Masimba Holdings Thrives as Murray & Roberts South Africa is in Financial Crisis

How Local Companies Can Succeed When International Giants Exit

In 2012, South Africa’s Murray & Roberts sold its 46% stake in Murray & Roberts Zimbabwe (now Masimba Holdings and Proplastics Limited) to a consortium of local and foreign investors.

The stake was sold for R10 million rand, about $1.3 million. Today, it would have been worth over $18 million (see the calculation note at the end of the article).

Murray & Roberts 2012 Financials

Typically, when a multinational company with a well-known brand sells its interest or exits, people tend to feel less optimistic about the company that is left behind.

This is understandable, but often, breaking out of a multinational company can have significant benefits for the new standalone company, especially in volatile markets like Zimbabwe, where speed and flexibility are key.

Another example is Deloitte Zimbabwe, now Axcentium after a management buyout that ended its association with Deloitte Global.

At the time, there were doubts about whether the new firm could retain clients after losing the Deloitte name.

However, not only has Axcentium managed to retain blue-chip clients like Zimplats, which is listed on the Australian Securities Exchange (ASX) but it has also won key clients like Nampak from PWC (which has also now exited Zimbabwe) and Tanganda, (which is technically a one-year extension).

Zimplats Announcement

What was interesting about Tanganda was that the company dismissed auditors EY because of “differences on certain technical matters regarding the interpretation and implementation of IAS 29 Financial Reporting in Hyperinflationary Economies.”

This implies that EY was rigid, but Axcenitum will be more flexible. EY’s international brand name wasn’t enough to retain the client.

Back to Murray & Roberts, whose situation has now become more intriguing. Currently, the combined market capitalization of what was previously known as Murray & Roberts Zimbabwe—Masimba Holdings and Proplastics—exceeds $35 million.

In comparison, Murray & Roberts South Africa's total market capitalization is now just under $30 million (R489 million). So, the Zimbabwean business is now bigger than the JSE-listed Murray & Roberts group.

This is also a function of Murray & Roberts's rough few years, which led to their filing for corporate rescue this week. Corporate rescue is essentially the ICU for businesses on the brink of financial collapse.

Who would have imagined that the business in Zimbabwe, facing political instability and hyperinflation, would thrive while the former parent company in South Africa would go into corporate rescue?

Where’s the Money, what’s the Move?

Management buyouts of multinational companies exiting a market can be pretty attractive. If a multinational has decided to exit, it usually wants to do it quickly as part of a broader strategy, as was the case with Murray & Roberts's push to sell “non-core assets.”

Another factor is that these businesses are usually relatively small compared to the group as a whole, so even if sold for nothing, the loss isn’t hard for the multinational to absorb.

All this means that the valuations can often be heavily discounted. In the case of Murray & Roberts Zimbabwe, some reports suggest the discount was as high as 79%.

For the consortium that acquired Murray and Roberts Zimbabwe, this seems to have been a great investment. In just over 10 years, about $1.3 million has turned into over $18 million while also receiving significant dividends.

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Note: At the time of writing, Masimba Holdings's market cap was ZiG 720 million, and Proplastics Limited's was ZiG 621 million. Unofficial market-derived exchange rates were used for the conversion, which some speculate are in the range ZiG 35—ZiG 40 per USD. This leads to a market cap of about $33 million—$38 million, with 46% of that being about $15 million—$18 million.