How family businesses boom (and bomb)

The fortunes of the family-owned business can be fickle, fascinating, frustrating — and sometimes even fulfilling.

Globally there are standout family-owned firms — Walmart, BMW, Tata and Samsung — and the JSE has, since its early days, played host to great dynasties. The big mining houses were built by such families as the Oppenheimers, Hersovs, Menells and, more recently, the Motsepes.

Great — and hugely rewarding — investment empires were built by the Ruperts, Gordons and Moutons. Family owners spawned ventures such as Toyota South Africa (founded by Albert Wessels), Altron (Bill Venter), Famous Brands (the Halamandres family), Spur Corp (Allen Ambor), Sasfin (Sydney Sassoon), Rex Trueform (Bernard Shub), Shoprite (Christo Wiese), Italtile (Giovanni Ravazzotti), Nu-World (Goldbergs), Clientèle (Enthovens), Assore (Guido Sacco), Caxton & CTP (Terry Moolman and Noel Coburn), Brimstone (Fred Robertson and Mustaq Brey), TFG (Lewises), Bowler Metcalf (Horst Sass) and Ellerine Holdings (Sydney and Eric Ellerine).

Of course, there’ve been underwhelming bouts of family ownership too. Think York (under the Tuckers), Gooderson Leisure, Cadiz, Mathieson & Ashley, Seardel, Rentsure, Rainbow Chicken, MAS Holdings, Hicor, Aroma Liquor Holdings, WG Wearne, Spanjaard and Mazor (to cite just a few).

In recent weeks investors would have seen the contrasting fortunes of two of the best-known family businesses on the JSE — Pick n Pay and Textainer 

In recent weeks investors would have seen the contrasting fortunes of two of the best-known family businesses on the JSE — Pick n Pay and Textainer (Trencor), which respectively have the Ackerman and Jowell families as original parents.

Pick n Pay seems to have been panicked into dramatic leadership changes to restore its shredded margins. Many maintain that the extended period of Ackerman family control — which essentially precludes any hostile advances — has left Pick n Pay with a soft underbelly, and that radical changes are needed to make the business competitive again. Former CEO Sean Summers has returned, but awful results mean Pick n Pay shares have cratered more than 30% since mid-October alone.

Textainer, on the other hand, has produced a happy ending. Spun out of Trencor, the company initially appeared to suffer from the complacencies of long family ownership — missing out on corporate action in the container leasing market that might have built compelling scale. However, it’s now been bought out by a specialist private equity firm for a sizeable premium.

Whether a revamped Pick n Pay will meander its way to a similar outcome is difficult to predict.

But how do investors assess opportunities in family businesses — aside from backing the steady-eddies such as Remgro, Sabvest or Italtile?

There are various issues to consider — most importantly how a family business is managed across the generations. It’s not a gross generalisation to argue that the first generation of family owners will be hungrier for success than those that follow. Collecting dividends and generous pay packages might be far more convenient than strenuous strategic changes, say.

Such was the case at Rex Trueform, which did its best to frustrate major shareholder Brimstone. Still, the Shub family finally capitulated to former Hosken Consolidated Investments executive Marcel Golding. That’s resulted in the business morphing from a niche retailer into a broader investment company.

Graeme Körner, director of Körner Perspective, says successful family businesses recognise when they don’t have the skill, the interest or the capacity to continue building shareholder value.

The first generation make it and the second generation nurse the business. The third generation sometimes put it up their noses or drive it into walls

—  Graeme Korner 

“The first generation make it and the second generation nurse the business. The third generation sometimes put it up their noses or drive it into walls.”

He says the most successful family businesses recognise that second- and third-generation transition risk and manage this carefully.

“Someone like Johann Rupert, in terms of stewardship of the family wealth [in Remgro, Richemont and Reinet], has done a very good job over an extended period. Though he is very different to his father, Anton, he was probably the right person to take it over.”

Des Mayers, senior analyst at Afrifocus Securities, says some solace can be taken when family money is on the line. “This is critically important, particularly so in today’s climate where many professional managers are so well rewarded but have no skin in the game. They can sail off into the sunset with a retirement package for life, which is paid for by the general body of shareholders and often bears no relationship to what they contributed to the company.”

So which family-owned businesses are worth monitoring on the JSE?

Nu-World Holdings

Something has to give here sooner rather than later. The owner-managers, the Goldberg family, are well into their dotage. Succession planning is not clear. There is a strategic shareholder in the form in Inhlanhla Investments, but — so far — it has not really rattled the cage. The market valuation, though, suggests change must be afoot. Nu-World has a hard NAV of about R65 vs a share price of R25. Its net cash of R524m is equivalent to R23 a share — suggesting the market values Nu-World’s cash-generative operations at just R2 a share. A situation that is impossible for the family to ignore… surely?

Bell Equipment

This heavy equipment specialist’s share price is up 14% over the past three months and almost 25% year to date. A sturdy interim performance points to a strong full-year profit, and the share seems especially cheap on a trailing multiple of just three. More than a few punters expect the Bell family to pitch another buyout offer — hopefully this time at a level that more realistically prices in the group’s longer-term potential and that’s closer to NAV. It might be significant that three Bell directors picked up shares after the release of the interim results.

Workforce Holdings

More than 90% of this diversified personnel services company is controlled by a handful of shareholders, among them the family of founder and dominant shareholder Ronnie Katz. Over five years the share price is more or less flat. Katz is now in his 80s but shifted from executive chair to CEO in 2018. A merger with Primeserv or the recruitment arm of private education group AdvTech might create the scale and strategic shift that could elicit more market interest. Otherwise, Katz could pitch an offer to the few remaining minorities and delist the business. It generated 46c a share in earnings in financial 2022. Workforce has a NAV of more than 400c a share — nearly R1bn — against the current market value of just over R300m.

Blue Label Telecoms

The Levy brothers have battled hard to sort out a difficult investment in Cell C — and have not shirked from some serious recapitalisation efforts. Cell C is still churning encouraging numbers in its traditional prepaid businesses. One thing to watch is the strategic partnership between Cell C and Capitec, following global fintech trends. The Blue share price oscillates in an uncertain wedge, reflecting local investor scepticism. International fintech investors might see the situation differently and share the Levy brothers’ longer-term vision.

Master Drilling

This feisty family business, controlled and managed by Danie Pretorius, suffers from a lowly rating that does not reflect solid operational performances. Master Drilling trades on a 4.75 trailing earnings multiple and a 3.78% yield. Investors seem to ignore a revenue pipeline of $517m and a committed order book of $276m. While Master Drilling could clearly press on, its geographic span and technical expertise could attract interest from global mining services outfits. Of course, Pretorius has to see merit in such strategic tie-ups — and perhaps the temptation to take Master Drilling private would be stronger. In hard currency, its market value is just over $100m.