The modern day CFO needs to be versatile and beyond just working with numbers. The CFO of today has to focus on both bottom line and also overall operational performance, pretty much like the CEO; however, the CFO has a much more advanced mindset in terms of Investment. So how can the traditional behaviors of restraint and financial discipline be developed into a mindset of risk taking and deal making? Johan van Vuuren, is a good example of where this has worked well, and also in a challenging emerging market; Saudi Arabia.
You are currently the Group CFO/ CIO for Saudi Investment Recycling Company. Tell me about your role and how the crossover between Investments and Finance works.
SIRC is a strategic, long-term investor, rather than a financial investor, and as such the Finance and Investment functions take on a form akin to that found in typical Corporate Holding Companies rather than investment firms. Accordingly, the functional and organizational accountability for execution of Group Investments, M&A and other growth activities naturally reside in the Group CFO Office. I prefer to structure organizations through distinct verticals, and I am a supporter of creating distinct separate teams focusing on investment decisions, and financing decisions respectively. Like the investment function, financing decisions are made centrally on behalf of the Group, to serve the Group’s working capital as well as long-term funding needs.
Over and above Finance, Accounting, Reporting, Group Treasury and Investing functions, we play an integral role in Group Procurement and transaction structuring activities.
Given that we are ambitious with our targets in delivering on our mandate, it goes without saying that I spend more time with integration activities of our acquired and newly formed subsidiaries, and such rely heavily on strong teams across all functions.
I cannot deliver any objectives without my team, and my views and approaches are firmly grounded in my people, both those in our head office as well as our operational subsidiaries. We pride ourselves as a company who harnesses young talent in the organization and boast a Saudization percentage exceeding 85% in Group Finance.
How do you steer through these turbulent times and capitalize on the opportunities that such an existential, far reaching crisis presents?
In times like these I often like to quote Winston Churchill, who reminded us to “Never let a good crisis go to waste”. I agree that we are amidst one of the deepest crises most, if not all your readers have seen in their lifetime, but I firmly believe that we will emerge from this crisis as stronger people and organizations. I believe that the crisis presents not only growth opportunities but also the opportunity to redefine ourselves in the way that we operate, interact with each other, and deal in a values-driven way with all our stakeholders. To some extent, especially from an investment perspective, this crisis also serves as a bit of a reality check. Valuations across most industries and geographies have gone off the charts and I believe that there are now opportunities out there, whether it be new business development or acquisitions, at more reasonable terms and value expectations – if you keep your eye on the long term, have an awareness of new emerging trends and understand what drives tangible value in the industries you operate in.
I also believe that COVID-19 gave us better insight into how much room for improvement there is in the digital transformation of most organizations and economies.
At SIRC, we investigate opportunities to backward- and forward integrate during this time, to expand on our industrial waste platform, de-risk our segments and increase our ability to self-fund our aggressive growth pipeline once the global economy stabilizes, to ultimately ensure as a group we remain a most appealing investment opportunity for local and foreign investors.
Last year you completed the largest deal of its kind globally in waste management. How long did it take for this deal to go through?
Following assessment of strategic fit and extended detail due diligence we announced the signing of the Sale and Purchase Agreement in April 2019 and announced that all closing activities were completed on 27 July 2019. Although the effort that went into strategic alignment and assessment of cultural fit should not be underestimated end-to-end the transaction took around 8 months, which is normal for a transaction of its size, scope and complexity.
What are the main challenges of completing an acquisition of this scale?
I always find this question interesting, as I do not believe that there is any correlation between size (as measured by the firm value) and complexity of an acquisition. However, the following principles illustrate how we address the challenges posed by acquisitions of this scale; (a) Plan and manage the deal properly and don’t get lost in the details. Come to grips with the most pertinent transaction details and do so effectively and efficiently; (b) understand the DNA of the business you are acquiring and how it makes money (your comparable transactions are often not in the region so understand in order to value), (b) understand the strengths of- and build a trust-relationship with the target management team, they are after all responsible to deliver on the business plan, (c) and (d) stay on-top of the deal; do not leave the acquisition solely in the hands of your advisors.
Most importantly, for those of you that are passionate about M&A and will become the dealmakers of the future. There are different ways to grow – M&A is not always the right answer. Also; you will undoubtedly be thrown with numerous curveballs along the way. Be smart and think outside the box, every problem has a solution, and very seldom problems have the same solution, never cookie-cut your way through deals – but always have the courage to walk away.
As any seasoned dealmaker reading this would agree, the above is by no means comprehensive, but some of the principles I try to live by.
How do you deal with integration of a much larger business than your own on acquisition?
It is true that our first landmark acquisition was exponentially larger than our holding company, but this was by design, not coincidence. SIRC is a sector development company that was founded by the Saudi Public Investment Fund (PIF), as part of the Kingdom’s ambitious Vision 2030 program to safeguard the country’s environment by improving recycling and waste management activities across the Kingdom. So, it is correct to state that we acquired a much larger business than our own, given that the target had over 1500 employees on acquisition date, but the acquisition was the first of a series of acquisitions and new infrastructure development to follow. SIRC HQ however boasts subject matter experts across all functional, operational and technical areas, including decades of sector know-how. Accordingly, our approach to integration was to integrate only those functions and activities which we believed enhanced the company’s performance, whilst retaining the operational independence and entrepreneurial spirit that made the company a very attractive target in the first instance. We treat each acquisition on its merits and integrate only to the extent that the target does not lose its identity and cash flow generating capabilities.
What excites you about the future of the region in terms of the growth in the renewable energy waste management space?
I have had the opportunity to live in this amazing region with my family for approximately 6 years now. The region offers an exciting growth prospects and we are seeing transformation at an immaculate pace, especially in the Kingdom of Saudi Arabia. Looking however more closely at the waste management sector;
The sector leans itself to addressing many of the key federal and other governmental objectives of the Gulf Countries – including attracting foreign investor interest and enabling a young, vibrant, ambitious and growing private sector.
The sector, not only in Saudi Arabia is poised to become one of the most attractive investment opportunities in the region. In most countries in the world, waste collection is treated as a public utility and is priced as a service in the same way citizens pay for water and electricity consumption. In these countries, citizens have also become accustomed to segregating waste. By adopting these principles locally, we will be positioned to attract investment into the sector and invest in infrastructure at a significant scale, thus valorizing waste as a commodity and ultimately generating electricity from the residual waste post-extraction of all the valuable materials. In turn, this will deliver on the circular economy, diverting substantially all waste from landfills and maximizing recycling rates, for economic, environmental and social benefits.
On a personal and professional level, I am researching the necessity (and consequences) of why I believe environmental impact must be priced. In economies where this is implemented successfully, the revenue generated from these charges is dedicated to ESG / impact investment, and ultimately supporting the UN Sustainability Goals. Today, many free environmental services are taken for granted. Those services, according to Professor Constanza, equate to USD 33 trillion per year. Our economy and the environment are thought to be mutually exclusive; however, without a healthy planet, regeneration of resources, and healthy and thriving ecosystems, there would be no economy. Businesses today HAVE to adapt to more conscious consumers who are demanding more sustainable products and practices in order to survive.
Johan is a South African and UK qualified Chartered Accountant and holds an MBA from London Business School with distinction.