The valuation of Ayo Technology Solutions was “reasonable”, according to former Public Investment Corporation (PIC) chief executive Dan Matjila.
Matjila was speaking before the PIC Commission of Inquiry in his penultimate week testifying on the issues of impropriety and governance lapses regarding certain investments by the institution.
Ayo listed in December 2017. In its initial public offering (IPO) the company placed its share price at R43 per share, valuing Ayo at R14.8 billion even though the company had net assets of R292 million.
Contrary to Matjila’s statement that it was fair, PIC employees who worked on the transaction and former Ayo executives have come before the commission and testified that the company was overvalued and stretched. Some of these employees said they had voiced their concerns to Matjila, but to no avail.
Ayo had a plan
The PIC was the only buyer of Ayo’s shares at the listing, purchasing 29% of the company worth R4.3 billion at the requested price of R43 per share.
Matjila explained to the commissioners that, as an ICT company, Ayo’s net assets were not an indication of its investment potential.
“The real investment potential lies in its contracts and deal pipeline,” said Matjila.
The main driver behind the PIC paying the premium price for Ayo’s shares was the understanding that the company would buy 30% of British Telecom SA (BT-SA) from Survé’s African Equity Empowerment Investments (AEEI) for R1 billion.
The result of this strategic partnership would see some of BT-SA’s clients transferred to Ayo – the primary client at the time being Sasol, which had been affected by changes to one of the BEE codes and needed BT-SA to change its structure to be more transformed in order to attain an extended seven-year contract with the energy and chemical company.
But the BTSA transaction never materialised after it was blocked by BT , which said it never approved the sale. Reports from a meeting between Ayo’s executives show that when the deal fell through, Survé attempted to keep this information from the PIC.
Survé previously testified that the “toxic” reporting around Ayo while the BT-SA transaction was in progress is the reason the deal did not materialise.
Ayo could have been cheaper
Matjila previously told commissioners that certain parts of the investment vetting process had been skipped when the Ayo deal was concluded because the PIC was chasing a tight listing deadline – and, because the company listed in December, a lot of the relevant individuals at the PIC were on holiday.
As a consequence, the PIC used Ayo’s draft pre-listing statement as a basis for evaluating the company because it consisted of most of the work the PIC would had to have done in its assessment of the company. Matjila said this was fairly common in the consideration of initial public offerings.
On Thursday it was revealed that Ayo’s draft pre-listing statement had placed the issue price at between R28 and R43 a share. Despite this, the PIC did not negotiate for a lower share price even though it was the only buyer of Ayo’s shares.
PIC assistant portfolio manager Victor Seanie previously testified that the Ayo deal was a “foregone conclusion” and said the deal team was never allowed to negotiate the price despite this being fairly normal when institutional investors are offered shares in an IPO.
Seanie said he had communicated his view that the R43 price tag was excessive with two of his superiors who both agreed with him, but when the team questioned the R43 price, they were told that “it can’t be changed”.
Ayo just needs strong leadership
Matjila acknowledged that Ayo’s share price – which currently sits at R9 – “has not performed as anticipated”. He attributed this to the deal pipeline not materialising, negative media reporting, litigation against the company to try and reclaim the investment, and testimony before the commission.
He said the share price merely reflects the current net asset value of the company without future opportunities, saying the PIC needs to intervene as a significant shareholder to “put together stronger management and board in order to start driving the company’s affairs forward”.