From powerhouse to powerless: The rise and fall of Ellies

Key topics:

• Ellies collapsed from R3bn valuation in 2013 to liquidation by 2024.

• Poor leadership and failed energy strategy led to financial downfall.

• SMD bought the brand, but Ellies Electronics ceased operations in 2024.

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By Jan Vermeulen

It took three decades to build Ellies into a leading tech brand and just five years of poor leadership to destroy it.

At its height on 16 May 2013, Ellies’ share price traded at over R9.50 and its market capitalisation was R3 billion.

By February 2024, Ellies was in voluntary business rescue and its share price had plummeted to one cent. Two months later, the holding company was in liquidation, and Ellies was being sold for parts.

It didn’t have to end this way. After a period of decline between 2013 and 2019, Ellies adopted a promising strategy to focus on backup power but failed to execute it.

Founded in 1979 by Ellie Salkow, the company started with five employees selling TV aerials in Johannesburg, a modest start to what would become a billion-rand electronics brand.

Ellies expanded rapidly and opened branches in Cape Town, Durban, Port Elizabeth, Windhoek, Polokwane, Gaborone, Nelspruit, East London, and Bloemfontein.

In the nineties, Ellies broadened its product range to include remote controls and other accessories.

With the advent of satellite TV in South Africa, the company founded Elsat in 1995, which became a major supplier of DStv’s hardware products and a household name.

Ellies was listed on the JSE’s Alternative Exchange in 2007. It issued its maiden dividend in 2010 and moved to the JSE’s main board in 2010.

The company became a firm favourite among investors, and there was excitement about its role in providing set-top boxes in partnership with Altech UEC as part of the digital terrestrial television (DTT) migration.

However, as the government fumbled the DTT roll-out, so did the interest in Ellies and its prospects.

The share price declined by 80% between 2013 and 2014, and the company continued to lose value as it searched for new revenue streams.

A few years later, DStv’s subscriber numbers began to stagnate and decline in South Africa, causing that part of Ellies’ business to suffer. By 2019, it was trading at 10c per share.

With changing market conditions, Ellies decided to focus on alternative energy solutions. This was an inspired strategy.

Selling ice cream in a heat wave

Banking on worsening load-shedding would prove prescient, as rotational power cuts in South Africa escalated from 2021 and hit their worst levels in 2023.

Ellies was well-positioned to take advantage of the growing demand for more reliable energy sources.

It had a wide range of backup power products, including solar solutions and inverters, to serve residential and commercial clients.

High petrol and diesel prices have also benefited Ellies, making its battery backup and inverter trollies attractive alternatives to generators. Unfortunately, it fell completely flat in execution.

To those in the know, none of it is a surprise. Ellies’ financial results revealed a company that loved making excuses more than hard work and making money.

Rather than working hard to grow and run the business, Ellies’ management tried to acquire themselves out of financial trouble.

They made a deal to buy Bundu Power, a company specialising in alternative energy products for residential, commercial, industrial, agricultural, and recreational applications.

Ellies announced the Bundu Power deal on 1 February 2023. The initial plan was to raise the necessary capital from shareholders through a rights offer.

At the time of the rights offer, Ellies shares were trading at 11 cents. Ellies said it would allow shareholders to buy 2.13 additional shares for every share they owned for 7 cents. It aimed to secure R120 million.

Its share price soon collapsed to less than the rights offer price. With the proposal losing its appeal, Ellies cancelled the rights offer in December and said it would instead finance the deal with debt.

However, the debt would have been over five times its market capitalisation and more than its net debt of about R183 million at the end of its previous financial year.

Ellies had also been struggling financially, posting a comprehensive loss of R85 million during the year, which it partly blamed on waning demand for its satellite dishes.

In January, Ellies announced that the banks would not loan it the money, stopping its last-ditch deal dead in its tracks.

This led to Ellies being placed into business rescue, its brand being sold to SMD Technologies, and Ellies Holdings ultimately being placed under liquidation.

The end of Ellies

After placing Ellies Holdings in provisional liquidation, the business rescue practitioner and CEO assured that several suitors had already approached them to acquire Ellies’ operating divisions.

A well-placed source told MyBroadband that one of those suitors was a proposed management buyout. However, it soon became clear that the management buyout was stringing the business rescue process along.

At the last minute, the management buyout couldn’t produce the necessary funding, and it fell through.

In the end, Ellies sold its brand and intellectual property to SMD Technologies for an undisclosed sum. SMD’s brand portfolio includes Volkano, Amplify, Bounce, Rocka, Switched, Kingsons, and Elektra.

SMD did not acquire the operating division, Ellies Electronics. A source told MyBroadband that Ellies Electronics effectively stopped operating on Friday, 12 July 2024.

Speaking on condition of anonymity, the source stated that all staff were offered voluntary retrenchment packages on July 5, 2024, with severance pay capped at eight weeks.

On 30 July 2024, Ellies Holdings was placed in final liquidation, while Ellies Electronics remained in business rescue. A year later, nothing has changed.

MyBroadband contacted the business rescue practitioner for comment, who said that Ellies Holdings was still being wound up, and Ellies Electronics was in business rescue.

*This article was first published by MyBroadband and is republished with permission.