Wesley Smith CA(SA) addresses inequality through a sustainable ‘win-win’ investment model.To date he and his team have raised over R200 million for the poor and helped thousands of orphans and vulnerable children. Lynn Grala spoke to him
‘There’s a great saying,’ says Wesley, that ‘your purpose in life is where your deep gladness and the world’s deep hunger meet’.
He distinctly remembers the day he first caught a glimpse of his purpose in life. It was on 11 October 2009 while attending a global leadership summit, an event hosted by a church in Chicago and broadcast around the world.
‘They have wonderful speakers,’ says Wesley. ‘It’s a good mixture of church leaders and business leaders.’
The conference that year focused heavily on the poor. Three of the speakers particularly influenced Wesley, with the first being a dynamic young lady called Jessica Jackley. She’s an American businesswoman and entrepreneur known for co-founding Kiva.org, a non-profit organisation that promotes development through microloans. Kiva allows people to lend money via the Internet to low-income entrepreneurs and students in 82 countries. Its mission is to connect people through lending to alleviate poverty.
‘Five young people had put it together and by their third year of running it, US$140 million had flown through Kiva. Interestingly, in America they see micro-lending as enabling the poor, as opposed to South Africa where it’s generally run by loan sharks.’
The next guy that spoke was Andrew Rugasira, a Ugandan businessman. ‘He spoke about aid versus trade. He told America to “stop giving aid to Africa; trade with us. We’re entrepreneurial: let us sell you coffee, don’t take our beans and sell coffee back to us.”’
The third speaker, Wes Stafford, the president of Compassion International, spoke of his life story and how Compassion International takes care of orphans and vulnerable kids.
‘I felt God clearly spoke to me there, saying your purpose in life is to stand in the gap, defend the rights of the poor and the needy, and stand up for justice. I knew right then that it had to do with wealth creation for the poor. Not by aid, not by donation, but by trading wealth,’ says Wesley.
EARLY DAYS OF COPORATE FINANCE
Wesley qualified as a CA(SA) in 2001 after completing his articles with BDO in Durban. He remembers distinctly how back then everyone wanted to pursue a career in corporate finance. The only snag was that nobody had a clue what it was really about.
‘It was just a buzz word.’ He adds: ‘The only thing we knew was that you needed to be in Joburg and you had to work in a bank, because at that stage that was the only place where you could really do mergers and acquisitions.’
Wesley was transferred to BDO’s Johannesburg office. He and his wife moved, and the timing couldn’t have been more perfect. Within six months two partners decided it was time to start a corporate finance division for BDO. Shortly into Wesley’s involvement in the finance division, the famous French fashion house Louis Vuitton decided to launch in South Africa. And with Wesley engaging with them, they soon asked him to join their team. He opened their first store for them and found himself being swept up into a world of fashion. Along with itcame glitz, glamour and retail.
‘It was a very nice first step into commerce. We spent three months building that store from a shell in Sandton. It was such an incredible experience because I had the opportunity of meeting lots of people and it involved lots of international travel.’
But once the store was open, the excitement wore off. And although Louis Vuitton had big growth plans, the next being opening a store in Cape Town, the process was a bit long-winded and Wesley found himself rather bored with a head full of thoughts of opening his own company – something he’d been dreaming about for quite a while.
VENTURING ON HIS OWN
‘I decided to give it a go. So I went to John Spencer who was the CEO of BDO Spencer Steward SA at the time, and basically my pitch was: “John, I’ve been with BDO for so many years and all my networks are tied up in BDO. I don’t want to poach your clients so are there any you would be willing to share with me?” He suggested that I speak to Sarah Savage, a manager at BDO around the same time as me, as she had been in his office two days earlier giving the same pitch.’
Wesley and Sarah ended up starting Smith Savage together with the concept of ‘Outsourcing your CFO role’ to the SMME sector, where enterprises may not be able to afford a full-time CA(SA). ‘BDO kindly lent us two laptops, we used Sarah’s brother’s boardroom as an office, and armed with the email address wesley@email@example.com, we hit the streets. We were quite lucky, as our first two clients were our old employers, mine being Louis Vuitton and Sarah’s Discovery Health. We then got very lucky and through a contact of Sarah’s landed the role of running the joint venture between FNB and Discovery Health on the Discovery credit card,a concept that was very new at the time. Smith Savage still exists today, with Sarah running it. It turned 10 in February this year.’
Smith Savage was doing very well, but one evening over dinner Hayley, Wesley’s wife, shared something on her heart. She told him she didn’t want to raise their son, with whom she was pregnant at the time, in Johannesburg, because her whole family was based in Durban. Having developed a focus-on-the-family mindset after hearing countless times from older guys in his men’s group about not neglecting your children, Wesley decided it was best if they moved back.
The question was whether to open a Smith Savage branch in Durban or get a job. Knowing the dedication it takes to launch a business from scratch and wanting to focus on his family, Wesley thought the better option was to get a job. And so for three years Wesley headed up PwC’s corporate finance team in KZN.
A VILLAGE FOR THE VULNERABLE
A month after attending the global leadership summit, Wesley got a phone call from Tich Smith, a friend and client of his. ‘He told me how God had given him a vision to build a village for orphans. It was a big vision … It would be called LIV Village, and they would build 96 homes for 1 000 children along with a school, a sports field and a clinic. He was asking me to help him structure this set-up. And I said, sure!’
For Wesley it was an exciting time helping out LIV Village while he was still at PwC. They figured that for 1 000 kids they would need R2 000 per child each month, and to run the entire village they would need to generate an income of R2 million.
‘I heard them talking about selling curios and starting veggie gardens,’ he says. ‘I told them, but that’s a lot of curios to sell. You need R2 million a month, and in the corporate world that’s a fairly big business. And this is when I go the idea of why don’t we do private equity. We could make acquisitions on behalf of the poor so they could have their own storehouse of wealth and needn’t go begging every year and ask for hand-outs. ‘The field of private equity is not available to many people, even the wealthy. So I thought, why don’t we bring private equity to the poor?’
Feeling that he needed to put his entire focus on LIV Village, he resigned from PwC. His journey of creating capital for the poor had just begun. Wesley went on to launch LIV Business, a Pty Limited and the profit vehicle that would function as the commercial arm of the non-profit organisation.
‘Today LIV provides holistic residential care for vulnerable children. Their core vision is to rescue a child, restore a life, raise a leader, and release a star. It exists to raise the next generation of leaders in our nation. They place parentless children into a family environment where they receive unconditional love, spiritual discipleship, care and nurturing. All their physical needs are met.
‘We want these children to grow up to be a generation that will influence positive change within South Africa, our continent and the world. If these children are equipped with essential moral values and life skills, they truly can live lives that influence and inspire significance and lasting impact. The future plan is to see many villages across our land.’
Wesley spent three years at LIV Village, where he successfully made six acquisitions for them. His very first acquisition would be a company specialising in producing hydroponically grown flowers. Today it’s known as LIV Flowers and is one of the largest cut flower producers in South Africa. Some of his other successful acquisitions are EMCOM wireless, LIV Clean, LIV Eggs and Amicitia.
STANDING IN THE GAP
‘I love deals. I love acquisitions. I love buying companies,’ says Wesley enthusiastically. ‘And we can do it for a good cause!’
With LIV’s great success Wesley saw his vision broaden and soon felt the need to open up the model to multiple charities. In February 2014 Gap Capital was launched with the name meaning ‘to stand in the gap’’: defend the rights of the poor and needy and stand up for justice.
Gap Capital is backed by a strong team of three who are all CAs(SA) with a long track record of private equity investment origination and closing. They all bring different skills to the table: Wesley specialises in private equity and transaction advisory services, Johan van Niekerk specialises in mergers and acquisitions, investment and project finance, and Alan Beesley holds a master’s in development studies and has extensive experience working in the private equity field, having worked for several businesses in which Standard and Corporate Merchant Bank had equity stakes.
‘We have since formed the Light Trust, which is a 100% truly B-BBEE trust. The beneficiaries of this trust are non-profit organisations in five pillars: education, health care, unemployment, humanitarian and justice. We find and identify wonderful organisations and back them financially because most people that are called to do this kind of work spend 80% of their time doing fund-raising and admin, and that’s not really their core strength. Our role is to come in alongside them and provide financial, strategic and operational support to assist them in effectively achieving the vision and objectives of their organisations,’ says Wesley.
‘In the market place we’re competing with other investment banks and private equity houses. And if we get to the deal before them, we’re able to bring it into good capital, which I like to call it. A practical example is that we’ve just bought into a furniture retailer in the Eastern Cape. The deal was closed on 1 March and they had 11 stores. We’ve opened seven more in the past few months,’ he points out.
‘A typical investment structure looks as follows: our deal-making team will identify, structure and close out investments in attractive businesses. All investment opportunities are then approved by our investment committee. Once approved, to fund these acquisitions, we approach investors to participate in these investments on a deal-by-deal basis. In every investment the investors and the Light Trust take a combined equity stake. The trust’s stake is funded by the investors at a market-related rate. As a result we build capital in the Light Trust for the long-term sustainability of its beneficiaries.’
The Gap Capital team play an active role in every business they invest in; whether as a representative on the board or in the day-to-day management. The combination of skills and experience the team bring facilitates the growth of the underlying business and maximise the return to investors. The team strongly believe in not only generating returns from these businesses, but also to positively influence the business culture.
The model is unique in that both the investors and the Light Trust benefit. ‘We have a three-fold targeted investment return model: an underlying investment return of 25%, a net investment return of 15%, and a social capital multiplier of 0,5x. This means that for every R1 invested by investors a 15% net investment return is earned by them and they create R0,50 of capital for social causes.’
A while back Wesley was chatting to the team and reminded them of their purpose and mission – to address inequality through a sustainable investment model. ‘I was able to encourage them that in a small way this had already been achieved through the seven investments we had made over the last three years,’ he says.
‘One of these investments in September 2015 distributed a dividend of R1,2 million, which was able to go towards the amazing work these NPOs are doing. At the same time our investors also received a return, so it’s really a win-win situation. The “magic” really takes place within these NPOs, where hundreds of orphaned and vulnerable children are being rescued, housed, educated, medically cared for and loved; where literally thousands of people are being fed on a daily basis; where multiple early childhood development (ECD) centres are providing quality education to vulnerable children; and where human trafficking victims are being rescued, restored and reintegrated into society.’
Wesley concludes: ‘God has been so good and faithful to us. Through the various NPOs we serve, the poor own equity stakes in seven different companies. They own their own capital!’
Author: Lynn Grala is Editorial Administrator of Accountancy SA