J&J Group is emerging as one of the few black economic empowerment (BEE) firms with a business vision beyond SA. Though not clearly stated , there's an intention to exploit opportunities from trade relations between SA and India.
That appears to be one of several J&J's strategic pillars: to grow into a significant empowerment player and perhaps a business empire with a reach beyond the country.
Established by former high-profile politicians Jay Naidoo and Jayendra Naidoo, the empowerment firm already has a connection across the Indian Ocean. It is maintaining a joint venture relationship with Indian giant Tata, particularly in IT, where their joint investments include Consilience, Faritec, Perago, eFreight and One Call.
The group says that though its focus and scope is SA, growing business relations with India offer opportunities for J&J to partner other SA companies and have a go at the massive Indian market.
This should provide a measure of protection from the uncertainty of BEE developments at home, where analysts are concerned that many of the current bevy of empowerment firms will face severe pressure from lack of funding, cash-flow hiccups and impractical business ventures.
J&J has had a fairly smooth ride since its establishment in 1999, soon after the two Naidoos left the public sector. But there have been disappointments, including the failure to acquire equity in high-flying shipping and logistics firm Grindrod in 2003. Failure to secure financing killed the deal, through which J&J could have acquired a 10% stake in Grindrod for R93,1m, equivalent to 971c/share. The proposed deal came with an option for J&J to acquire a further 15% of Grindrod within the next four years, at R14/share.
While J&J was struggling to raise finance for the deal, Grindrod's share price took off. Breaching the R15 level, it made the terms of the proposed deal uneconomic . "Even at R19 we were still keen to do a deal but received no financial support," says Jay Naidoo.
Grindrod's share price rocketed above R50 this year. However, J&J entered a smaller deal with Grindrod to create a warehousing and logistics joint venture called Grindrod J&J Logistics.
The Grindrod experience sums up the attitude of many mainstream financiers towards BEE companies. If a high-profile company like J&J finds it difficult to raise finance against a good asset like Grindrod, what of younger entrepreneurs? And the Naidoos concur, saying: "Access to capital is the biggest challenge facing attempts of transforming the SA economy."
"That we have survived all these years is an achievement," says Jayendra . "We have worked incredibly hard to overcome the challenges of starting a business from scratch with no capital base."
J&J is now focused on start-ups and small businesses, which require relatively little capital outlay. It is building an asset base made of cash-generative businesses in which it holds majority stakes. It will use this asset base to raise capital in the future. "We are no longer entirely dependent on external sources for capital," says Jay.
Theirs is a diversified investment holding company with closer ties to operations than many BEE firms. The portfolio has four main areas: IT, financial services, industrial and health.
The IT area has maintained close ties with the Tata Group. J&J's financial interests took shape with the acquisition of the SA operations of Credit Suisse First Boston, when the Swiss bank diluted its SA operations, which were then re branded into First South Financial Services. The division has four operations: First South Securities, of which J&J controls 55%, risk solutions, investment management and First South Capital.
J&J's industrial division has been developed through partnerships with mainstream operators, including Murray & Roberts and Grindrod. The relationship with Murray & Roberts delivered a 30% stake in transport group UCW and recently a 90% stake in Criterion Equipment, which supplies forklifts and other related equipment.
Further exploiting its ties with Tata , J&J has also established an operation called J&J/Tata Consortium, which will be focused on electricity infrastructure. The operation is one of the bidders to build one of the two gas-powered electricity plants at Atlantis and Mossel Bay by 2009.
J&J's health arm comprises start-up pharmaceutical operation VenturePharm and a stake in Dr Reddy's Laboratories.
"We want to establish an investment company that adds value to its operations ," says Jayendra.
Given their political background, the Naidoos talk of business with a social conscience. "As we are growing our business we will ensure that some of our energies are channelled to things that have always been close to our hearts," they say.
Their shareholding structure has reserved 5% for the J&J Development Trust, founded to meet these social commitments. Jay and Jayendra hold 58,7% of J&J, Old Mutual 21,2%, management 10% and the remaining J&J staff 5% .
