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Q2 2021 - (released August 2021)

SA's quarterly Private Equity & Venture Capital magazine

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Business rescue provides shelter during pandemic storm

by Michael Avery

There are stories of businesses looted and burned down in the wake of the recent South African riots, and forced to close due to the economic hardships of the COVID-19 pandemic. Business success stories are hard to come by now, but the story of Global Roofing Solutions (GRS), one of the largest and oldest metal roofing and roofing accessory manufacturers in South Africa, saved via business rescue, is just such a story. It was purchased out of the business rescue of Consolidated Steel Industries by private equity fund manager, Rockwood Private Equity.

“We bought this business because of the firm footing which GRS was put on during the business rescue process. The business is already showing strong performance and the management team and employees are clearly highly motivated,” says Andrew Dewar, CEO of Rockwood Private Equity. 

“A fundamental tenet of Rockwood's investment philosophy is to identify and support management teams without attempting to change winning formulae or cultures. Our focus is on the alignment of all stakeholder interests to drive growth with sustainable cashflows. We will implement a broad based black economic empowerment transaction and will ensure that all staff and management of GRS are appropriately incentivised. The steel industry is core to the South African economy, and we are delighted to be able to save employment and become actively involved in this key sector,” Dewar added.

This time last year, the company was facing liquidation and mass retrenchments as it was rapidly running out of money to pay wages, and credit lines were being stopped by suppliers. Business rescue doesn’t work for all companies, why did it work in this instance? 

It was partly due to good fortune and some lucky timing, and partly due to the business rescue allowing the business rescue practitioners to pay down some debt, explains Ian Fleming, joint business rescue practitioner (BRP) and CEO of Engaged Business Turnaround.

In the process, 310 jobs have been saved and over R1bn in debt renegotiated with creditors.

“Through rapid strategic cost cutting, margin improvement and re-negotiation of debt, we have created a new, leaner business that is cash flow positive and which can grow sustainably. Rockwood Private Equity’s acquisition of the business is an endorsement of the approach we took to turn the business around,” says Fleming. 

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GRS grew rapidly in the years prior to 2020, but a slowing South African economy, the COVID-19 pandemic and the resulting shutdown of the construction and steel fabrication industries created a significant liquidity issue. In June 2020, the company was facing the depletion of its cash resources.

“We implemented some very robust turnaround interventions from the outset, which enabled the company to turn cash flow positive in less than three weeks from commencement of business rescue,” explains Fleming. “This level of operational effectiveness enabled us to formally commence the rebuilding of the company as soon as the business rescue plan was approved by creditors.”

“The proceeds of the sale of the Stalcor assets just two months after the business rescue plan was approved enabled the BRPs to fund the losses incurred by the other primary division in GRS between October 2020 and January 2021, as a result of national steel supply shortages,” says Fleming. “When the major steel supplier, Arcelor Mittal, resumed operations again in February 2021, GRS emerged profitable and cash flow positive, which was sustained until the effective date of takeover by Rockwood Private Equity on 1 July 2021”.

Deloitte Capital and Deloitte Restructuring were instrumental in managing the sale process of the divisions and providing turnaround support to the BRPs throughout the business rescue.

According to Statistics South Africa, 216 businesses were liquidated in March 2021, 50% higher than the number recorded just a year ago, and with the current unemployment rate at 32.6% in the first quarter of 2021. Business rescue has garnered a bad reputation since its inception in South Africa, but the GRS story goes to show that it can create real socio-economic value if used properly and effectively. 

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