News that the controversial Gupta family has sold its media assets, ANN7 and The New Age, to Mzwanele Jimmy Manyi in a R450 million vendor financed transaction have caused a nation wide public stir.
But a sober look into the history of Black Economic Empowerment (BEE) transactions reveals that vendor finance is almost a norm of the BEE world. Vendor finance, “a form of lending in which a company lends money to be used by the borrower to buy its (the vendor’s) products or property”, is engaged in BEE to address an obvious historical gap. BEE candidates have neither capital nor collateral to do major equity acquisition in the normal way.
This must not be interpreted to mean that vendor finance is a faultless business equity acquisition tool. Far from it. In a series of stories listed below we, ujuh.co.za, have captured and explained the pitfalls and successes of vendor finance in the game of BEE.
The critical factors reflected in the cases below are the attitude and intentions of the vendor/seller towards BEE. This informs the pricing of the asset and the cost of capital. A mismatch in the two latter factors has rendered many BEE deals useless, unable to earn any equity because the cash generated in the business is unable to strip down the cost of debt used to acquire the business.
And so if the assets acquired by Manyi are overpriced and the cost of capital employed for the acquisition is expensive, Manyi would indeed be engaged in a grand fronting scheme, like many others in the BEE equity transaction world.
Consider the following cases: