How section 12J investments complement the business rescue process
MasterCare, established in 1974, ran into trouble three years after its 2009 acquisition of EarlyBird Services from Ellerines Holdings. The firm faced a perfect storm of post-acquisition challenges including overstated revenue estimates, old and underutilised infrastructure and unprofitable stores. As cash flow dried up management was left with one of two choices – either close doors and go into liquidation or enter into a business rescue arrangement to see whether the business could be saved. Management opted for the latter and Neill Hobbs of Hobbs Sinclair was appointed as the business rescue practitioner in 2012.
"Hobbs and his team looked at every aspect of the business and realised its vital role in the domestic home appliance repair industry," says Wesley Rabie, current CEO of MasterCare. "They optimised the business model and created a 'leaner and meaner' operating infrastructure to deliver sustainable growth". He credited Hobbs Sinclair with creating the space necessary for the management team to focus on the business plan rather than obsessing over day-to-day operational issues. The only missing ingredients at this point were a clear strategy and capital – enter Anuva Investments, a section 12J-compliant Venture Capital Company (VCC) which acquired a majority share in MasterCare in 2015.
The combination of business 'smarts' and 'fresh' capital put MasterCare on a totally different business trajectory. "Capital is one thing," says Rabie. "But we benefited from the business acumen of Neill Hobbs as well as inputs from the 'captains of industry' behind the Section 12J venture capital company". He adds that the five year minimum investment term for such investment creates a strong incentive for investors to get involved. "As the business rescue process unfolds you reach a point where a clear direction and an injection of fresh capital becomes an imperative for business success," says Larry Worthington-
The business rescue process and subsequent Section 12J investment saved 80 jobs at MasterCare and prevented countless job losses in the broader repair industry. "We currently support more than 140 small service agent businesses across the country as well as a handful of spares suppliers – often as the agent's largest client," says Rabie. If MasterCare had gone into liquidation instead of business rescue he estimates that a third of the smaller agencies would have struggled to stay in business, with many additional job losses.
The new business has emerged 'lean and mean' and ready to achieve real jobs, turnover and profit growth. "We have streamlined our operating infrastructure and refocussed the business on sustainable growth opportunities with the result our headcount has increased by 8% in the past year," says Rabie. MasterCare is better-positioned than ever with great technical staff, an industry-leading CRM system and 'fit for purpose' products and services. He jokingly refers to the group as a "45 year old start-up" made up of motivated staff who carry out their roles with respect for one another, for their customers and for their brand partners.
The influence of the tech-savvy directors at Anuva Investments is already showing. There are plans afoot to venture into repair and servicing of higher level technology products as well as to leverage technology to improve service delivery to customers. "Our company culture is that of a start-up under a revitalised brand – and our focus is on disrupting our sector, exceptional customer service and delivering an innovative product offering that offers real value," says Rabie.
The MasterCare experience shows that liquidation should only be considered as a last resort. "Business rescue gave us the opportunity to take a company that had been around for almost half a century, recognise the value in the business model and turn the company around," concludes Rabie. "The marriage of business rescue and section 12J venture capital has kept us alive, returning this business to profitability while saving existing jobs and creating new work opportunities"