Globally, diversified holding companies - or conglomerates, as they are commonly known - were all the rage in the 1960s. In SA, as a result of sanctions, these were the giants of the corporate landscape until the mid-1990s.
Now conventional wisdom has condemned conglomerates as unfocused and offering little intrinsic value to investors who can diversify their own portfolios.
That is unless you are a Jeff Immelt, Warren Buffett or Brian Joffe. These men are in charge of three of the few remaining big conglomerates - General Electric, Berkshire Hathaway and SA's own Bidvest respectively. And Bidvest has every right to be named among these giants.
According to a recent study by management consultancy Marakon Associates, Bidvest was the top-performing large conglomerate globally over a 10-year period, as measured by return on shareholder funds in US dollars. Its return of 36%/year compares with 24% for GE and 23% for Berkshire Hathaway.
And though the study shows that, on average, investors get a slightly higher return from focused companies than from conglomerates, Marakon says the top-performing conglomerates all share two distinctive approaches:
- They have financial rather than strategic or operating visions, and adopt uncompromising, value-focused approaches to portfolio management; and
- They use reward systems to create and maintain entrepreneurial cultures controlled by the centre through simple, but rigorously policed rules and targets.
Though these approaches "are far from text-book management", according to Joffe, Bidvest has rigorously applied them. Joffe has implemented a completely decentralised management structure, which is essential when you have around 2 500 business units. "It's our key management principle and facilitates independent entrepreneurship in a decentralised environment," he says.
Joffe believes analysts' questions about the focus of a business are ill-conceived. "A retail business is accepted as a generic term of focus, though managers have to deal with a wide range of products and services within the business. Expand this concept and you have a business like ours," Joffe says.
He adds that the relatively small size of the SA market has contributed to his approach. "When you buy a laundry or stationery business in this country there is a limit to how much you can grow that operation. In SA you have to scale up and diversify, particularly as we still see good value being offered in growth sectors of the economy."
This strategy has certainly paid off for Bidvest. It is only 16 years old and now turns over more than R62bn/year (December interim revenue annualised), controls assets approaching R18,5bn and has a market cap of R22bn. The group is the largest pure SA play listed on the JSE.
The share price rise has been steady and almost uninterrupted. Joffe says: "I think there is a general acceptance of our model by the market and our performance seems to back it."
Unlike Bidvest, Tokyo Sexwale's Mvela-phanda Group still looks more like the traditional investment holding company, though the merger between Mvela and Rebserve that took effect in December nearly doubled the assets of the group to R3,35bn.
