“Stretched”, “thumbsuck” and “manipulation” were among the words used at the judicial commission of inquiry into the Public Investment Corporation (PIC) to describe the informal pre-listing valuation carried out by Ayo Technology Solutions executives, which set the tone for how much the company was eventually valued at.
Ayo chief investment officer (CIO) Malick Salie described on Tuesday how, in the build-up to finalising the pre-listing statement, there were multiple upward revisions to the company’s valuation – from an initial estimated value of R2.3 billion to an expected value range of between R10 billion and R15 billion – at independent media owner Iqbal Survé’s behest.
Survé had told the PIC that he was “not involved in the Ayo listing”. However, Salie told the commission that the Ayo team “had various interactions and meetings with Survé, who set the tone for the [pre-listing statement] and provided his expectation of the valuation of Ayo”.
Salie formed part of the African Equity Empowerment Investments (AEEI) team tasked with taking Ayo public. AEEI was Ayo’s parent company and subsequently reduced its shareholding to 49% after the company’s listing on the JSE.
Survé wanted R10-R15bn valuation
Salie told the commission that he had initially valued Ayo at R2.3 billion. This, he said, was based on Ayo’s business and a 30% earnings transfer from British Telecoms South Africa (BT-SA), a company in which AEEI had a stake and had planned to transfer to Ayo upon listing.
The valuation was then revised upwards to R5 billion after additional information regarding BT-SA’s clients and customers, which would be acquired by Ayo, was incorporated into the Ayo valuation model.
At a meeting with Survé in July 2017, where the draft pre-listing statement with a R5 billion valuation was discussed and reviewed, Salie said: “Survé was of the view that the desired value of Ayo be set between R10 billion and R15 billion.”
He said that at the meeting “Survé’s recommendations were incorporated in the draft [pre-listing statement] with a valuation of R13 billion”.
“It appears to me that this is a juggling of figures and the end result is a thumbsuck,” remarked evidence leader advocate Jannie Lubbe. Salie said that, at that stage, it was.
Assistant commissioner Gill Marcus said it appeared to her that the only verifiable and real valuation was the R2.3 billion whereas beyond that there are “extrapolations of what might be and what could be”.
“Numbers are then manipulated to say that to reach that target this would then have to happen but they were not real,” said Marcus. Salie said it was “100% correct” in the build-up phase.
R20bn also mentioned
According to Salie, Survé met with AEEI’s management and executives in August 2017 to inform them of considerations when valuing Ayo based on the trajectory of the ICT market. Salie said that while he was not part of the meeting, he received an email from AEEI financial manager Njabulo Jiki stating that Survé’s valuation expectation for Ayo was R20 billion.
Jiki, who was at the meeting, said the key take-away was that “R10 billion would be bronze” and anything below R10 billion “dismal”.
Ayo’s final valuation amounted to R14.7 billion at R43 per share, with the final model signed off by Grant Thornton auditors.
The PIC subscribed to a 29% stake in Ayo, paying a contentious R4.3 billion in government pensioner’s money. On Tuesday Ayo was trading at R10.99.
Ayo ‘worth 5% of valuation’
Former Ayo CIO Siphiwe Nodwele said in April that Ayo’s valuation was inflated and that according to his calculations, the company was valued at 5% of the final valuation, which is between R700 million and R1 billion.
“There has been so much talk about this valuation and I have been curious to see how it has been developed and it’s becoming clearer and clearer that things are being stretched a bit here,” said commission assistant Emmanuel Lediga.
Salie resigned from the board of Ayo at the beginning of May. He told the commission that he was not comfortable in the current environment given the “pressures and governance issues that have arisen”.