DigiCore CFO Cobus Grove: The Good, the Bid & the Ugly
Most CFOs dream of saving a company with sheer accounting brilliance, fantasise about lining shareholders’ pockets through a spectacular M&A deal, and secretly yearn for fame. Cobus Grove achieved all that before he turned 34 years old. In a series of interviews with CFO South Africa, Cobus shares how he saved JSE-listed company DigiCore and sold it to US firm Novatel Wireless. He talks about his compulsion to keep succeeding and gives candid insight into the personal toll of managing such high-stake corporate manoeuvres.
"You work yourself to the bone and when you accomplish it, you get a little high. I am always looking for the next high."
- Cobus will be speaking at our upcoming M&A event on 21 July. Read more about the event.
On 14 May 2015 Prof Mervyn King called Cobus Grove onto the stage at Summer Place in Hyde Park and handed him the Compliance & Governance Award at the CFO Awards 2015 gala. South Africa's doyen of corporate governance, whose influence in reporting standards is massive the world over, said Cobus's work is evidence that "the application of quality governance does pay dividends", before posing for a joint photo (see below) - one which many CFOs would covet.
Insiders were not surprised that Cobus received recognition for his work, and King's succinct summary was on point. As the award placed the spotlight firmly on Cobus's impressive achievements, everyone in the room knew he was one to watch.
What they didn't know was just how quickly things would move and that just a month later the phone would ring in the unassuming DigiCore headquarters in the Route 21 Corporate Park in Pretoria. This call would catapult the already impressive career of the then 33-year-old into a different orbit. Not only was the company sold to the Nasdaq-listed Novatel Wireless, Cobus had also become General Manager of C-track Global. "I'm in it for the ride," Cobus says. "I am getting exposure to the biggest markets in the world."
The Good - Saving DigiCore
Cobus comes across as a grown-up version of a charmingly nerdy school friend who is always more than willing to help out with complicated maths homework, not because he is desperate for friendship, but because he is genuinely happy to help and confident he can. Aged 27, he was part of the executive management team of Innovation Group, at EY he played an IFRS and compliance advisory role to various large listed entities in the banking, insurance and mining sectors, and as lecturer at the University of Johannesburg he shared his wisdom with the number crunchers of the future. But it was the turnaround at DigiCore that saw Cobus emerge as a financial professional with which to be reckoned.
The challenges were plentiful when Cobus joined DigiCore in November 2013. The company was running its fleet management and vehicle tracking brand, C-track, in no less than 55 countries, but had manoeuvred itself into such a desperate corner that Nick Vlok, who founded DigiCore in 1985 and listed it in 1998, had already returned as CEO a few months prior to calm markets and regain clients' faith. "Some of the problems that we faced at the time were high costs, extremely high stock levels and 50 percent debtors in excess of 120 days on our book," Nick recalls. "Our cash flow in the company was a huge problem at the time. We further had some exposure in terms of foreign loans between some of our subsidiaries based offshore that had to be addressed to minimise our exposure, an issue that Cobus tackled and resolved due to his extensive knowledge of the subject."
"Our cash flow was under severe strain when I joined," says Cobus. "I remember visiting up to three clients weekly in an attempt with our operations and accounts receivable departments to collect cash. Together we managed to reduce the accounts receivable days by 55 percent within the first 12 months. Our stock balance was also uncomfortably high. Weekly stock movement reporting per stock location and a change to a just-in-time stock management system resulted in in the days of stock in hand to reduce by 62 percent," says Cobus, giving credit to the whole organisation, as good CFOs always do. "Operations, finance and management truly combined and we managed to repay overdrafts of R180 million within 24 months."
It was unfortunately not the only issue that had to be dealt with immediately. "During my initial review of the accounting process, I identified some accounting practices that had to be rectified and that would provide a more accurate view of the financial position of the group. This lead to a restatement of our financials. With the guidance of our experienced audit committee we managed to not only do the restatement successfully, it also resulted in the increase of the share price with 30 percent on the date that the announcement of the restatement was made."
As confidence with shareholders and the finance team returned, the operations of DigiCore revived. "Cobus created a huge amount of confidence with customers as well as the operational staff, as he is always willing and prepared to listen and see how he can assist in making our lives easier," says C-track MD Hein Jordt. "He has a vast amount of knowledge that he is not scared to share with his co-directors or any other staff member. He is a real mentor to all in the business. His high levels of energy rub off on every one that he engages with."
Cobus agrees that working outside finance was crucial. "At DigiCore I now have 110 percent support from operations. I have listened to them and tried to implemented what they needed. That is something CFOs don't always do. At our company, finance used to be seen as the gatekeeper, the negative people. Now operations and finance are tightly integrated."
Evidence that DigiCore was on the right track came when some of South Africa's foremost investors bought into the firm. In a year the share price rose from R125 to R325 - Novatel Wireless eventually bought the company last year for R440 per share. For founder Nick Vlok, it was great to find a CFO who was "trustworthy, energetic and extremely knowledgeable in terms of accounting, but also of the business". Cobus introduced proper controls and managed to get stock levels down through "his direct involvement and putting pressure on the factory and stores throughout our distribution network", says Nick.
"The CFO role is the link between the business and the strategy. It is our job to make sure the guys can put the numbers on the table. You need to understand the problems of the business units and make sure they have the right resources," says Cobus.
The Bid - Going global
A month after the CFO Awards, Novatel Wireless contacted Cobus for the first time. Winning the Compliance & Governance Award had "created immediate credibility for the DigiCore finance function, because I was nominated with other CFOs of immense calibre", says Cobus.
Not only was DigiCore already a distributor and user of Novatel's tracking units, it was also a firm that complemented the offering of the South African business, rather than competing with it. "That made it easier to negotiate. If it was a competitor, you would have been more concerned about leaking competitive information," says Cobus. "Due to previous experience, I had already learned what to highlight and what not to say in the exploratory conversations."
It was no time for champagne, though, as a haunting period of sleepless nights commenced, with working days starting at 17h00 South African time in California. "It was exciting, but also scary," he says of the opportunity to help broker an international deal of this magnitude. "There are so many different things going through your head. Could I lose my job? Do they want to let people go? What will be their strategy? We had just got momentum at DigiCore and we didn't want to lose that. But we were also excited about the scale advantage Novatel could offer us to take the business to new heights."
Novatel Wireless made an indicative offer of R440 per share, which amounted to a 40 percent premium and a total purchase price of $84 million (then R1.14 billion). "As a CFO you might think you have to be fully knowledgeable in the law, but the advisors guided us very nicely through the process," Cobus says, praising PSG Capital's consultants for their advisory role during the deal, slogging through a massive implementation agreement.
"The entire process was completed within a period of four months with shareholders' approval, competition commission approval and takeover regulation panel approval obtained. This could not have been done without an experienced board of directors and the help of excellent corporate advisors," says Cobus.
While DigiCore's revenue was only a fifth of Novatel's, its incorporation is crucial for the worldwide growth strategy of the American firm. "We now have the hardware, the software and the international footprint, which means we can start offering full-blown solutions, which a US company like Fleetmatics is already very successful with," explains Cobus. However, global expansion doesn't mean rolling out a one-size-fits-all approach. "In South Africa we worry about stolen vehicle recovery. In many other markets, tracking is mainly for insurance, fuel efficiency and achieving lower maintenance costs. In the UK our technology is mostly used for fleet management and in the US we are mostly looking at asset management and optimisation." That said, Cobus is confident that the South African operations won't fall victim to the deal. "South Africa is well-known for its software development around the world. In countries like India there is still a bit of a language barrier, something we don't have. The cost-to-quality ratio in South Africa is very good and there are nice tax benefits."
The Ugly - "It never stops"
"I am a very good customer at Brown's Jewellers," says Cobus. He admits his current nocturnal life is taking its toll on his wife Marilize and his children Christoph (4) and Kaitlin (2). An M&A process like this is "not fun", says the brand new General Manager. His candour and honesty are refreshing; while he has never looked back, he is clear not to underplay the effort and commitment it takes and the negative effects this can have on an individual's personal life. He says researchers would "get a shock if they saw how many CFOs get divorced", but is confident he won't contribute to those statistics.
Left: Cobus with his wife Marilize, his son Christoph and his daughter Kaitlin.
Of course, Cobus admits, the process has given "wonderful exposure" to a 34-year-old who thought he was a specialist in technical accounting for life: "I'm in it for the ride. The opportunity to get international experience at a listed American company is great."
Family and friends have asked Cobus why he works so many hours, he says. "But how do I take the foot off the pedal in the middle of an acquisition? You realise you made a commitment and you're dealing with shareholders' money. You cannot say 'now it is me-time'. How do you switch off? I am still struggling with that. I can write a book about it. Emotionally it breaks you down. We thought things would get better after turning the company around, so I told my wife and family I would work myself to death for a short period and then things would get back to normal. But now there will be easily another two to three years of high-intensity work. It never stops."
While it's easy to laud Cobus as a role model for his peers, he advises caution: "Be careful, it is not always what you expect. The expectations are high and there is a lot of pressure. Being in a role like this requires significant support and understanding from your family and friends and I am lucky to have the most understanding and loving wife one could have. Also don't underestimate the role that the right role models could play in your career. I have been fortunate to have been guided and advised by individuals like Professor Ben Marx from the University of Johannesburg, Graeme Berry, a partner at Deloitte and Nick Vlok, founder of DigiCore, who always managed to calm me down and helped me to keep focus on the important things relating to my career and work-life-balance."
As Cobus prepares for another night of working late hours, he tries to play down his unique professional achievements - without too much success. "I was at the right place at the right time. I was given opportunities and was not afraid to take them. I have never worried too much about doing things that were out of my comfort zone."
"My focus at the moment is normalising my working hours. I don't want to wake up in five years' time and realise I haven't spent any time with my kids." As much as he revels in his success, always chasing that next high, that is his biggest fear.
This interview first appeared in CFO Magazine.