Joffe proves there’s Long4Life after Bidvest

• South Africa
• Bidvest, Capital raising, Debt:equity ratio, JSE, Listing, Long4Life, M&A, Mergers and acquisitions, Share buyback
• May 14, 2020

Within the South African business community, there are giants who seem to get it right time and time again.

In contrast, there are others whose fall from grace has been quite spectacular, like Markus Jooste over alleged accounting fraud in Steinhoff and Christo Wiese over a number of poor investments.

Let’s focus on one of the giants with a much better track record: Brian Joffe. His company Long4Life released financial results today for the year ended February 2020. It was a respectable performance despite the economic conditions.

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Joffe got a life

The man who built Bidvest has certainly left his mark on the South African (and even global) business landscape. A tremendous dealmaker, Joffe proved that mergers and acquisitions done properly can build a powerhouse: Bidvest.

Instead of simply buying a portfolio of businesses that don’t trade with each other, he built a “Proudly Bidvest” group of companies that enjoy healthy internal competition but also work together to the greatest extent possible, despite operating in vastly different industries.

I’ve always thought that working at Bidvest must be incredibly interesting, giving you exposure to a wide variety of operations.

Instead of retiring to play golf and fade into obscurity, Joffe decided to roll the dice again by founding and listed another company on the JSE in April 2017: Long4Life.

At the time, the company promised to “pursue investments with a lifestyle focus” in South Africa but with “global ambitions over time”.

Life can be a b1tch

It hasn’t been the easiest journey, but in fairness to Joffe and his team, they are investing in South Africa at a time when few brave souls are willing to do so.

Long4Life managed to raise R2bn in the first phase of its life, listing at a time when institutions still wanted to invest in South African equities. However, the share price didn’t have a strong few months after listing, dropping over 15%.

The company now has a market cap of over R2.2bn, but the share price is down over 60% since the listing, indicating that the company ended up raising over R4bn in total.

In response to the share price pressure, Long4Life instituted a programme of share buybacks, which describes a decision by a company to buy some of its shares back from shareholders.

That’s a detailed topic for another day, but companies would do this when they believe the shares are being undervalued. If you think that you are buying some shares back at a bargain, then you also think that the remaining shareholders are better off.

Over R425m in share buybacks were done in the FY20 year which is substantial for a company of this size. As a result, no dividend was declared for FY20. Nothing wrong with that decision in this context.

The postman of acquisitions – Joffe always delivers them

Long4Life has certainly done a decent number of acquisitions over 3 years.

The company owns Sorbet, Sportsmans Warehouse, Outdoor Warehouse, Veldskoen and beverage companies responsible for the likes of Score Energy drink and other well-known local drinks brands.

There are a few other investments in the group too, offering vertical integration opportunities (a fancy way of describing a situation where you own companies at more than one level in the supply chain i.e. one sells products to the other).

Long4Life also sniffed around Spur, eventually selling their stake when it became apparent that they would not successfully obtain a strategic controlling position. They managed to sell the Spur shares for a profit, which they will now be thanking their lucky stars for as Spur buckles under the lockdown rules.

Turns out Spur didn’t have a taste for Life. Ba dum tiss.

Are they generating returns?

The group targets a Return on Funds Employed (ROFE) of 35% and achieved 38% in the year ended February 2020, down from 42% the year before due to tough conditions.

ROFE is just another term for return on capital employed, or basically the annual return you achieve on total amounts invested, regardless of whether you funded those investments with equity or borrowings.

A ROFE of 38% is a very strong result in my opinion.

Acquisition machines often have too much debt. What about Long4Life?

One of my favourite things about the company is that they haven’t been silly with debt.

The balance sheet shows book values of approximately R4.8bn in equity and R1.5bn in debt. This is a debt:equity ratio of 31%, which isn’t aggressive by any standard. The company generated nearly R590m in operating cash in FY20 and only used R160m for debt repayments.

There seems to be a decent amount of headroom here.

Does Long4Life have a strong cash balance to survive lockdown?

At the end of February, the group had a cash balance of R830m, which is a powerful war chest in this environment.

Whilst the cash will certainly help see the businesses through the lockdown, a dealmaker like Joffe must surely be rubbing his hands at the thought of the bargains that might be available when things calm down a bit.

Watch this space.