The logic behind Bidvest | Fin24

The logic behind Bidvest

Jul 29 2019 10:35
David McKay

Mpumi Madisa’s secret weapon? Maths.

“I’m a mathematician. I’m a fact-based thinker, so I never walk into a boardroom thinking I’m going to schmooze you because my brain doesn’t think like that.”

In addition to her familiarity (and presumably appreciation for imponderables such as calculus), Madisa is also a CEO-designate of Bidvest Limited (the diversified industrial group founded by industry veteran Brian Joffe) and now stepping into a brave new world.

Lindsay Ralphs, who became CEO of Bidvest in 2016 following the unbundling of Bidvest Foodservices, or Bidcorp, from the group, is due to retire in the 2021 financial year.

Madisa steps in, seamlessly. No-one is in any confusion as to what happens next.

Madisa’s rise to prominence is bordering on storied. Her modest home roots; the dissecting of a rat in her BSc practical year that convinced her not to pursue medicine at university; her decision to leave Bidvest’s Prestige Cleaning business in order to take up a position as chief-director at the Gauteng Provincial government...

And the best encounters are often the chance ones – such as the moment when she bumped into her former boss at Prestige, leading to her return to Bidvest and taking up a new position at the company. That was in April 2008.

Twelve years later she’ll be atop a company that, to the cursory eye, is akin to taking the back off a sleek flat-screen TV only to find a multitude of wires and transistors. More than 200 companies make up ‘Bidvest’. That must make running it a complete nightmare, right? 

“Simplicity is the blueprint, actually. It’s easy for me to explain because I came from a (Bidvest) subsidiary, so we’ve got the decentralised operating model here.

We’ve got seven operating divisions with their small head offices and then all the businesses sit under those. That decentralisation and that philosophy doesn’t just stop at a business level; it goes to branch level,” she says.

“When I was at Prestige, we had about 85 branches,” says Madisa. “Each one of those branches operated as decentralised units with clear transparency and each has its own P&L [profit and loss] with its own income statement, full income, full expenses.”

 If there was cleaning business in, say, Kuruman that fit the bill, it got consolidated into Prestige and ultimately became part of the group with the appetite of a Pacman.

So Bidvest is simple in some respects, says Madisa. Bidvest acquires companies that it knows will be a good fit, and then almost operates off a blueprint: a corporate identity that gets embedded into each company on acquisition, or already has the DNA to make the fit.

The founding entrepreneurs of a company Bidvest buys are encouraged to continue running it, as they did prior to takeover. Financial incentives figure highly.

Still, the last two years sound like they’ve been exhausting as Madisa buzzes around the various divisions in Bidvest, which range from freight, office supplies and electrical goods – things like snipe-nosed plyers and neon testers – to services in aviation. Cars. Property. Financial services... 

“Over the last six years, I sat on about 22 of the large businesses across the divisions,” she says. “The reason why I did that was I got to see and talk about their operations; I got to see their financial statements, what their revenue drivers are, what their cost drivers are like ... and how the returns vary…

“This is all unusual for someone at the group to go to that level, and at the end of the quarter it was like I was in a bit of rat race (rats again!), but it was important for me because I understood that a services business has a very different profile to a terminal operation, to an automotive retail business, to a bank.”

The deep dive was far more effective than taking “the helicopter view” in Madisa’s words. Just going through the divisional consolidated balance sheet doesn’t convey the smell and flavour of the underlying business. “And that’s what I did,” she says, simply. 

Managing growth

We are chatting at Bidvest’s Melrose Arch offices. It’s a fairly swanky address but for a headquarters it’s not that flashy, bordering on dinky.

Madisa and the Bidvest team are hosting fund managers, but is using the break to tackle questions such as whether her appointment raises expectations of massive change management at the company?

She doesn’t think it’s quite like that: Bidvest – one suspects – will always be Bidvest. Nonetheless, there are some critical questions Madisa will have to manage that can’t really fall into the purview of Ralphs, who will retire in the 2019 financial year.

Questions such as growth. Madisa says Bidvest normally outperforms GDP but in these economically straitened times there’s a danger it could become “a proxy” for GDP.

She, and the Bidvest management, definitely don’t want that. And while organic growth and internal efficiencies will always remain key drivers, what if an acquisition or growth initiative, really gets to move the dial for Bidvest?

“That’s an interesting one. Let me answer that conceptually.

“We don’t wake up in the morning looking for one massive deal that’s going to move the dial; that’s not what we do. And, we are very cautious about buying in certain economic cycles.

If I think about capital allocation, and therefore where the growth is going to come from, we’ve got bolt-on, organic acquisitions, a myriad of them, internal efficiency improvements; and the larger deals that the divisional CEOs deal with,” she says.

Then there are the really big deals. At the moment, Bidvest is spending R1bn building a liquid petroleum gas (LPG) facility at Richards Bay that, when commissioned in the course of next year, will lift SA’s LPG supply by a significant 50%.

Understanding why Bidvest decided to go big on LPG, bearing in mind it also has a business cleaning toilets and selling stationary, is perhaps the beating heart of the group’s entire business case.

“The rationale for LPG? Let’s start and say that we already have a liquid bulk terminal operation which is our largest in our freight division,” says Madisa.

“We store petrochemicals. So this is not our first time in LPG. It’s just that we’ve got a very small operation that was out in Richards Bay.

We had this land in Richards Bay that was not fully utilised on the berth. The positioning was great, but what do we do about it? Who would be interested in bringing products into the country that we could store?

“Then the guys, about six years ago, started scanning the market and talking to various players; who wanted to come into the country. And we found a large gas operator, Petredec, who said they were keen.

“They had a strategy for Africa and their LPG was not just South Africa but LPG on to the continent. And they asked if we could help them with capacity so they would then be able to supply both into South Africa and the continent. So we had three years of negotiations, signed, and we are on track for July 2020,” she says.

Being Bidvest is a bit like winning at the boardgame Risk; the point when you’re advancing simultaneously on several territories and have so many troops, it’s hard to see any other outcome but your ultimate victory. In other words, critical mass.

Moving forward

Back to the maths.

“When you’re a woman, you process data and you solve differently in your head to men. And, in fact, that gives you an edge,” she says. The discussion has moved inevitably to gender, and questions around background which ultimately lead to race.

“Let me give you an example. If we were talking about – and I’m going to give you a very simple example – we’re thinking of spending money; we’re thinking about the social impact of the business and we’re not quite sure. We think it’s education or X, Y or Z.

“I will give you the perspective of a child in Diepsloot. Is there something wrong with that? I have a perspective that nobody else has in the room,” she says. The room, in the case of a meeting involving Bidvest divisional CEOs, is almost entirely white and male, bar the Namibia division.

“At the senior levels, while we have been challenged, we have made significant strides in all other levels of management to change the demographics and transition the group.”

“I have a very strong view around diversity and work, and full circle diversity. And I think diverse teams are rich. I think homogenous teams bring a lot of risk. To have the same type of people thinking the same in a room is a risk.”

It’s true, humans do better sharing. But the world is also changing. For Bidvest, it’s not possible to grow the business in the same way Joffe went about it. Being number one or two in a respective business sector means the company might not be as acquisitive as it may have done in previously decades.

But grow it must. The bolt-on acquisitive strategy still forms part of its growth, while other carefully considered intentions are also evident.

Madisa says the strategic blueprint is to identify businesses that are fragmented and can be consolidated; work from the basis of familiarity, as per the rollout of the R1bn LPG project; and to have been competing well in SA in the identified area of growth.

Following the demerger of Bidcorp, Bidvest Limited is now 95% SA-focused and there’s a hunger to move internationally again. Washroom services, facilities management, and plumbing/related supplies are the focus areas in which Bidvest wants to grow.

Take plumbing. There’s something visceral about having a burst geyser that, as a business, immunises itself against GDP vagaries. You might not go on holiday when times are tough, but water pouring through the kitchen ceiling? That’s a different matter.

Madisa also has work to do in respect of Bidvest’s ‘investment’ portfolio which includes a 43.3% stake in Adcock Ingram, the pharma-business, Comair (27.2%) and Bidvest Properties.

Madisa explains these were opportunities where Bidvest aimed to provide organic growth, almost by osmosis. This opportunism has delivered many times for Bidvest: the Panalpina acquisition, for example, spawned logistics, air and ocean freight, banking and other businesses.

Bidvest will sell Comair if there’s a buyer; it has said this. Same with the other investments where the dividend yield to minority shareholders “dilutes” the investment case. But there’s no immediate rush.

Perhaps a more urgent issue is SA Inc. “I sit on the board of BLSA [Business Leadership South Africa] and one of the big conversations we’re having is that we need to work with the cabinet and start putting some solutions on the table.

“What business tends to do is moan and groan about stuff that is not working. I’m not saying we shouldn’t do that; we should definitely identify weaknesses in the system, but I think we have a better opportunity of helping government to think through solutions.

“We have to take it that far otherwise if you just put multiple solutions on the table and you leave them with a piece of paper, I promise you, it ends up somewhere in an in-tray. We must all, therefore, be part of the solution.”

This article originally appeared in the 25 July edition of finweekBuy and download the magazine here or subscribe to our newsletter here.

ceo  |  bidvest  |  logistics  |  south africa

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