Broad-based black economic empowerment (BBBEE), as opposed to conventional BEE, is a better vehicle to spread wealth among the previously disadvantaged, but it is not the easier route and companies considering BBBEE implementation would do well to ensure they have the capacity and capability to execute the deal properly, corporate advisory firm Barnstone’s advisory services director, Deon Crafford, tells Engineering News.

“For a number of years, there has been frustration expressed in the market over BEE deals that only benefit a small group of people,” says Crafford. “The same names would crop up and it was felt that BEE deals were only for the enrichment of the elite few and not for the benefit of the broader disadvantaged population.”

With the onset of BBBEE deals, the situation seems to have swung towards a more positive sentiment and this is evident in the massive public response to these equity transfer offerings, Crafford says.

He points to petrochemicals giant Sasol’s 2008 BBBEE deal as an example, the largest of its kind ever in South Africa, which, at execution, was worth some R24-billion, which saw the company welcome about 300 000 previously disadvantaged South Africans as shareholders of the company.

As the external programme coordinator for the deal, Barnstone had to manage many of the challenges associated with its imple- mentation. This required the detailed management and coordination of each key step and activity in the programme, from engaging the legal specialists around the develop- ment of the prospectus to supporting the corporate finance teams in their requirements, to guiding the communications and public relations agencies and managing the external service providers, such as the national Post Office, as to the role they were to play in the process.

Currently, Barnstone is performing a simi- lar function for beverage producer South African Breweries (SAB) as it plans to execute a R6-billion BBBEE deal, which will place about 10% of the company’s shares under black ownership.

“‘Broad based’ could take on different forms,” Crafford explains. “While some companies would see a general public offering as part of the deal, others may limit the partici- pation to those previously disadvantaged stakeholders who form part of their particular business environment, such as suppliers, distributors or retailers. In the end, it depends on the share of the cake that is available as well as the company’s intent with the deal.”

Despite the differences in approach, Crafford says that many of the challenges are the same. To avoid huge reputational damage and a loss of value, should the deal have an undersubscription, any company considering a BBBEE deal should be well prepared and should have sufficient staff and programme management specialists in place to handle the various tasks to ensure a smooth execution.

“A lot of things can go wrong with a large BBBEE deal,” says Crafford. “Probably the biggest concern is the proper communi- cation to and education of the parties that the offer is being made to. If people do not understand the deal – what they might gain or potentially lose through their involvement, or even know about the offer – it may result in an undersubscription or some buyers’ remorse, especially when the share value dips below the buying price.”

Also imperative is the selection of appropriately skilled and reliable service providers, who will play a role in almost every step of the process. A good example is the handling of the public applications. In both Sasol’s and SAB’s cases, the national Post Office was selected as the service provider through which participants might subscribe, because of its wide geographic footprint, its network and its accessibility.

“The service provider becomes the face of the BBBEE deal to the shareholder and so the entity chosen is important,” says Crafford. “Generally speaking, there’s an avalanche of subscriptions that come through close to the deadline, which places the service provider under a lot of pressure in a short period of time. This means that the service provider needs to be fully prepared and able to cope with that kind of pressure.”

As broad-based deals generally also entail employee share schemes for previously dis- advantaged individuals and these may only be available to selected groups, there is always the chance of internal misunderstanding and resentment, explains Crafford. A good programme manager would manage the change effectively to avoid disgruntlement.

“There needs to be absolute coordination between all these elements. It is a very complex situation and a company considering BBBEE implementation would do well to take these elements into proper consideration, making sure that the right professionals are on hand when needed, and that outside help is brought in when necessary,” Crafford concludes.