CFOs should know PE firms want asset growth in Africa, says KPMG's Michael Rudnicki
What are the latest investment priorities within private equity firms? What should CFOs know about tax? Why does Michael Rudnicki want to be famous? Those are three of the questions that can only be answered by the new head of KPMG’s Southern African Private Equity (PE) practice.
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Over the years, Michael has developed himself as a popular tax expert on TV and radio and as an occasional guest lecturer at universities such as GIBS, Wits and Rhodes, his alma mater. A KPMG partner since 2005, he has spent most of his working career as a tax specialist within the Mergers and Acquisitions (M&A) and Financial Services tax teams of the firm, but since September last year, also began heading up the PE team. "I need to be clever about how I spend my time," he admits during this interview with CFO South Africa. But he has no regrets: "It is a lot of fun: breakfast, lunches and travel - and we have gained some great new client relationships."
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What is your proudest professional achievement to date?
"First of all, my admission as partner to KPMG in 2005 was a very proud moment, but I am also very proud of my personal professional growth development over the years. I have developed a degree of confidence that clients buy into, first at Arthur Andersen and then at KPMG. As an advisor in a competitive market you also need a bit of entrepreneurial flair - I learnt that by working with the best people in the business.
The CEO of the global Andersen tax practice once told me, 'Michael, make sure you are famous one day'. I think it's an important philosophy for every business professional and to accomplish that you need to be bold and confident."
Has this professional growth changed you personally as well?
"I think so. My wife would say I am a complete introvert, but most of my colleagues and clients see me as an extrovert. Not sure who I need to believe. I guess, with my clients, I can put on a bit of a show if required. I have consulted in tax for 22 years and have worked with a variety of personalities, extroverts, those with a degree in flamboyancy and introverts who were and are really successful. You don't have to be a loud, flamboyant professional to generate fees."
What makes KPMG's PE offering unique?
"We provide a complete, comprehensive solution, which gives us a very competitive advantage; from tax, to legal, to corporate finance, to BEE advisory. We have been extremely successful, I believe, in helping clients explore new markets and broaden their business objectives. Clients in South Africa that would not consider expanding to countries like Nigeria, Zambia or Kenya, have made the leap because of our hand-holding."
"Our PE advisory team was established in 2005 and I was part of its establishment. We started with very little experience but have built great client relationships and still work with most of those clients we met at the time. I have also always had a good working relationship with the PE regulatory body, South African Venture Capital Association (SAVCA). This year we are partnering with them again to deliver the 16th Annual SAVCA Private Equity Survey."
How has your life changed since the appointment as head of PE?
"I have more commitments and longer hours, which I need to manage very carefully. Luckily I have a great team; interestingly consisting of three females, which is a breath of fresh air in the male-dominated world of PE.
I am enjoying meeting with clients, which has increased with the new role. It involves a lot of fun, breakfasts, lunches and travel. I have also enjoyed interacting with our many business units within KPMG South Africa, other parts of the continent and outside of Africa. I see these as our clients too."
What did you do during your first 100 days at the helm?
"We have achieved quite a lot since I started in September last year. I have met with almost every single major PE firm in South Africa and abroad. We meet the CEOs and team (a number of which are tax clients of mine) and talk about their needs and our compatibility. Together with the Heads of PE from East Africa, West Africa and North Africa we travelled to London to meet five of the top PE houses in the world to showcase the capability of our team in our respective countries. All of these meetings have resulted in great relationship builds and various advisory assignments. Some of the people we met have not visited South Africa and now we do business with them."
What is your leadership style like?
"I spent the first month making sure that the team bought into each other's ideas. One of us has a television production background, one comes from corporate finance and I am an accountant who has always worked in the tax space. That means we are a very diverse team. I have always consulted but now I need to be a leader and make the team feel together and sufficiently independent to approach the hard-core PE environment. That is why the team is client-facing in one way or the other."
What goals have you set yourself for 2016?
"I want to give sufficient attention to my tax and PE clients and as a team we want to increase our PE market profile. I work from a great platform, built by my predecessor Warren Watkins. As a newcomer I want to create confidence with our client base and the industry, given my experience up to now as a tax specialist. I also want to spend more time with the team this year and specifically focus on deal origination as well as grow our M&A team."
What are the most important PE trends CFOs should know about in 2016?
"PE houses are looking at asset growth north of South Africa. While the South African economy grows at a slow rate of between 1.0% and 1.2%, there is more growth potential in other African countries, with percentages ranging between 8% and 12%. CFOs should know that PE firms are looking for market entry in other African countries."
"Manufacturing, retail and infrastructure are still sectors of interest for the PE industry in South Africa. Manufacturing and retail have the advantage that they can be scaled up to countries north of South Africa; investing in infrastructure brings longer-term yielding assets."
How much do CFOs know about tax issues and how much should they know?
"From an advisory perspective, we say 'get tax into the boardroom'. Ten to 20 years ago tax was a small, compliance-related section of the business. Times have changed dramatically, especially in the last five years. The media has also played an important role in exposing tax themes within large, multi-national organisations. Base Erosion and Profit Shifting (BEPS) is a global phenomenon (but relevant in a South African context) that contemplates the shift of profits to low tax jurisdictions and the use of legislation to prevent the consequent tax avoidance. Every organisational risk committee considers tax and so should CFOs. Recent legislative change in South Africa around the limitation of interest deductions is a consequence of the BEPS intervention."
"CFOs still need to be more internally focussed to understand the tax sensitivities around transactions, for example. You don't have to be an expert, but you do need to be alert to change in legislation, the theme of tax morality within an organisation, etc. Relevant tax training with an organisation is also important. The head of accounts payable doesn't need to know the principles of employees' tax, but should have a reasonable understanding of transfer pricing principles."