"When we invest in businesses we look at the quality of the CFO; that individual is critical as they become our eyes and ears into the business."
Tshego Sefolo is the CEO and founder of Agile (pronounced ah-ghee-le) Capital. Alongside Director Londeka Shezi, Tshego has – through Agile – invested huge sums in growing businesses in the South African market. They describe themselves as sector-agnostic, and have holdings in energy, engineering and outdoor media among others. It’s a dream decades in the making for Tshego, who started his career as a CA at EY. For him, pursuing private equity (PE) offered a challenging career that would expose him to different business environments – outside of the routine that can sometimes be a part of the traditional accounting route.
He says:
“Additionally, what was attractive is the fact that in PE investing you really can live by your convictions if you identify a business to put money into. In this way, it’s a cradle-to-grave business scenario where you’re looking at putting five to ten years into these businesses, to really manage where you put your money and ultimately realise what you want out of them.”
A marathon, not a sprint
Tshego seems to really embody this active and people-centric view – both in his investment choices and outside of the office. When he’s not at his desk, Tshego is a keen half-marathon runner and golfer – two sports that also suggest he is not afraid of playing the long game. The ideas of longevity, growth over time, and sustainability come up repeatedly when he lays out his views on investing. It also plays into his aspirations for Agile and himself.
“There are several big established companies in this PE space, but South Africa is an emerging market, and I think it is ripe for someone with the right energy to build something significant that will transform the landscape and challenge these established business. We want to be that dominant, well-established financial services group,” he says.
People, not products
Tshego’s view is one of mutually beneficial investment. He says: “At the heart of it, PE is in the business of deploying capital and putting it behind a team of people so that they can grow and execute on what we call an investment thesis that we have bought into.”
[cfocoza-cta slug=cfo-awards-14-may-2020]
This is why the management team of a PE recipient business is so critical. Agile looks for a management team to back, as much as a business, a team they are convinced has the key competencies to achieve their growth plan, and one that can deliver on those investment objectives.
A key figure in the mix is the CFO, who Tshego calls the “financial hub” of a business. He says:
“One of the things we do when we invest in businesses is to look at the quality of the CFO. That individual is very critical as they become our eyes and ears into the business. They are the person who ultimately gives us lenses into the details of what is happening in the business.”
He continues: “In some instances, we have placed requirements for investment on bringing in our own CFO. He or she has an in-depth understanding of what we are looking for, what the critical areas of what we are worried about from a finance business are, and can work with us to be able to address those issues.”
Ethical view
The ethics of a business – and its management – is another key element that Agile looks for in their investments. “It is very important to us,” Tshego says. “We are investors in the South African market. One of the things that is key is to make sure we build sustainable businesses for the long term, and there is no way you can do that without making sure that, ethically, you do business correctly.”
To this end, Agile will participate in the board, and often in a social and ethics committee that ensures ethical practise on an ongoing basis- whether that’s for staff, stakeholders, or the communities the business engages with and operates in.
“We enforce this rigorously. We look for those sorts of features when we get into partnership, and when we employ management teams, especially CFOs. It is important to get comfort that the people we bring in are people who understand ethically and morally what the right thing is.”
Skin in the game
This is just one of the reasons that Agile likes their partners and management teams to have “skin in the game” – to be invested and incentivised on both outcomes and financial discipline. “As part of our due diligence exercise, we would look at the CFO, the team that he has got, and the financial systems, and the reporting parameters that they have put into the business,” he says.
“In my experience, a CFO who has worked alongside PE investors and has been incentivised to work with the investors, has created significant value for themselves and for us. That way when the investor generates a return, the management team also generates a return for themselves. That enforces a type of discipline in terms of decision making.”
Injecting capital – and value
PE is not just about extracting value from capital inputs though. Tshego argues that PE investors are enablers of growth – both organic and through acquisitions. “In the former, we are able to advise on how to grow product ranges or grow into new markets. On the latter, we have a vested interest that goes beyond financial. We get quite involved in enabling that, in facilitating that, and making sure it is done in a disciplined manner where you don't end up overpaying or not getting the returns you paid for.”
Frequently, he says, the businesses they invest into are owner-run. These can grow to certain levels on those entrepreneurial terms, but when they hit critical mass – say, around R200m – the processes and procedures in the business need to be robust enough to take it to the next level. Here they provide the outside perspective – not of a consultant – but a partner who can be “a strategic shareholder and stakeholder, with a deep pool of capital, who understands what the imperatives for growth in the business are, and who has the means and resources to facilitate that”.
This article was first published in CFO Magazine.
