Like human beings sometimes decide to increase or cut down on weight with respect to their health conditions or in preparation for a physical contest, businesses too sometimes consider options about shedding or increasing weight in order to adapt to their current economic realities. Acquisition and divestiture are concepts in business management that describe how companies endeavour to remain in business and maintain a reasonable level of economic profit by increasing or shedding of weight respectively.
Technically, acquisition is when a company takes up or absorb another company or a part of another company into itself to improve its production capacity, whereas divestiture is when a company disposes of a part or a whole of its business unit or asset through sale, exchange, closure or bankruptcy. Both concepts are intertwined and are often used simultaneously.
Strategic moves in acquisition help a business to develop a consolidated force to weather its supply chain hassles or expand its production line or market niche and thereby have a competitive edge in its industry. My previous article which observes the Nigeria’s agritech investment climate in the post covid-19 reveals how some agritech start-ups fared well in the heat of the pandemic through integration or acquisition of e-commerce platforms that enabled them to circumvent the global supply chain downtime during the lockdown. Further analysis also shows the ability to make a bold move with divestiture or acquisition or as the case may be is characteristic of high performance CEOs that soon push their brands to the top quintile of economic profit.
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However, it has been observed that many of the erring CEOs are invariably disoriented by a lack of funding, the legal and technical rigor involved or a fear of losing out in the acquisition process. Strive Misiyawa, Founder and Chairman of Econet and Zimbabwean richest business magnet addressed the issue, providing insight on how to strategically finance a big acquisition.
Mr Misiyawa’s account of the big acquisition of Noetel South Africa by Liquid Telecom got featured in The Entrepreneur Africa in September 2020. According to Misiyawa, the biggest acquisition done by Liquid Telecom, a company he represents, was to buy Neotel South Africa from Tata communications of India about 4 years ago. That’s four year to the time the deal was reported. The deal cost more than $US500million or about ZAR 6.5 billion.
In Mr Misiyawa words, here is how the funding went:
- We sold shares to one strategic Institutional Investor to raise 30% (US$150m). Banks will always insist on a deal like this that you put up equity.
- We borrowed 70% from a consortium of South African banks. This was a “bridge facility,” which means we had to replace it within one year.
- After the deal closed (“Deal Closure”), we reorganized the business quickly, and integrated it into a wholly-owned subsidiary of Liquid Telecom. Then we went to the “Bond Market” to borrow five-year money to replace “The Bridge”. (This is how Entrepreneurs talk).
We published an international prospectus similar to an IPO (Initial Public Offering) prospectus, but it was only to Bond Investors. We did pitches to more than 100 Bond Investors in South Africa, Europe, USA, and Asia in just three weeks! Yes, it was just like Shark Tank with very, very serious global investors!
It was issued by the Irish Stock Exchange. We managed to raise US$750m in the “Bond Issuance,” which was “Oversubscribed”.
4.We then repaid the “Bridge Facility Banks” their money from the Bond Money.
Strive Misiyawa’s analysis bespeaks agility, a deliberate, controlled acceleration that inspires the needed force to win.