AYO Itpig
Acrylic Resin, Plaster, Communication IT Cables
40 cm x 70 cm x 28 cm
The first truth
Ayo Technologies used to be owned by AEEI. It listed very quietly on the JSE in December 2017 at a share price of R43, valuing the company at R14.8bn. For a company which, in the prior year, made a profit of just R26.8m, that is quite a stretch. The true valuation was probably closer to, generously, R268m.
The only money raised was from SA’s piggy-bank, the PIC, which bought a 29% stake for R4.3bn. The idea was for AEEI to strip R1bn from Ayo via the British Telecom (BT) transaction.
At the eleventh hour, the PIC, now in the spotlight, blocked the sale. The truth is that even if BT is worth R1bn and the transaction went ahead, it would not have lifted the valuation of Ayo beyond perhaps R4.5bn, a far cry from the R14.8bn that the PIC bought into.
Just before the listing, Ayo issued shares amounting to 9.3% of the company to a BEE consortium at R1.50 a share. So PIC gets to buy their shares at R43, but the BEE Consortium gets theirs days earlier at R1.50?
The BEE consortium consisted of unions Popcru, Sactwu, the Black Business Council, Fedusa, Nehawu and the Social Entrepreneurship Foundation.
Ayo Technology Solutions taught a different lesson: that a company with no real assets could be used to extract a massive amount of money from the Public Investment Corporation (PIC), using the JSE’s listing process as a cover to do it.
Asked about the valuation, [CEO Kevin Hardy] said Net Asset Value has no bearing on the valuation of any digital/technology business. “It is about the future value that will be created in the long term.”
It is ridiculous that the CEO has so little idea of valuation. Everyone can promise the world, but its actual/tangible delivery which ‘deserves’/earns a higher share price – whereas 95x price to earnings ratio (PE) here means there are lots of promises in this price.
Yes they have great connections (PIC’s network) and therefore a promising roadmap of potential clients ..BUT, capturing 5-8% of the ICT market is not an overnight job. Especially where you have incumbents like AdaptIT, who have similar BEE credentials and a 15 year track record of delivering on average 22.2% EPS growth (diluted & normalized) – yet trading on 12.8 PE
According to the prelisting statement for Ayo, the NAV prior to the restructuring was 15c per share, as of August 2017. In December 2017 the PIC agreed to inject R4.3bn of GEPF money and buy the Ayo stock for R43 per share (for 29% of Ayo).
Ayo then also issued 31.96-million shares to a black economic empowerment (BEE) consortium for R1.50 per share, raising R48m more.
The injection of all that cash raised the NAV from 15c per share to R12.47, an increase of more than 8,000%. Most of that benefit went to the Survé family.
Given the issue of new shares to the GEPF and to the BEE consortium, the effective interest of the Survé family in Ayo dropped from 48.8% to 29.9%. However, the NAV of their interest in Ayo rose from about R16m to R1.3bn.
Documents from the investment committee meeting, disclosed several concerns about the Ayo deal. The comprehensive due-diligence approval process was waived.
Assessment team members were concerned that a number of Ayo’s board members were closely linked to AEEI and were not truly independent, possibly leading to a conflict of interest. Nevertheless, the investment was approved.
At R1.50 a share, the BEE consortium paid R48m for their stake. If the R14.8bn valuation held up, overnight they would have become billionaires worth R1.3bn. Even if that valuation was fake and all that Ayo is worth is the money injected by the PIC, 9.3% of R4.3bn now belongs to the BEE consortium. That’s R400m transferred from the PIC to the BEE consortium in a sleight of hand.
Even if everything is unwound, PIC has already lost R538m.
Ayo's CEO and CIO both quit with immediate effect, on 24thAugust 2018.5
The second truth
In line with the PIC’s environmental, social and governance requirements, AYO Technologies recently restructured its board by co-opting a few independent non-executive directors. In addition, AYO directors who were associated with AEEI, a significant shareholder, as well as other companies within the Sekunjalo Group, were also asked to step down, in support of the plan to strengthen corporate governance.
Just like any company determined to excel, to achieve its business objectives and grow shareholder value, AYO must be judged on its performance. In AYO’s case, it has presented a business case to its investors to become one of the largest, sustainable, profitable and most successful black ICT companies in the country.
It is ironic that South Africans speak of the centrality of corporate governance, yet when a company’s board is restructured to implement this through the appointment of independent non-executive directors, it is presented by elements of the media as a negative as opposed to a positive development. As with most companies, executives come and go. This is particularly prevalent in the very dynamic ICT industry.
AYO has a significant shareholder in the Public Investment Corporation (PIC).
In AYO’s case, the recent resignation of two executives was met with an unusually high amount of negative media exposure. They resigned the day after the appointment of the new board, which was done to ensure stringent corporate governance, the continued pursuit of a prudent investment strategy and rigorous criteria for executive performance.
New highly experienced executives from the ICT sector were appointed to augment the current executive team.
There is a narrative being propagated by detractors, both in the media and asset management environment, that AYO is a new company that has suddenly emerged and has received funding from the PIC.
The truth is that AYO has existed for more than 20 years, has a track record and has significant businesses in the following areas: health system technologies; enterprise security management; storage management; data governance; compliance; security services; headsets; audio-conferencing; digital media solutions; enterprise-level software solutions; change management and process improvement solutions.
This fact is conveniently ignored that AYO as a group, which currently employs more than 200 people who are highly-skilled in ICT, is a significantly profitable company in all of its businesses and has recently, on its own merits, against strenuous competition, secured a large-scale ICT contract with Sasol.
AYO is being attacked because it represents a threat to existing ICT businesses in this country. The focus on AYO’s listing on the JSE is simply the oldest trick in the book.
This is done with a clear agenda, to undermine the business confidence in AYO and to create the impression that AYO has done something wrong. It is the old adage - if you tell a lie often enough you hope that people believe what you are saying.
The overt racism from some asset managers should not be surprising, since in their world black people should be “gardeners and maids” and have employment in those areas.
AYO is a victim of an orchestrated and organised disinformation campaign, with the sole purpose of undermining its legitimate business. It is tragic that this campaign is driven largely by business people, detractors and competitors of AYO, and some of the detractors and competitors of the Sekunjalo Group with the sheer determination to prevent black business success in our country.
At a time when there is huge public debate about land expropriation, it must be understood that black business can never defend people that are against land expropriation.
This is because black business is a victim of existing business interests and a cabal that is determined to undermine and sabotage a legitimate black business - a black business that has never done anything wrong and has a proven track-record of success.
We will continue to grow our customers base and service them with excellence. That will remain the best antidote to the racist diatribe against our company.