SA Rugby make big call after equity deal falls flat

Today at 09:27 AM

Towards the end of last year the South African Rugby Union (SARU) rejected a proposal to accept a potential private equity investment in SA Rugby’s commercial rights, with an offer from overseas bidder, the Ackerley Sports Group, failing to reach the 75 percent majority required.

There have been competing offers from a local group headed by billionaire South African businessman Johann Rupert, but nothing definitive has emerged.

A governance review by an independent audit firm was recently commissioned by SA Rugby to assure stakeholders that governance requirements were adhered to in relation to the proposed equity transaction.

It’s now been confirmed that SARU will also appoint a financial institution to review the rugby's financial ecosystem, as decided by the union's membership at a General Council meeting in Johannesburg on Thursday.

The first step in the new process would be to appoint the financial institution through an independent selection process to advise members on all aspects of rugby's financial sustainability and the role that a potential private equity investment might play.

"We have been given a new mandate from the General Council to start a new process to review our commercial and financial prospects and define the process," said Mark Alexander, president of SARU.

He said that to provide full confidence in the process, the financial advisors would be chosen through an independent selection process. One representative each from the franchise unions and non-franchise unions as well as two independent members of the Executive Council would form the selection committee, supported by the SA Rugby CEO and CFO.

"We will take a measured and consultative approach under the guidance of the financial advisers as we review the financial challenges and opportunities," said Alexander.

The Council was also advised that the highest level of financial distribution previously agreed by the members (known as the gold model) was guaranteed for the three years thanks to an acceleration in commercial sales.

Alexander added that although a loss would be reported for 2024 the work undertaken by management and strong commercial sales for 2025 had secured the organisation's financial prospects for the next three years.

SA Rugby sought to clarify the following:

For clarity, media were advised of the reasons for the creation of Win by One (Pty) Ltd, with reports previously questioning why SARU CEO Rian Oberholzer was the sole director of a company with the same name as the failed equity bid

This comes after Irish businessman Eddie Jordan denied he ever charged SARU a 15% transaction fee – as claimed by Oberholzer – with the figure apparently closer to around 3%.

• The implementation steps of the transaction, should it have been approved, would include the setup of commercial entity owned by both shareholders. As part of preparation, SARU setup the Special Purpose Vehicle (SPV), named Win by One, which was 100% owned by SARU as per standard commercial practice.
• The equity partner would acquire its shareholding from the SPV.
• The SPV would be a South African tax-registered company that could immediately perform all the functions required of the planned new company. This structure was advised at all steps of the process with all stakeholders, including in media advisories.
• For convenience's sake that entity was called Win by One (Pty) Ltd. The Win by One LLP company established by ASG is a separate entity in an international jurisdiction in which SARU has no interest.  
• The creation of the SPV a purely technical process and was performed by BDO for SA Rugby on the instruction of the company secretary. The power to create such an entity is covered by clauses 7.16 and 7.17 of the constitution.
• Such entities require the naming of at least one director until the Board of the new company would have been constituted. As the accounting officer of SA Rugby, the CEO was automatically named as the sole director of the new company as is business custom and practice.

The establishment of the amount of the transactional costs and the sub-division of the fee is explained as follows:

• Provision was made for a maximum of 15% costs towards the equity transaction.
• Of which an estimate of a maximum of 5% was identified to cover the transactional fees for lawyers, mergers and acquisitions specialists, audit and tax advisers among others.
• The company that comprised the agents and associates who introduced SARU to the transaction presented the commission structure to SARU.
• It included an agreement reached with the brokers for a success fee of 10% should the deal go through.
• The success fee was renegotiated to 8% with the brokers before it was presented to the General Council.
• The division of the fee among the parties in the event of success was at their discretion.
• The agreement and fees went through all the necessary approvals and governance structures according to SA Rugby’s policies.
• As the proposal was not approved no fees have been paid to the brokers.
• The professional fees incurred by SA Rugby are to be carried by SA Rugby.

What do you think of this latest twist?

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