .And again, these Covid times have reinforced the need for technology to work functionally to support businesses and people in getting on with their daily lives. So, it's just hard to fault many aspects of the business, which – if I'm going to be involved in something – would definitely be something like this: which is sticky client base, you're an integral part of the client base, you're dealing with the CFO, the CTO, the CEO in terms of buying decisions, you're not just stuck in an orderly procurement (like back in my FM world). So I can give you many, many different reasons why I really enjoy the business and the model. .Because there haven't been that many acquisitions recently or certainly since the virus hit..Somebody told me that we're the only guys doing anything at the moment. And through GSH, we have one or two other investments – which are certainly not as active as this one – other than my Servest interest in SA. We are busy with a few things, but yes – we are going against the grain a little bit. But then again, I guess within my makeup, I am perhaps a little bit of an 'against the grain' sort of guy. .And Warren Buffet's favourite saying: be fearful when others are greedy and be greedy when others are fearful – I, perhaps, do not quite mean it in that sort of robust tone, but you get the picture. I think there's an opportunity and we've seen it trading through Covid, so it gives us a degree of comfort, but it shouldn't hold us back – taking a five, ten, fifteen year view..Is that what makes you different – in that you are taking a longer-term view and seeing through this pandemic's end? .Well, I think we need to, Alec. It's a very sad state of affairs, and I think we all realise that we haven't seen the end of it yet. I think it's unfortunately going to be around for a while longer. But again, technology is something that will survive, that will continue to endure. .And yes, from a longevity perspective, my record with Servest is over a very long period of time. And I don't know what the future holds. We create opportunities and we'll see what comes of it. But see this opportunity as at least – conceptually – a five or 10 year plus horizon business. .Finally, let's talk about the price.I suppose the final question here is: because nobody else is buying, was this reflected in the price you were able to negotiate? .I think that's a fair comment. Absolutely a fair assessment, because we were able to do a one on one negotiation with the lender group. It was difficult, because you had different parties pulling slightly in different directions. But nevertheless, that's what happened. It wasn't a typical process where you'd go out with corporate financiers and put it on the market and go through a tender bidding process and so on. .So, we had none of that. Plus, we had a degree of insight into the business historically. So that definitely helped. And did it help us achieve an entry point for value which you ordinarily wouldn't achieve? I think so, yes. Candidly, I think it's probably fair to say I think we've done a fair deal. We've perhaps been slightly over generous with some aspects of the business and some aspects of the transaction. But we tended to keep a bigger picture – I know that was my view. And, in transactions, I'd never want to take the last dime off the table. .I think it's fair for both sides to come out right and to come out feeling okay and feeling good. And I think in this case, it's absolutely the case. But good value, make no bones about it. For sure. I think in ordinary times, this business – as we grow our revenues from 300 million north – that we aim at double digit EBIDTA margins and multiples attributed to these businesses would be in the order of 10 times. So, it gives you an indication – just off the numbers I've just given you – where we see value almost very short-term. So, yeah, I think a fair value transaction. .How long will it take you to know that it's been a good deal? .I guess no one ever knows that until the day that you do something with it, but maybe that's the cautious and conservative route. There's some short-term, hard work that needs to be done. There are some efficiencies that are currently under implementation: costs, productivity, and so on. I think once we've recovered from Covid and we have a good idea of what the revenue line is doing, what the underlying profitability is doing – then I think we will make our own assessment in terms of comparison, market valuations and so on. .A good friend of mine, in fact, Mike Field, says: 'Always talk when you're taking the armour off, not when you're putting the armour on'. You'll be familiar with that saying, I'm sure. And, yeah, I think it's looking okay. But maybe we have a follow up discussion in six months or 12 months and I can tell you whether it's been really good or mediocre or not so good.

Kenton Fine: bunch of ‘SA boikies’ get stuck into €200m global services business

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