In tough economic times, more and more companies are hitting the wall.
Although probably not the man that a struggling business owner would like to meet, turn around strategist and chief executive of Jacobs Capital, Wessel Jacobs, is often the last hope. But being in the business of rescuing businesses is not for the faint hearted.
“Within a month, I can tell if I business can be fixed. But the actual fixing could take another three to four years,” he explains.
He paints a picture of walking into “a business that is on its last legs” and meeting the management and staff.
“They often look like they’ve been in a 15 round boxing match taking all the punches. We can see the figures, but just moving through a business can tell you even more. Small messages in a business tell us its short comings – is the owner a perfectionist, is management people or cost driven?”
He adds that the factory floor, in particular, gives away a plethora of secrets and clues – much like a pocker hand. Things that jump out for him are whether capital goods are old and poorly maintained, whether goods are transported from one station to another using broken trolleys or even something as simple as whether or not the sheets used to record reports are copied rather than printed.
What he likes most and least about the business he is in is “taking something that is dead and making something out of it.” By avoiding a company close down, he can preserve jobs and ultimately recreate jobs when the company not only returns to profitability but begins to grow.
But, on average, just 50 percent of employees in a company survive a restructure. So, the flip side is having to make hard decisions that could cost many people their livelihoods or even not being able to save a company at all, he says. “It’s horrific when you fail. That creates tremendous stress. You have so many lives in your hands.”
Wessel admits that a lot of his observations and the successful turnaround plans that result have a lot to do with intuition – but this, he says, has its roots in experience. He has worked on the production floor himself as well as crunched the numbers.
“There’s so much in my life that is unique. There have been hard and difficult times and incredible good luck. Sometimes things happen that I can’t believe,” he observes.
“As a lightie, I was already a businessman,” he smiles recalling his boyhood on a farm in Vryheid. He built a trailer for his bike to collect empty Coke bottles before school every day. Each Friday, he loaded them into his father’s bakkie and took them to the corner store. Eventually, he says, the Greek owner chased him away, telling him that he was far too young to a businessman.
He went on to graduate from Potchefstroom University with a degree in Pharmacy in 1988. There, too, running a business came naturally and he was soon making tracksuits for students. Shoulder pads were the rage and, when he discovered that they cost R6 per pair – which was expensive in those days – he roped in a friend to help make them for far less.
The pair created a machine that used a hot wire to cut out and make shoulder pads from foam at a fraction of the price. But when he was ready to begin, he’d run out of money – the solution was to cut up and use his mattress!
Thanks to fashion, this evolved into a high volume business that grew quickly. After graduating, he diversified, setting up Ambassador Wholesale in Botshebelo to take advantage of cheaper labour and decentralisation incentives to manufacture and distribute clothing accessories. The company grew to the point where it had 600 employees and annual turnover of R50 million.
Wessel won an award from the Small Business Development Corporation (now Business Connexion) in 1991, taking home a R30 000 in prize money and an overseas trip. He was also the star of a television documentary which had the unfortunate result of inspiring others to jump on the shoulder pad bandwagon.
Undeterred but with so many copy cats in the market, he took things a step further and went out to learn how to make foam. A Chinese friend referred him to a manufacturer who made foam for shoe inners in Taiwan and Wessel cashed in his overseas trip and headed there instead.
But it wasn’t a case of simply walking in the doors for a lesson. He recalls going from factory to factory looking for someone to teach him. Eventually, he met up with Danny Jung who employed him to clean basins in his factory. At the same time, he was able to fulfil his original quest!
On returning home, he sold Ambassador Wholesale and set up his own foam factory supplying the furniture industry in Bloemfontein.
He invested R2 million in Loungefoam and employed 14 people. By the time, he sold his stake in the business to international furniture group, Steinhoff, it had a staff of 360 and turnover of R140 million!
He admits that he had his fair share of challenges along the way. In 1996, a welder working at a next door factory set the surrounding bush and waste foam alight. The fire spread and burnt the Loungefoam factory to the ground.
For him, this was particularly traumatic as he had designed and built all the cutting equipment himself in the evenings.
The insurance pay out provided new equipment and funded a move to Isitebe in Zululand where he took on a local furniture manufacturer as a partner.
They introduced a continuous line and ramped up production, making the business a major competitor to then market leader Feltex Foam. Ironically, this was one of the companies from which he had originally purchased foam to manufacture shoulder pads!
After Wessel’s partner sold his half of the business to Steinhoff, Wessel began building up capital to go on the acquisition trail.
Amazingly, Feltex Foam, which he purchased in 1998 from Romatex, was first on the list. He went on to acquire Dunlopillo from the Renaissance Group in 1999, Flexair Foam and then Feltex Zimbabwe from Feltex Automotive in 2001. This gave the company a national footprint and transformed it into the largest foam manufacturer in South Africa.
From Wessel’s point of view, the most significant part of this process was that most of these companies were struggling. His quest to turnaround distressed companies had begun.
Taking a turn for the better
When he found the corporate world becoming increasingly restrictive, he sold what was now a minority share in the business to Steinhoff and launched Jacobs Capital to focus solely on resurrecting companies.
“But it wasn’t easy. I did not have a lot of capital and I had to do leveraged buy outs,” he says of a stream of deals that began with Mion Investments in 2003. He negotiated a deal with horse racing company Gold Circle and created the BEE based joint venture KZN Slots which secured a limited pay out machine route operator licence that has enabled it to operate slot machines in pubs and bars to this day.
He went on to rescue and on sell pipe manufacturer Inceldon’s and then Tradezone, which owned technology for the agglomeration of polyurethane foam trim. He’d bought it for R1 million and sold it at a premium of R9 million.
“Tradezone never had value but the product that it had was very unique and impossible to get anywhere else. It also had a customer base that AECI couldn’t access. They bought it to supply bulk product to these customers,” he explains.
Another success story was ConnectCo where he remains a minority shareholder and board member. In addition to placing the company firmly back on its feet, he added Bolt World in Gauteng, Blot Fix in Port Elizabeth and Genrics Services in Pinetown to create the largest supplier of small components to the automotive sector in the country.
Last year, Jacobs Capital purchased East London based Da Gama Textiles from German textile mogul, Claus Daun, for R140 million and implemented a restructuring plan in conjunction with the Industrial Development Corporation.
“There was probably more money to be made in closing the business and stripping the assets than in saving it. But I’m glad that we didn’t,” he says.
Progress can be measured in metres of fabric – from an average of 88 000 metres per month on takeover to 1.4 million metres in the last three months. The target is 1.6 metres per month this year – and he is confident the company could even reach its full capacity of 1,9 million metres per month within a very short space of time.
For Wessel, “looking at a company and what is going wrong and then coming up with a plan to reverse that” is just part of the equation.
He starts out by identifying investment targets, takes part in sometimes extensive negotiations, assesses business plans, performs due diligences in cooperation with auditors and legal professionals, assesses the competencies of management, financial, production and distribution operations and establishes potential returns.
He also plays an integral role when it comes to securing funding for acquisitions and securing buyers and negotiating the sale of business units or businesses.
“Implementation is another thing,” he points out, stressing that his network of people which includes his own employees, consultants and the management of the companies he is turning around, all play a crucial part.
This can include actively guiding the improvement of management, administration and production processes, introducing modern and best practice methodologies and information systems to increase output, reduce waste, raise efficiency and build better financial performance.
“You have to invest in people because they are the ones who carry through and implement your plans. If you can’t implement your plans, then you have no chance to be successful. If you don’t develop them, you will certainly fail.”
He is also philosophical when it comes to people not delivering on expectations. “In the business that we do, trust is a big thing. When someone bites you, you can’t say I will never do this again. You have to understand that people are good and bad and that you have to try to choose the good ones.”
The same goes for the companies that he takes on. “Everything I have gone through has given me a lack of fear of failure so I can take on these things. I have failed enough times to know what that’s like and that I don’t need to be scared anymore,” he muses.
Incredibly, it has taken just four years to grow the net asset value of the company from R43 million to close to R500 million. Turnover now exceeds R140 million.
However, it is not just about numbers.
“I am at an age when one is no longer chasing material things. It is easier to do business because it is much easier to share. I have learnt that you have got to share to do something good, big and worthwhile,” he observes.