Thebe’s synergies initiative unlocks R150 million

In early 2011, an excited Mariam Cassim walked into the office of Thebe Investment Corporation’s executive chairman Vusi Khanyile to present a ground-breaking concept that would see companies within the Thebe family create value for each other.

That day the seed of the synergies project was planted and today it has germinated into unlocking more than R150 million worth of new business opportunities across the Thebe portfolio, which consists of 32 companies (associate and subsidiary companies) that employ 17 000 people.

The synergies project has unlocked more than R150 million worth of new business opportunities across the Thebe portfolio, which consists of 32 companies (associate and subsidiary companies) that employ 17 000 people

Vusi, who founded Thebe in 1992 along with founding trustees (Nelson Mandela, Walter Sisulu, Beyers Naude, and Enos Mabuza) of controlling shareholder Batho Batho Trust, maintains that the synergies project is yet another example that sets Thebe apart from other BEE companies when it comes to adding and creating value in the businesses in which it invests in.

“As a value adding shareholder, we support our businesses to grow their market share in industries they are involved in. As part of the growth drive, we assist businesses to get business within the Thebe group of companies. There is no virtue in us giving business to our competitors,” explains Vusi

Mariam, who was at the time an Executive Manager in the office of the chairman, was encouraged to create an Internal Business Development and Synergies Division, whose main objective was to pinpoint and creatively exploit the synergies. As a chartered accountant with a hands-on knowledge of corporate finance, mergers and acquisitions (M&As), Mariam had built up considerable experience in identifying synergies in M&A transactions. In 2011, she received the Individual Excellence Award in recognition for setting up the project and making it a success.

“Since I had pitched the idea, Vusi asked me to run with it…Before the synergies project was introduced, 80% of procurement spending within the group went to competitors even though there were companies within the Thebe network which could provide the same services and products,” Mariam says.

In an ideal Thebe world this is how the synergies project should work. Club Travel should be handling all the travelling requirements within the Thebe group; Vodacom should be providing mobile telecommunication services; First Car vehicle rental should be the preferred vehicle rental company for all companies within the group; Compass SA should be providing canteen and facilities management services at sites where Thebe companies operate; Shell SA for all petroleum products; FX Africa for foreign currency; Thebe ya Bophelo for medical aid administration; and companies targeting the lucrative black middle class should ideally advertise with Kaya FM; and so on and so on.

Put simply, the project is premised on one simple idea: the rands and cents within the Thebe network should ideally circulate a number of times internally before spending is made outside. Secondly, companies in the Thebe portfolio should procure services and products as a group to negotiate better discounts, which they can’t extract had they negotiated individually.

To get started, Mariam had to first research opportunities within the group and then encourage Thebe companies to collaborate to exploit the synergies.

“Thebe’s view is that if we are a shareholder in a company we should be supporting that business, both at a personal and corporate level,” says Mariam.

“For example, we have an investment in Vodacom, but I was still personally using a competing cellular provider. I started researching further to see how many other companies were using cellular providers other than Vodacom and the numbers were astounding. If I could pick out one thing that led to the formation of the synergies division it was probably that one event.”

But this quid-pro-quo system that Mariam put in place has a catch.

“For this system to work, the companies must beat or match what the competitors have in the market in terms of price competitiveness. The synergies project therefore also acted as a catalyst for operational efficiency and price competiveness for companies within the group,” says Mariam.

The spinoffs from the synergies project were so impressive such that it has resulted in the establishment of a pre-paid airtime distribution company, Thebe Connect, which was born of Thebe’s relationship with Vodacom. Mariam has been given the responsibility to take this business to market and Jerry Mabena, CEO of Thebe Services Division, has since assumed responsibility for the synergies project.

Vusi says that over the past two years Thebe has concentrated on removing barriers “one by one” that prevent companies within the group from trading with each other.

“Over and above assisting our companies with doing business internally, we also assist them with extending their customer base outside of the group using Thebe networks and relationships in the marketplace,” says Vusi.

While the focus at the moment is on keeping a decent slice of the procurement pie within the Thebe stable, there is an opportunity to extend the project to include cost synergies through bulk buying and shared services.

“The synergies drive means we also have to identify products and services that are used across the group and we then need to pull together our collective purchasing power to negotiate for right input prices,” says Vusi.

Gary Mulder, financial director at Club Travel, echoes Vusi’s sentiments on the synergies project. He believes the synergies project must be used as a lynchpin by Thebe companies to seek potential group procurement deals and joint growth opportunities, the so-called “hunting as a pack” strategy.

“From my side, I see huge value in the Thebe Synergies Project and I feel it essential to drive spend and hence growth from within… Our strength will come from a concerted drive to ensure that anything that can be procured from within the group is procured internally and that the rand turns a number of times before spend is made outside the group,” says Gary.

He is supportive of the plans to use the group’s economies of scale to procure services and products more efficiently and cheaply.

“I would hate to see any of the good momentum that Thebe created being lost as the project requires full time commitment. Coupled with this should be joint buying of product that doesn’t sit within the group to ensure volume discounts are obtained for all group members,” says Gary.

Harry Louw, Altech Netstar managing director, is also full of praise for the synergies project.

“The introduction of the Thebe Synergy Programme delivered quick and easy benefits to Altech Netstar. With the full involvement and commitment from the Thebe Group Executive for Synergy – Mariam Cassim – we were able to treble our business from CM,” says Harry.