Andries van Heerden, CEO of R10bn construction, industrial minerals and mining company Afrimat, says the slow pace of regulatory approval for mergers and acquisitions is a huge impediment to investment and economic growth in South Africa.
“The message to companies like Afrimat wanting to grow and contribute more to GDP is 'rather take your money and invest it in Namibia or Zambia or any other country'. Certainly, that’s the message I’m getting.”
One of the best run and most successful companies on the JSE, with a compound annual growth rate in profit after tax from 2009 to February 2023 of 18.5%, Afrimat announced in June last year that it was buying Lafarge SA, owned by Swiss-French multinational building materials manufacturer Holcim Group, for just more than R1bn.
Holcim has been looking to offload Lafarge — which used to be the market leader in the construction materials space, but is now in serious decline — since at least 2019.
“It was a very good business back in the day, but then it fell on hard times,” says Van Heerden. A mechanical engineer who qualified at what was then the University of Potchefstroom, he started Afrimat in 2006, and its demonstrable expertise since then has been acquiring businesses everyone else has given up on and building them into success stories.
“This is what Afrimat does. We look for good businesses that are not necessarily well run and try to turn them around. That’s our aim with this transaction as well. We believe there’s enormous potential in this business, if we can get our hands on it.”
Afrimat's proposed merger with Lafarge was greeted by analysts as “the deal of the century”, and one that would give Afrimat access to some of the best assets in the South African construction industry at a discounted price.
But quick regulatory approval is absolutely crucial, says Van Heerden.
“When a business has reached this level of trouble, it is sliding backwards — and the sooner you can move in, the sooner you can stop the bleeding.”
Lafarge has haemorrhaged 2,200 jobs in the last two years. About 800 jobs are left, but if the deal falls flat, they’ll be on the line, he says, adding that there’s a strong correlation between the quality of the business that is inherited and the number of jobs that can be saved.
“Sometimes there are parts of those businesses that deteriorate beyond repair, and then you have to cull jobs. If you can get in there and turn the business around before it goes beyond the tipping point, you can prevent that.”
[The lawyers are] absolute ambulance chasers. They don’t care what they do to jobs, or about the value they destroy, as long as they write fees
— Andries van Heerden, Afrimat CEO
Certain components in Lafarge — such as the cement business, which used to be the second-biggest in South Africa, but is now fifth or sixth — are teetering.
“We’re getting dangerously close to the tipping point for that specific business,” he says.
His team hasn’t been allowed in there to see what’s going on, but high-level financial information they’re getting suggests the business is sliding quickly.
The longer approval takes, the more difficult it will be to turn the business around and save those 800 jobs. But it’s not only about saving jobs — it’s also about creating new jobs.
When Afrimat bought the Nkomati Anthracite mine out of business rescue in 2021, there were 175 people left on the payroll. There are now more than 650 employed there, and the business is profitable.
When the competition authorities delay a transaction like Lafarge, it’s not only about lost jobs, but also the lost opportunity to create more.
“If we can turn Lafarge around, we won’t only save the 800 jobs — we’ll also at least double that number if the business gets traction and starts growing and delivering on its full potential.”
The person in charge globally of mergers, acquisitions and disposals for Lafarge’s Swiss owners, Holcim, phoned Van Heerden in despair the other day.
“He said this was the most difficult environment he’d ever done a transaction in. He wanted to know what he could do to just get rid of Lafarge. He said he just wanted to get out of South Africa now. That’s how frustrated they are.”
It’s not hard to see why. After receiving approval from the financial surveillance department of the Reserve Bank in July last year, the Botswana and Eswatini competition authorities in August, and the mineral resources & energy minister in October, as well as consent from the South African Competition Commission, the process is now being stalled by the Competition Tribunal South Africa.
“The Competition Commission recommended the approval of this transaction in October [last year] already. And now the tribunal is just sort of dragging the process on and on, deciding they want to have a public hearing, which is basically just redoing the work of the commission.”
He blames lawyers who specialise in, and make huge profits from, successfully opposing merger and acquisition transactions in South Africa.
“They’re ambulance chasers. They go out there and find potential customers who could somehow get a benefit out of the transaction for themselves. They’re just causing delay after delay after delay. They’re absolute ambulance chasers. They don’t care what they do to jobs, or about the value they destroy, as long as they write fees.”
Their clients on this occasion include a former deputy director-general of mineral resources & energy turned ambitious business-person and a small ready-mix operator in the Western Cape who is “obviously not part of this sort of thing, but they made him believe certain things”.
He, at least, has now withdrawn his complaint, says Van Heerden. “He got a shock when he saw what this was costing him.”
He believes the Competition Tribunal is being abused by opportunists. “The fees these lawyers are charging are exorbitant — they’re making very good money out of this.”
There is no need for another public hearing, he says. The Competition Commission did a “very thorough job”.
“Their conditions for accepting the deal were not soft — they’re strict. We’ll have to dispose of certain operations where they say we’re becoming too dominant. We think we can work with that. In my view, they’ve covered all the bases.”
Given South Africa’s desperate need for investment, economic growth and jobs, he finds Afrimat’s treatment at the hands of the competition authorities bewildering, to say the least.
“We’re investing in South Africa, we’re bringing investment back to South Africa, [and] we have a track record of taking businesses out of misery, growing them and creating jobs. And then we get this kind of thing.”
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