Edcon rescue deal's expensive lessons
A major chunk of the costs involved in the deal that saved Edcon went on strategy consultants, says CEO Grant Pattison.
In a speech this week at the Gordon Institute of Business Science, Pattison estimated that consultants received about R1bn over three years. "Be very careful of strategy consultants," he said.
When a company made use of strategy consultants it was an acknowledgement that it could not do the job itself, he said in a talk about the deal that saved the apparel retailer from business rescue.
"I spent two years as a strategy consultant so I know what strategy consultants do."
He said they always descended in droves when a company was in trouble. Getting rid of them was "the biggest cost saving in one fell swoop" that Edcon made, Pattison said, putting the amount saved at about £1.5m (R27m) a month.
"These guys were all employed from the overseas offices [of Bain Consultants and PwC]."
As part of the current recapitalisation of the group there was the cost of advisers, working on behalf of banks, but paid for by the company.
Pattison estimated that by the time the rescue deal is final, advisers and legal fees would have cost R350m-R400m.
"There have been moments where I thought you could do without advisers, but actually you can't. It's just too complicated . there are too many companies, too many legal agreements, too many bonds, too many shareholders and banks. I've come to accept it as the price of doing these things."
Pattison has been working with about 300 companies - landlords, banks and the Public Investment Corp (PIC), plus their legions of advisers and lawyers.
Earlier this month the Competition Commission conditionally cleared the way for a new company to buy the entire issued share capital of Edcon. Shareholders in the new company include Absa, Standard Bank, Investec, Growthpoint, Redefine and the PIC.
Pattison says a company that breaches its covenants loses its independence and the banks take control, as in Edcon's case.
"You have to pay for advisers who act against you, and you have to pay for them monthly in pounds. When you breach your covenants, the world almost stops and you're now being run by a credit committee of a bank . and their every instinct is wrong."
At this point, the banks were solely focused on getting their money back.
"We need some form of regulation in the market to govern the rights and obligations of the parties involved in securitising debt."