Measures that have curbed COVID-19 have had a significant negative impact on businesses valuations.
This has often resulted in impairment write-downs, restructuring/retrenchment costs and delayed or cancelled orders, decreasing enterprise values.
A decreasing value possesses particular risk for BEE Ownership transactions. There are 8 points on the BEE Ownership Scorecard that are attributed to Net Value. Net Value is the measure of the unencumbered value to BEE Investors and has targets which increase over time. Not achieving a 40% sub-minimum of this Net Value target will result in a one BEE Level penalty.
Cash constraints, together with deteriorating liquidity and solvency, compounds this Net Value risk for vendor financed transactions, which are reliant on the dividends to reduce the acquisition debt of the BEE Investors.
To ensure that their companies are optimally positioned for recovery, boards and transformation managers must carefully consider several factors including –
- Current Net Value position and resultant BEE Compliance Level;
- Forecast Net Value positions for 3 to 5 years, considering increasing Net Value targets, funding cost on BEE Investors acquisition debt, repayment of acquisition debt and changing value of the company;
- Financial position and cash flow requirements of BEE Investors.