Ayo: A pathetic end to a shameful beginning

Eight years and more than R14bn later, Ayo Technology Solutions is set to exit the JSE. The company listed in December 2017 at a market capitalisation of R14.3bn; the buyout proposal being considered by shareholders, which is expected to take effect by December 2025, values the company at just R170m. 

And guess what? Its exit seems certain to be draped in as much controversy as its entrance and the intervening 90 months were. It’s not just that shareholders might baulk at the “fairness” of the 52c a share being offered, but Ayo is currently in the midst of a legal battle with one disaffected shareholder who has applied to have the company wound up. 

If all goes according to plan, which seems rarely to have happened in Ayo’s listed life, the proposed buyout of minority shareholders is expected to take place by no later than December 31 2025. Given its history, that’s a big if.

Ayo’s arrival on the JSE went largely unnoticed. It wasn’t just because it was slap in the middle of the year-end holidays; recall that financial news in December 2017 was dominated by the implosion of Steinhoff. So, there was no-one around to pay much attention to the fact that the country’s largest and most powerful investor, led by Dan Matjila, thought it would be a good idea to pay a hefty R4.3bn for a 29% stake in a little-known technology company. 

Back in December 2017 the R4.3bn investment by the Public Investment Corporation (PIC) meant the Ayo shares could be listed at R43 a share, which valued the company at R14.8bn at a time when its assets were estimated to be worth a mere R292m. 

But the gravity-defying pricing didn’t last long. In April 2018 the Public Servants Association, which represents public servants whose pensions are managed by the PIC, started questioning the deal. The share price began to totter.  

Weeks later the PIC said it was looking into how the investment decision was made. “The investment committee wants to ensure that all investment processes were followed,” Deon Botha, the PIC’s head of corporate affairs told the media. 

Things really didn’t get much better from there, as is evident from the precipitous collapse in the share price. (And they didn’t get better for Matjila, either, who quit in November 2018.) 

Ahead of the recent buyout announcement from its controlling shareholder, Iqbal Survé’s Sekunjalo Group, Ayo was trading at 40c. On the back of the 52c-a-share offer it has jumped to 47c, giving it a market cap of R154m, which is closer to its initial estimated value of R292m than the outlandish R14.8bn at which it began its listed life.  

Both the share price and the buyout offer price are substantially off the end-August 2024 net asset value (NAV) of R4.27 a share. 

Blame the media

How did it all go so wrong?  

Well, according to Sekunjalo’s Sens announcement detailing the buyout offer, it was largely the media’s fault that the R292m collection of assets could not be grown into something that would justify a market capitalisation of R14.3bn.  

Sekunjalo acknowledges the share price has declined significantly since December 2017 and that the company has reported a constant increase in audited net losses year on year and then states: “This decline in share price and increase in net losses is mainly due to recurrent negative media reportage.” 

It goes on to acknowledge a few other external factors that impacted the share price – “the likely prospect of no transactional banking services should litigation against the banks not be successful” and “other ongoing legal litigation including a liquidation application”.  

The media is of course a very easy target for anyone wishing to find scapegoats. But not even the media believes it has the sort of power Sekunjalo attributes to it. And, whatever you think of the big banks currently in battle with Sekunjalo, there’s no chance their decisions to terminate the group’s accounts were determined by media reports. That would make for a dangerously whimsical banking sector. At most, those reports may have tipped banks off to unusual activity that was then investigated. And more likely the banks had their own reasons for closing Sekunjalo accounts. 

Then there was the 2019 Mpati commission of inquiry into the PIC, which came up with some fairly damning findings about its relationship with Sekunjalo – though nothing that was apparently actionable. It turns out the R4.3bn investment decision was taken in a mere three weeks and flouted most of the PIC’s approval processes.  

Survé put up a spirited defence when he testified at the inquiry, stating that though the share price had weakened, if Ayo’s recent performance was extrapolated, the share could be worth R100. 

The market wasn’t persuaded and the share continued to tank.  

In March 2023 the PIC went to court in a bid to reclaim its R4.3bn on the basis that Ayo had fraudulently misrepresented what it intended to do with the funds.  One reason for the company’s failure to launch became apparent during this brief court battle. It turns out British Telecom SA (BT-SA) refused to have anything to do with Ayo. This meant the plan for Ayo’s controlling shareholder, African Equity Empowerment Investments (another Sekunjalo subsidiary), to sell its 30% stake in BT-SA to Ayo was not going to happen. 

BT was so vexed that it subsequently terminated its relationship with the Sekunjalo group. As did Sasol, which had signed an IT supply contract with Ayo in 2018 but decided in late 2020 it had enough and gave six months’ notice. 

The March 2023 court case, which provided a fascinating glimpse into Ayo’s business model, came to an abrupt end when the two parties reached a settlement. The terms of the settlement were treated as confidential until someone – presumably the JSE – reminded Ayo it was listed. In terms of the settlement, which was made an order of court – Ayo would repurchase more than 17-million of its shares from the PIC at a price of R36 a share – compared with the market price of R4.65 – for a total payment of R619m.  

Remarkably, the payment to the PIC was made within weeks. Afterwards Ayo was reminded, again, that in terms of the Companies Act such payments could only be made once shareholders had given their approval and after a solvency and liquidity test had been successfully completed. It was more than 12 months before Ayo secured the necessary shareholder backing and completed the necessary solvency and liquidity test. 

The buyout

That repurchase agreement is a key part of Howard Lowenthal’s application for the winding up of Ayo that was lodged with the Western Cape High Court early this year. Lowenthal questions how the R619m could have been handed over given the extent of losses being made by the company.  

The much-delayed financial 2024 results (the delay had resulted in a two-month suspension of Ayo) revealed in late March that at R724m, the losses were significantly higher than previously thought. 

Lowenthal queries the validity of the solvency and liquidity test given this loss and the existence of an additional agreement that allows the PIC to sell another block of its Ayo shares back to the company for R248m. According to an Ayo spokesperson this put option remains in place if Ayo is delisted, but the valuation methodology will change. “All of this is encapsulated in the settlement agreement,” the spokesperson told Currency. 

What is also curious, Lowenthal tells Currency, is why there was no mention of the buyout at the AGM held just days before the Sens announcement. 

There’s no certainty the offer will get enough backing to allow the company to be delisted. Even the PIC might not rush out of this grim investment. A spokesperson told Currency: “The PIC will consider the commercial value and merits of the proposed buyout of Ayo shares taking into account all its rights and for the benefit of its clients and their beneficiaries”. 

There’s also the possibility of some shareholders going the appraisal rights route in a bid to get a “fairer” value for their shares. It would make for a precedent-setting case given the wide range of potential values – the R36 given to the PIC, the R4.27 reported NAV and the recent share price of 40c. 

For Sekunjalo a buyout at 52c a share, assuming the R4.27 NAV figure is accurate, and given its optimistic outlook for the company away from the media spotlight and free of the costs of a listing, looks like an attractive deal. Of course, not nearly as attractive as Ayo’s entry to the JSE.