Addo and Tembe

At Tusker, as you’ve probably guessed, we like elephants.

So we’ve given our BEE ownership solutions elephant-related names:

  • The first is ‘Addo’. It’s named after the Addo Nature Reserve in the Eastern Cape. A reserve famous for its Elephants.
  • Our latest product is ‘Tembe’, named after Tembe Elephant park in KZN.

This post explores how Addo and Tembe are similar, and how they differ.

How they differ: 

  • Addo is simpler and ideal for smaller, low-value or asset-light companies where the shareholders are prepared to invest in 25%+ BEE-owned companies in ‘exchange’ for their BEE ownership. This investment can be strategic (i.e. into an adjacent business that will help your business grow), and is a great opportunity to set your staff up in a related business where you have every incentive to make it work. It’s a great model for you and for empowerment, and for asset light or low value businesses (any service business) it’s a very affordable option.
  • Tembe, although a bit more complex, is better for high-value, asset-heavy businesses. It’s also better for those with complex Cap tables and those that are growing fast enough to warrant raising debt or equity capital. It can even work for other funds looking to invest into ‘white’ companies. The tradeoff is that it does require indirect ownership by black people in your business (about 6.5% in total, but less if you grow fast). The people here can be your staff, or strategic partners, and you can sell their shares to them over time. It’s a great approach for big companies looking to achieve legitimate BEE in a sustainable way.

How they are similar: 

  • Both fall under the private-equity rules of B-BBEE ownership. i.e. they are deemed ownership structures.
  • They’re both entirely legitimate ways to achieve BEE ownership.
  • Both make use of private-equity funds managed by us (Musth Capital is a licensed private equity fund manager and 51% black-female owned. FSP 49558).
  • Both leave you in effective day to day operational control of your business.
  • Both can work with any existing structures you have in place.
  • Both give you an easy path to achieve 51% or even 100% black-female ownership.
  • Both are easy for your accountant to understand. You’ll know exactly what investments/costs/cash-flows are required, in advance. There is no uncertainty.
  • Both leave all your future options open.
  • Both are straightforward decisions to make.

If you’re looking for all the advantages that BEE ownership can give you, please contact us. We’ll explore which approach, either Addo or Tembe makes the most sense for you.

Read more about the return on investment  from BEE ownership, or clear up some misconceptions.

The biggest change in BEE since Covid

We meet hundreds of business owners every year.  So we get a sense of their collective needs, wants and fears. Yes, we chat BEE but in so many ways that’s also a proxy for the confidence in South Africa’s future. Confident? a BEE deal makes financial and emotional sense. Not sure? maybe hold off a bit or even ‘pack for perth’.

But even for the confident, the motivation for BEE deals has undergone a sea change since Covid.

What we’re seeing more frequently are the businesses that had a unique offering. That were either small enough to fit under the radar or offered something so unique that their corporate customers had little choice to buy from them. Scorecards be dammed!

But guess what happens to ‘unique’ offerings in the long run?

Everyone is a commodity. It takes time or a big external shift, but in the long run your unique offering loses its uniqueness. Other products start to offer similar features. Other businesses move into your space from any strategic direction. And as your customers have real buying power and real scorecard needs, they start to ask your 51%-black owned competitors if they couldn’t perhaps offer what you do?

And in the long run, they do. And you wake up one day and you’re a commodity. Without any remaining appeal to big companies that must buy from 51% black-owned businesses.

You might not like this, but it’s true.

Covid accelerated this. Many businesses went into survival mode. Some got desperate enough to try new things. We gave up (mostly) on offices and moved home. Things changed and people changed. We’ve met with at least 10 business owners in the last few months who specifically attribute Covid to an acceleration of their commoditisation. Their customers have become ‘harde-gat‘.

The B-BBEE Act was promulgated in 2003. That’s nearly 20 years ago. We’re in the “long run”.

Your uniqueness has got you here. What will get you there?

Chat to us about a BEE deal that offers a solid ROI, doesn’t require you giving up control, and leaves your future options open.

Is sorting out your BEE-ownership a good financial decision?

The decision to do a BEE ownership deal is primarily an investment decision (we cover the emotional elements in other articles, but the point here is that if it doesn’t make financial sense then don’t go further unless you’re feeling particularly charitable, so cross this bridge first).

You need to understand, at the outset, whether you can expect a return on your investment. If the returns are not worth the time and money spent then don’t do a deal. Simple. If the returns are greater than the costs then seriously consider a deal.

No matter which way you do a deal, there are always both upfront costs and ongoing costs that you will need to understand in detail because they differ substantially between different ways of doing BEE ownership. But before we get into a costs discussion, you must be able to answer whether BEE ownership itself will add any value to your business.

BEE ownership is worth the investment of your time and money to get right if:

(a) it will prevent your existing customers leaving you resulting in a loss of sales and/or destruction of business value, or

(b) it will increase sales and/or increase business value.

I.E. there are two metrics to consider: sales (filtering down to profits) and business value. They’re different and both will help you make a go/no-go decision.

BEE ownership impact on Sales/profits: 

What happens to your business without BEE ownership? You’ve probably already felt pressure from clients do improve your scorecard, particularly ownership. You can only expect this to increase. If you carried on without a BEE deal, how much sales would you lose? 10%, 20%, 50%, 100%?

For most of our clients, that answer is what drives a deal. Because the numbers are substantial. And losing sales is tough because your cost structure is built around your current/expected sales levels. So when you lose a client, you have less income but the same costs. Your profits get hammered disproportionately. Once you’ve lost a client you have to reduce costs, quickly. That means cutting back on key business value drivers, like R&D, marketing and of course people. It’s a world of pain but if you lose enough sales and don’t act you lose the business entirely. Often it only takes a 10% drop in sales to kill a business if it can’t cut costs. And often your bigger clients are more than 10% each. They all face the same pressure on their procurements scorecards for you to be black owned. 51% black-owned.

  • If a BEE ownership deal would prevent you losing >R250K pa then contact us. We have a no-brainer deal for you. 

On the other hand, what happens if you could increase sales by doing a BEE ownership deal?

Increasing sales goes almost straight to the bottom line (unless the deal is so big you have to increase your cost base to service it, but hey, that’s a good problem to have). What new clients could you get? which clients could you get back? How much share of wallet could you get with existing clients? Could you expand your product line? Do this analysis.

  • If a BEE ownership deal would increase your profits by >R250K pa then contact us. We have a no-brainer deal for you. 

If would would prevent a loss and increase profits by >R250K each, then you’re already up. This is the reality for almost every business. Why would yours be different?

BEE ownership impact on Business value:

Another way to think of the BEE investment decision is in terms of business value. This is a bit more complex (so we hope the simple sales numbers have got you to seriously consider a deal already).

There are many ways to value a business. But the core concept is that a business is worth either (a) what someone will pay for it (if you’re selling) or (b) the present value of the future cashflows of the business, discounted for risk (if you’re not selling). Sometimes the values are the same. Either way – if the sales go up because of a BEE deal then your value goes up. If the risk comes down because of a BEE deal then your value goes up because your future earnings are more likely, more predictable and therefore more valuable. The value of your business is very sensitive to how fast it grows, and how much risk it carries. Ask your accountant to build a model for you if you don’t already have one. A slight improvement in sales, or a slight reduction in risk can make a very large difference to how much your business is worth to you, or a potential buyer.

  • Here’s the magic number: if a BEE ownership deal would prevent the loss of value of 10% of the your business, or increase its value by 10%+ then contact us. We have a no-brainer deal for you. 

For most businesses operating in South Africa this is entirely intuitive. A 51% BEE-owned business faces a very different future earnings and risk profile to one that’s white owned. That’s just reality.

What if I want to sell my business?

There are many ways to do BEE ownership deals. In some of them, when you want to sell your business, your black shareholders will sell too. That leaves you selling a ‘white’ business. Probably not worth nearly as much as it could be. Any buyer would discount the price they pay because they know that they’ll have to do a BEE-deal in future. And even if the buyer is black, they will certainly use this power to get a lift in value for them post deal…at your expense.

But what if when you wanted to sell your business, you could sell it to someone else (of any colour or nationality) and it would remain black-owned? Yes, that’s possible. In this case, you’d be selling a company in South Africa that is 51% black and this has to be worth a whole lot more than if you tried to sell the same business but it was white.

If you do the numbers, then what you’ll most likely find is that your business if far more valuable if you can sell it with the ‘BEE hunting license’ than without. And if that number is R500K or more higher, then please contact usWe have a no-brainer deal for you. 

What about access to capital?

Government is supporting 51% black owned businesses with cheaper capital for growth. Big banks have incentives to lend money to black business at a discount to the price they offer white businesses. Chances are, if you’re looking for investment then making your business 51% black owned will open up more doors and reduce your cost of capital. A lower cost of capital increases your valuation too.

Your real value lift from BEE ownership is a great combination of return on investment:

When you’ve done your numbers, you’ll almost certainly find that 51% BEE ownership will:

  • Prevent the loss of sales of at least R250K pa
  • Open opportunities to grow sales by at least R250K pa
  • Decrease risk or increase sales so that the value of your cashflows to you (or someone else) is at least 10% more.
  • Open up capital markets to more than the ‘white’ only players.
  • Increase the price that someone is willing to pay for your business when you sell it by at least 10% or R500K.

If the numbers make sense, and when you’re ready to chat through all the other issues relating to deals, then please contact usWe have a no-brainer deal for you. 

Worried about control? There are misconceptions we should clear up.

The #1 misconception in BEE deals and the c-word

Let’s clear up the #1 misconception about BEE ownership:

The number 1 misconception about BEE ownership is that it requires actual black people to own and/or control your business.

It doesn’t.

There are a whole suite of entirely legitimate ownership approaches specified in the B-BBEE Act that result in ‘deemed’ ownership. Deemed ownership counts exactly the same on your scorecard. We’ve written a whole article about it here.

A classic example of this would be a large foreign software company (like Microsoft). For a large international business, South Africa represents a tiny slice of their overall revenues. There is no way their global governance structures, capital structures, etc would allow the sale of a majority stake in a tiny subsidiary. It’s simply not worth the risk/complication to them. So how do they solve the problem?

One of the ‘deemed ownership’ options suitable for big international companies is an ‘equity equivalent deal’.

Here’s how it works: at a high level, they value the local business – say its R100M – and if they want 25% BEE ownership then they invest R25M into black businesses. Legitimate empowerment is achieved. The software business remains 100% foreign owned but are ‘deemed’ to be 25% BEE owned. The only problem is that these deals require DTI approval and can take years to do. (There are a variety of alternatives that fall under ‘deemed ownership’ and compared to equity equivalent we can do a better deal much faster – and our international clients love it – but we’ll get to that when we meet).

Ok, so if you don’t need actual BEE owners, what about the C-word?

Do you have control issues?

Control is a practical consideration and it’s also an emotional issue. No business founder we’ve ever met likes the idea of an outsider having control over their business. It’s probably the #1 factor that immediately jumps into a persons’ head and immediately turns them off to a BEE deal, especially if that deal means 51% or more BEE ownership – a ‘controlling’ stake.

But it needn’t be the case.

In the ‘Equity Equivalent’ deemed-ownership approach described above, there is no requirement for black people to have a controlling say in your business. It’s the same for a number of other deemed ownership approaches, e.g. Asset sales. Even if 51% ownership is achieved. Other deemed ownership approaches (e.g. trusts, options, etc) do have control elements (in proportion to the BEE shareholding).

However there are a variety of options to choose from, and if you have ‘control issues’ then there are still several methods of achieving BEE ownership that can work for you, even if you need a 51%+ BEE ownership stake – a level that would mean effective control in any other circumstance.

So, control is a non-issue*. OK?

If you’re looking to solve a BEE ownership problem and would like to explore a deal that offers a sound ROI, meets your emotional needs, and can be concluded quickly then please contact us.


*Note that this refers to the ‘control’ that comes from voting rights attached to ownership/shares. This differs to scorecard points awarded to ‘managerial control’ in its various guises.

BEE and Solar. Win-Win-Win

This article is for those who’ve survived South Africa so far, and who like to kill two birds with one stone. Or carry a beer in both hands. Or braai with one hand and drink with the other. You get the idea. It’s for those who like it when the solution to one problem also solves another.

The first problem is electricity. We know the reason – the ANC has run Eskom into the ground. We also know that it will take ages to fix and that electricity prices will go up, a lot. We also know that until then we will have continued loadshedding.

For most businesses the obvious solution to this is to go solar. To set up your own electrical generation using solar panels, inverters and batteries. It’s a lot cheaper than it used to be whereas Eskom power is a lot more expensive than it used to be. Batteries last 10-15 years, panels pretty much indefinitely. It’s all modular, so you can scale your system as you need to: your head office, your manufacturing/distribution, the houses of your key people who work from home. You get the idea. Your solar system is an asset that can generate cash while offering the consumers of power a better deal than Eskom. Win Win.

The second problem is BEE.

Yup, that old chestnut. The thing that while well intentioned has been poorly run. The thing that isn’t going away and remains firmly in SA policy. A bridge you’ll have to cross (unless you live in KZN, where the bridges are probably still washed away but at least your rugby team is still decent). We digress. The face-the-facts truth is that sorting out BEE ownership is something you’re still going to need to do to remain relevant. You know, to get business and earn money and stuff. So that you can pay for your kids education at woke private schools so they can marry a girl/guy from Oz and come visit you on the farm from time to time. Choose your own adventure. Going to be a lot harder doing it from SA without BEE. Fact.

You can see the electricity problem as how to keep the lights on for your business now. You can see the BEE problem as how to keep the lights on in future.

What if you could fix problem one (insulating yourself from Eskoms unreliability and price increases) while also fixing problem two (sorting out your BEE ownership)?

Win-Win-Win. 3 wins for 2. Like drinking beer in one hand, adjusting the wors on the braai with another, while watching the boks crunch the all blacks on Dunedin. Twice.

Yes, the BEE deal would be legit. No, not crazy expensive. And you’d get that schweet feeling of the power being on, the doors of business being opened again, and maybe, just maybe, believe that we can do this thing. Your grandkids will inherit the farm after all. Happy times.

That’s why we’re here right?

If you have a BEE ownership problem and would like Solar power then contact us. We have a way of killing those two birds with one stone. Win win win.

BEE and the new (post Covid) normal

There has been a lot of talk of the “new normal” since Covid-19 started ravaging the globe and wreaking havoc in economies.  The South African economy has declined, off the low base which of a recession even before lockdowns.  In amongst this all, we were hit with load shedding, staggering unemployment, appalling allegations of corruption during lost nine years before and even during the pandemic and an inadequate rollout of vaccines. Government has never looked less competent or more corrupt.

Inevitably South Africans looked for scapegoats and blame has been cast on the health products regulator, the politicians avoiding step-aside rules, Eskom management, SAA’s business rescuers, dividend taxes, broad-based trusts and even the concept of BEE itself.

This is not without reason: aside from well publicized corrupt deals using BEE and emergency procurement legislation, with the continued deterioration of the economy even more BEE schemes went “underwater” (meaning that, mainly because of debt, black beneficiaries were not getting the benefits expected).  So, when President Ramaphosa suggested in early June 2021 that BEE legislation needed an overhaul, there seemed to be an admission that BEE wasn’t working.

While the public perception of BEE is often associated with corruption, behind the scenes it hasn’t been an unmitigated disaster.  After all, the President suggesting the BEE overhaul, is a successful black businessman who used BEE to his advantage.  Most successful black business owners with mansions, luxury vehicles, children at elite schools visiting five-star game reserves have paid for these with hard and ethical work.  Some may have benefitted from the BEE framework, as intended, but they did not do so illegally.  Some may have been advantaged by their race, but not unfairly (as we set out in a previous article BEE is fair discrimination.  So, has BEE completely failed? It’s hard to argue that it has.

Obviously, these are relatively few and far in between examples, and there are many who have not obviously benefitted from BEE.  Far too many South Africans are not active economic participants through no fault of their own.  BEE objectives are still aspirational, and BEE has not achieved what it set out to do.  But it is even more clear that South Africa still needs to achieve the objectives of BEE: a more fair and more inclusive economy. This goal is in line with Global development goals and in line with the thinking of Doughnut economics. It’s, in many ways cutting edge.

At the same time as the President suggested an overhaul of BEE, his cabinet signaled what might not be changed.  The Minister of Tourism (now running our Health Ministry) promoted a Tourism Fund exclusively for black owned establishments.  The Minister of Finance lodged an appeal against a prohibition on government awarding contracts to black owned businesses only.  The Minister of Trade and Industry confirmed that broad-based trusts and employee ownership schemes are key operating in South Africa.  The Minister of Mineral Affairs and Energy awarded contracts to BEE businesses without considering our environment at all.  If anything, these actions confirm that Government puts BEE before all other considerations.

But it is not only national Government.  The Steve Tshwete Municipality (together with the NEF) set up a Fund exclusively for majority black owned SMEs.  And, while sacrificing investor protection (which the President needs to attract the R1.2 trillion he has targeted), the Competition Commission stopped the dilution of black ownership of Burger King, even though competition, job creation and black shareholder votes all indicated the deal was good in every other way imaginable.

While the owners of Burger King (Grade Parade, a BEE entity) have challenged the Commission, it is clear that the Commission must consider black ownership in assessing ownership.  Since 2019 the Competition Act requires an assessment to be made levels of ownership by historically disadvantaged people.  The Commission considered this to be more important than all other considerations.  If a Court agrees, then all three branches of Government: Executive, legislature and judiciary have confirmed BEE to be the most important consideration for our economy going forward. Only in the distant future will we know if this is the right call.

Unfortunately, the most compelling argument for abolishing BEE is how it has been abused in corrupt transactions, and the speed with which Government is moving to address this is the most compelling argument to believe that BEE will not go away any time soon.

Wasted opportunities are rued, but we are where we are, and if we remain here all economic and all empowerment activity is in jeopardy.  So, how should BEE be revised?  We can suggest many changes, but we could also start with using to Government procurement to advantage black businesses.  So, when looking at competitive bids, consideration should be given price, quality and BEE.  BEE should not be the be all and end all, but it should be a factor – whether through pre-qualification of deals (the current route) or through the old 90:10 or 80:20 scorecards.

On this basis South African businesses, especially those forced by Covid-19 on domestic customers, should not think that BEE is not part of the “new normal”. It’s not, as we’ve argued repeatedly, going away.

To paraphrase Darwin: “It’s not the strongest who survive and thrive, it’s the most adaptable”.

If we can help you adapt to BEE ownership requirements, please contact us.

Deemed BEE ownership

In this article we discuss several ways to legitimately achieve BEE ownership points, without having actual BEE owners. This is called ‘deemed ownership’.

A recap on why achieving actual BEE ownership is so *damn* hard

Ownership is the trickiest part of the BEE Scorecard.  Consider that sometimes, the owners are not committed to BEE with good reason E.g. multinationals based outside of South Africa in markets which reprioritize their own citizens’ wellbeing over South Africans.  International players look at the whole world as their playing field.  South Africa is one market of many, and it is assessed against others.  Ease of doing business is a factor, and BEE (or other) shareholders make it harder.  This is further complicated when the rules are in flux or unclear.  It is well documented that BEE in of itself does not attract investment and often deters it.  Sometimes this further sets back the objectives of the BEE Act (see our forthcoming article on the competition commission and Burger King for more).

Just the same as multinationals prefer to control their own destinies, smaller businesses such as entrepreneurial startups or family businesses, are setup by the type of business owners whose strength often lies in them being in control.  Their commitment to the business and not having to answer to others, gives them the agility to grow this part of the economy in a way no other companies can.  Furthermore, these owners commit so much more than just funds to a business which they would not be properly rewarded for by pure financial investors. Indeed, one of the most frequent frustrations we come across is business owners who have done a BEE ownership deal only to find that their new shareholders are not active in the business operationally (or at least, not with the same passion as the founding shareholders).

Then there are those who would love to do a BEE deal but cannot because they cannot find suitable black partners.  Sometimes it’s because they are unrealistic in the amount they want from them or expect them to contribute more than their fair share or to contribute unethically (yes corruption…) but sometimes it is because astute black investors do not believe there is a good investment thesis to their involvement.

In the end, the founders and shareholders of family businesses are so invested in them, with their identities and success so entwined with their business, that they also cannot be unemotional in assessing their businesses.  This is made worse still when they contemplate being minority shareholders in their own businesses.  And, to be fair, in smaller organizations, these are personal relationships.  Finding partners with the same values, ethos and culture (and funds) is key to success but does cut the investor pool significantly. A small investor pool always puts downward pressure on valuations, further hampering the deals.

Then there is the financing of the deal itself: one of the one of the most common misconceptions is that one is forced to give shares in a company away.  This is often linked to a shortage of suitable black business partners, with adequate funds.  Ironically this is precisely what BEE aims to rectify.  But for now, this has been recognized with the rules around vendor finance.  This means that black investor, even if they do not have funds, can be assisted to pay for their shares by the seller.  This is done through dividend flows or through the movement in the share’s valuation (especially in listed shares).  But neither of these is guaranteed and are risky.

These and other reasons make ownership the hardest part of the BEE Scorecard to address.

Deemed ownership:

What many do not often appreciate, is that the BEE Codes allow for entities to be treated as black owned, even if they are not.

Of course, there are clear terms and conditions to this.  But there are many ways to be treated as black, without giving up actual shareholding.  These deemed ownership structures can if done properly meet the letter and spirit of the BEE Act without running the risk of fronting.  So, there are more options than simply selling shares available for BEE ownership points.

This article briefly explores some of these.


The most common form of non-black BEE ownership is provided for of Code 100 which provides “where in the chain of Ownership, Black people have a flow-through level of participation of at least 51%, and then only once in the entire ownership structure of the Measured Entity, such Black participation may be treated as if it were 100% Black.”

A simple reading of this means that one could have 49% non-Black ownership and that it can be treated as Black owned.  Even though this can only be done once in an ownership it is possible for an entity to be treated as 51% Black owned, even if effectively only 26% (51% of 51%).


In terms of 3.6 of Code 100 the Minister of Trade and Industry may designate certain organs of state or public entities as B-BBEE facilitators and they will then be treated 100% Black owned.

Controversially, facilitator status was granted to Telkom in 2019, which is only partially (40%) state owned.  This allowed Telkom to be deemed to be 100% Black owned despite only 42% of its free float being South African owned, let alone Black owned.  This distorted competition in the telecoms sector and was challenged in court.  In the Altron v Minister of DTI this was set aside as fatally flawed.

As this section is only available to organs of state and public entities, this is unlikely to feature in many ownership structures.


3.9 of Code 100 addresses broad based ownership schemes and employee share ownership programms (ESOPs).  Similar provisions are contained in 3.12 for non-discretionary trusts.  In terms of this it is possible to look through these schemes to get the effective Black ownership.  So Black employees, for example, who are not registered shareholders of their employer may contribute its Black ownership if they are beneficiaries of a qualifying scheme.

There are limits and conditions on such structures in Annexures 100(B) ,100(C) and 100(D) of Code 100, but it is possible to have one shareholder treated as Black, instead of thousands of individuals (who are not actual shareholders).  This is administratively simpler at the very least.

As only 85% of the value of benefits allocated by the scheme must be allocated to Black people, it is possible for up to 15% of the benefits to be allocated to others.

However, the B-BBEE Commission has cracked down on abuse in these structures, especially with regards to the requirement that participants must take part in “managing the scheme at a level similar to the management role of shareholders in a company having shareholding.”

This has been an area is an area in regulatory flux and uncertainty and, despite the recent gazette by Minister Patel clarifying this section of the codes, it should be approached with caution.


Statement 102 allows an entity to sell part of its business or assets to a black-owned company and to claim a pro-rata ownership as if it had sold its shares, even if it has not.  Let’s say a business were to sell a division that represents say 40% of its business to a 100% black-owned company, it can claim that it is 40% Black owned, even though it has not sold any shares at all.

There are some valuation challenges (as set out in detail in our article on Statement 102) but if properly managed this ownership can be claimed in perpetuity after the third anniversary, and may be particularly attractive from a control point of you.


3.13 of Code 100 allows for option holders to be treated as shareholders, before they exercise their options (and before they are really shareholders) as long as they have the economic interests and voting rights that they would have had had they been shareholders and provided that this irrevocable for the option period.

As option holders enjoy the benefits of shareholding (for free or a fraction of the share value) there is no reason to exercise an option before its expiry.  But expiry this has to be seriously assessed.  At this time the Black shareholder is better informed and, ideally, better financed to exercise the option.  But until exercising, the ownership is deemed to be Black even if the grantor of the option (the real shareholder) is not.


Many foreign listed groups do not want to deal with minority shareholders and are particularly challenged by the BEE ownership criteria.

Statement 103 was put in place to allow multi-nationals to support BEE without diluting the ownership in their South African subsidiary, as long as they commit to invest in Black businesses an equivalent amount to what such a minority interest would have been worth.  So, if, for example, a South African subsidiary is valued at R1 billion and the foreign holding company commits to investing R340 million it can claim to be 34% Black owned, while remaining 100% owned by the foreign company.

This is not only not available to South African owned entities, it comes with its own challenges (see the article on this). This ownership is structure is only open to multinationals and does require specific ministerial approval but does allow ownership to be protected.


3.10 of Code 100 allows a private equity shareholder to be considered as Black as long as the Manager and the Fund meet certain criteria.  There’s no criteria applicable to the investors in the Fund itself, and they need not be Black.  The private equity rules took cognizance of the reality that private equity investment is often sourced from international (i.e. not Black) markets.

Essentially the Black private equity manager’s BEE credentials are given to the Fund, for as long as it and the Fund is compliant.  The Fund must after eight years have the majority of its investments in Black businesses.

These rules are used by Tusker in an innovative way that allows for deemed ownership without actual ownership but does require a commitment to the BEE Act.  We are confident that this can a cost benefit analysis will show the merits of BEE ownership, and it’s far faster and more economically attractive position than equity equivalents for foreign multi-nationals.


When considering BEE ownership for your business, you should make sure to address the following:

  • Does BEE ownership add value (or reduce value destruction) in your business? The acid test for this is whether you will be able to compete for more work by having the appropriate level of BEE ownership.
  • Does the structure/solution you’re considering meet letter and spirit of the BEE Act?
  • Is the structure/solution financially affordable? Are the magnitude and timing of cash flows known with certainty in advance?
  • What degree of control do you retain over the decision-making in your business?
  • Can the structure/solution be unwound if needed?
  • Are the vendors of the proposed solution/structure well established and trustworthy?
  • Has the proposed structure/solution been successfully scrutinized by the B-BBEE commission?

If you have any questions, feel free to contact us

How to achieve BEE ownership when you can’t (or won’t) change your actual shareholding?

All businesses operating in South Africa are affected by the B-BBEE laws. While compliance with BEE is entirely voluntary, in practice the scorecard system means that it’s very hard to avoid. Typically, your customers put pressure on you to comply or they move their business elsewhere. Then the question becomes how to comply – and while all other scorecard elements can be ‘bought’ by spending on each category or employing South Africans of colour, ownership is both the hardest ‘pill to swallow’ and offers the greatest advantages too (see our previous articles on the value that 51% ownership can achieve).

But what happens if your business can’t or won’t change its actual ownership?

This is the situation that most foreign owned companies operating in South Africa find themselves in: their governance structures simply don’t allow for any local parties to own a percentage, let alone a majority stake of a small subsidiary operating in South Africa, and they’re not going to change their global rules, risk management or governance for insignificant parts of their global business or risk chasing away investors from the global capital markets they court.

In our experience, most multinationals are quite willing to do some form of BEE deal. They understand the need for it and being global, have dealt with citizen/local ownership requirements in countries with indigenous business promotion policies.

So how does a foreign company comply with BEE ownership requirements in South Africa?

The answer, until now, has been the ‘equity equivalent’ program as provided for in the BEE Codes. At a high level, this means that a foreign company can claim ownership if it invests an amount equal to a stake in other qualifying businesses, without selling any of its own equity.  So, the local subsidiary is valued and if it wants to achieve a percentage of BEE ownership it should invest that percentage of its value in local, majority black owned businesses. As an example, if the South African subsidiary is worth R100M and it wants to claim 25% BEE ownership then it needs to invest R25M into BEE businesses. Afterwards, it qualifies as 25% BEE owned in perpetuity. Given that each equity equivalent deal can be quite large, they are tailor-made and must be pre-approved by the Department of Trade and Industry. This approval process often takes years (e.g., the auto industry), leading to uncertainty and delays on both sides. As always, the valuation of the business doing the deal is key to the investment requirement that follows the deal (see our prior notes on this too).

With many regarding the equity equivalent program as slow and cumbersome, what else can be done? And what if the same solutions could work for any company, where transferring actual ownership is undesirable?

Recently, the Tusker solution was chosen by a global, public company for their local subsidiary (after several years of looking at alternatives). In their situation they wanted to make a difference to South Africa and understood the need for BEE but could never give up actual ownership in their South African subsidiary. The Tusker solution quickly met shareholder governance, control, ownership, and contribution requirements and was concluded in only a few months. Since it was a major transaction, it needed to be scrutinized by the B-BBEE commission before it could be officially registered, which it has. As with all registered major transactions, the B-BBEE commission will continue to monitor compliance with letter and spirit of the B-BBEE Act going forward.

The same Tusker ownership solution offers any percentage of black-female ownership (Tusker only offers the highest-scoring form of BEE ownership) to any company, local or foreign, where the company does not want to or cannot change the actual ownership of the business.

While the specifics of the Tusker structures are proprietary, the idea is that the shareholders of a business can achieve deemed black female ownership if they are prepared to invest in businesses that are at least 25% BEE-owned. How much they need to invest depends on valuations and the percentage of ownership they seek to achieve.

There are several important advantages here:

  • The most important word here is “invest” – it’s not an expense or write-off. The commitment to black business is an investment that will also generate investment returns for the benefit of the original shareholders.
  • Investments are phased in over eight years in predictable manner, making cash flows easy to plan and forecast.
  • The entire structure can easily be changed as a company’s BEE requirements change, are met or if BEE disappears.
  • Unlike the equity equivalent rules, this structure makes use of private equity rules and is far faster to implement.
  • Our approach allows for the sale of (or further investment into) the business without affecting its ongoing BEE status.
  • Most importantly, the biggest appeal for our customers is that this approach allows them to benefit directly from investing money into the network that supports the future of their business – the suppliers or customers adjacent to them – and thus ticks a major strategic box too. Since these are at least 25% black-owned, and our customers have a vested interest in their success, incentives are finally aligned, and very real empowerment happens.

If you can’t/won’t change your actual ownership, but are looking to benefit from black-female ownership and are prepared to invest an affordable amount into to the businesses that support yours, then please send us an email ( following which we’ll have a confidential discussion about your needs and our proprietary approach.

It works, it’s been approved by the regulatory bodies. Our clients love it.

Preferential procurement and BEE: Why Afribusiness v Minister of Finance is so important:

Two of the most common complaints against BEE are that (a) it’s frequently used as a vector for the corrupt to plunder the economy and (b) that there is substantial policy uncertainty around it (and therefore the risk that the approach you take now might fall out of favour in future). The recent judgement handed down by the SCA in the landmark case of Afribusiness v Minister of Finance goes a long way to addressing both of those complaints and is thus important to understand.

Since the SCA ruled in favour of Afribusiness, who are against BEE on principle, this judgment may be seen as a blow to black owned businesses and therefore to black economic empowerment. But we see it very differently, why?


As we have previously explained, there are provisions in our constitution to specifically allow for racial discrimination where the discrimination is intended to address the wrongs of the past.  A raft of legislation was passed to achieve this objective including the Broad-Based Black Economic Empowerment Act 2003 (“the BEE Act”).  But, importantly this Act came after the Preferential Procurement Policy Framework Act 2000 (“the Framework Act”).

The Framework Act was necessitated because of section 217 of the Constitution.  This section requires Government (including SOEs and municipalities) contracts to be awarded “in accordance with a system which is fair, equitable, transparent, competitive and cost-effective”.  But if the Constitution stopped there, it would not facilitate economic transformation necessary for South Africa to put its past behind it.  So, section 217 goes on to allow government to implement procurement policies that provide for “(a) categories of preference in the allocation of contracts; and (b) the protection or advancement of persons, or categories of persons, disadvantaged by unfair discrimination.”  The Constitution does not detail these policies but does call for legislation to prescribe the preferred framework…. hence the Framework Act.

The Framework Act then allowed points to be allocated in awarding government contracts for specific goals.  These goals include “contracting with persons, or categories of persons, historically disadvantaged by unfair discrimination on the basis of race, gender or disability”.  Goals must be clearly spelt out in in any invitation to tender and must be “measurable, quantifiable and monitored for compliance.”

Points for these goals are limited to 10%-20% of the total points, depending on the size of the transaction (unless there were equal tenders when extra preference could be given to attaining these goals).  Translated correctly, this means that while 90%-90% of a government tender must be awarded based on price/quality (i.e. the intention is that government spend shouldn’t be wasted), a BEE Company is given an advantage of between 11% and 25% over others, assuming they score equally for the other points in a tender. This is fair and equitable in the context of our history and is also transparent.  In theory, government gets the services it needs without wasting money, and competitive BEE companies win the work. In theory, a BEE company that isn’t competitive on price/quality doesn’t get the work and government doesn’t waste the taxpayers’ money. In theory. But what was actually happening was quite different…

Afribusiness v Minister of Finance.

Importantly, the Framework Act also empowers the Minister of Finance to make regulations.  The matter concerned the validity of the Regulations, promulgated by the Minister on 20 January 2017.

These Regulations included pre-qualification criteria which resulted in only qualifying tenderers to be allowed to submit bids for Government work.  These pre-qualification criteria concerned any or all of three criteria (i) BEE levels (ii) EME or QSEs or (iii) if no less than 30% was subcontracted to businesses that are majority black owned. In other words, if a tenderer didn’t meet these conditions, they couldn’t even put in a bid. It didn’t matter that the resultant bids received might be 2 or 3 or 20 times higher than the market rate, so long as the qualifying criteria were met. The cart was before the horse, with the result was that government departments ended up choosing between over-inflated tenders without reference to market pricing. Add a little collusion and corruption and you have a perfect storm of government departments significantly overpaying for under-performing contractors (but maybe receiving a bit of a kick back to ease their consciences).

Afribusiness argued that these 2017 Regulations put the cart before the horse by providing that the tenderers who qualify to tender, may first be determined according to, inter alia, race, gender and disability, and only thereafter in terms of the preference points system.  Afribusiness argued that the Framework Act does not allow for qualifying criteria, which may disqualify a potential tenderer from tendering for Government contracts.  They submitted that the first step in determining to whom the contract must be awarded is to determine which tenderer has scored the highest points on the basis of points for price and for special goals, including historic unfair discrimination on the basis of race, gender and disability.

Afribusiness argued that the Framework Act requires a two-stage enquiry: first determine which tenderer scored the highest points in terms of the 90/10 or 80/20 points system; the next stage is to determine whether objective criteria exist which justify the award of a tender to a lower scoring (i.e. higher price/lower quality) tenderer. Accordingly, parliament, through the Framework Act, seems to have limited discretion to organs of state about the award of a contract to a bidder who does not score the highest points.

What the court said:

The Court also heard that blanket ‘permission’ to apply pre-qualification criteria without creating a framework for that criteria, lends itself to abuse and the manipulation of tenders to the detriment of potential bidders (and ultimately to the detriment of all South Africans who receive less value for their taxes).

The Court held that the Minister may only make regulations ‘regarding any matter that may be necessary or expedient to prescribe in order to achieve the objects of the Act’ and that the Minister failed to create a framework with would guide organs of state in the exercise of their discretion should they decide to apply the pre-qualification requirements.

Furthermore, the Regulations do not meet the Constitutional requirement for tenders to be fair, equitable, transparent, competitive and cost-effective.  The discretion which is conferred on organs of state under the Regulations to apply pre-qualification criteria in certain tenders, without creating a framework for the application of the criteria, may lend itself to abuse and is contrary to the Framework Act.

Therefore, the Minister’s promulgation of the Regulations was unlawful.

In exercising the powers to make the 2017 Regulations, the Minister had to comply with the Constitution and the Framework Act.  The framework providing for the evaluation of tenders provides firstly for the determination of the highest points scorer and thereafter for consideration of objective criteria which may justify the award of a tender to a lower scorer.  The framework does not allow for the preliminary disqualification of tenderers, without any consideration of a tender as such. The Regulations cannot create a framework contrary to the Framework Act.

There is a year still to go:

The Court suspended its order of invalidity to enable the Minister to fix this error.  The Court has given the Minister a year. This means that we can expect ‘pre-qualifying’ criteria to remain in place for a while (and with it the ability to influence who gets the work).

What does the judgement mean?

First, it’s worth noting that the judgment goes to constitutional matters and there is therefore possible that the Minister appeals the matter to the Constitutional Court.  But even without this, the Regulations and pre-qualification criteria remain in effect for another year.  There is a hope that Government will take note immediately of this judgment and stop pre-qualification of tenders.  Unfortunately, there is also the possibility that those abusing Government procurement processes see this as their last window of opportunity and that they accelerate their nefarious work. Given the ‘hyenas’ feasting on the Covid PPE opportunities we think there is a serious chance of the latter.

Unless the Constitutional Court finds fault with the Supreme Court of Appeals well-reasoned judgment, pre-qualifications will disappear from 1 November 2021.

Does this mean that BEE Ownership will become obsolete?

First, it’s important to note that this case did not concern the BEE Act.  It was limited to the Framework Act.  The Framework Act only concerns Government contracts, while the BEE Act is broader (and more recent).  Therefore, the judgment does not change anything in respect of the private sector in and amongst the private sector.  As the BEE Act is not in question, the BEE points that any business gets from being black owned or from procuring from black businesses are unchanged.

Government contracts cannot pre-qualify as set out in the Regulations, but they must still give between 10% and 20% of their points to goals like BEE.  Therefore, it is clear that BEE remains at least partially relevant. The more commoditised your product/service/industry, the more likely that you will need to have a competitive BEE score to get anywhere. There are very few companies who can get away with a low BEE score.

All that the Court did was to confirm that BEE is not the BEE-all and everything.  The Court simply confirmed a fundamental business principle – one cannot ignore other important criteria (price, quality, capabilities etc).  It has become all too apparent from testimony at the Zondo Commission that such common sense has not been common at Eskom, SABC, PRASA, Denel, SAA and so on.  This is a travesty, but the Courts have, once again, come to our rescue and this is to be welcomed.

Thanks to Afribusiness, there is now renewed hope that South Africa can operate with less corruption, that taxpayers get more for their money, and that legitimate transformation can still be attained.

Statement 102 transactions: BEE ownership through the sale of assets

Statement 102: BEE ownership through the sale of assets:

Businesses want the same things from BEE – ownership dilution at a fair price, with simplicity and trustworthy partners without giving up effective control of the business. Minority deals are relatively easy, but given the advantages of 51% BEE ownership, the control issue becomes very important – both from the ‘achieve genuine transformation’ and ‘don’t give up anything you don’t have to’ points of view.

While at we have a proven ability to effectively address these issues through our private-equity structure, another way to do so is through the sale of assets – covered by Statement 102 of the BEE codes.

This article discusses the principles and highlights some of the danger areas. As with all things BEE, it’s not as simple as it seems…

What’s the core idea?

A white company (the ‘measured entity’) can sell off a division to black owners (the “spin off business”) and claim the relative value as ownership in the measured entity. A deal must use standard, independent valuation method(s) and the final ownership percentage claimed is based on the relative valuation of the measured entity and spin-off businesses as measured for the first three years after the deal. There are also caveats as to what kind of spin-off is valid for these deals.

For now, a simple example:

E.g 1: A measured entity (worth R100M) includes a stand-alone division (worth R51M) that is sold to a consortium of black investors. If both the measured entity and the spin off business grow at the same rate after three years their relative valuation will remains 49:51. The measured entity would then be treated as 51% black-owned in perpetuity, even though there is no actual black ownership or black control in the measured entity.This is the main attraction of s102 deals.

However, if the spin off business sold is less than 51% of the value of the original measured entity then the proportion of ownership achieved is proportionally less. Similarly, if the buyer are less than 100% Black (or if the BEE ownership of the buyer changes during the 3-year review time).

E.g. 2: The same measured entity spins off a stand-alone division (worth R25M) to a 60%-black owned company. Both businesses grow at the same rate as above and after three years the measured entity would be deemed to be 15% black owned: (25*60%)/100=15%.

What can be sold or spun off?

The measured entity can sell an asset, equity instrument (i.e. shares in a company) or a separately identifiable relating business i.e. a business that is related to the seller by virtue of being a subsidiary, joint venture, associate, business unit/division, or any other similar related arrangements within the ownership structure of the Seller.

What happens if my business doesn’t have a division we can spin-off?

By nature, Statement 102 deals exclude the vast majority of South African businesses who do not have divisions/units that would meet all the criteria to be spun off. That’s why they’re typical the domain of bigger conglomerates only. But, there is an opportunity for smaller businesses in that the spin-off doesn’t have to be old – it’s entirely possible to create a business unit that’s sufficiently valuable pre-deal, then spin that off (if this is your situation then chat to us as this can be a minefield).

What are the other criteria?

For ownership points to be recognised:

  • The transaction should be subject to an independent verification value by an independent expert. We’ve written before about valuation abuses in BEE deals and this is no different – care must be taken here, especially as for a Statement 102 transaction the valuation is done at the time of the deal and at the end of each year for three years after. There is always a chance that the year three valuer doesn’t agree with the prior methods and this can totally wreck the deal. So, fudge the valuation at your risk!
  • The sale of asset, equity Instrument and/or business must involve a separately identifiable related business which has:
    • No unreasonable limitations or conditions with regards to its clients or customers;
    • Clients, customers or suppliers other than the seller; and
    • Any operational outsourcing arrangements between the seller and the separately identifiable related Business must be negotiated at arms-length on a fair and reasonable basis.
  • B-BBEE shareholders, or their successors if the B-BBEE shareholding is the same or improved, holding the asset for a minimum of three years.
  • The transaction must result in:
    • the creation of viable and sustainable businesses or business opportunities in the hands of Black people; and
    • the transfer of critical and specialised skills, managerial skills, and productive capacity to Black people.

i.e. there are a lot of requirements/tests and given the nature of these transactions they can already be complex (e.g. what division is sold off, what capital equipment goes with it, how are costs shared, which staff move with the business etc). Every legal clause requires oversight and there a many ways in which a deal of this nature could fall foul of scrutiny by a Verification Agent or the B-BBEE Commission. This legal complexity is a major factor against these deals, but it’s not the only one.

What can’t you do:

The following transactions do not constitute “qualifying transactions”:

  • transfers of business rights by way of license, lease or other similar legal arrangements not conferring unrestricted ownership; and
  • sales of franchises by franchisors to franchisees (but a “qualifying transaction” will include sales of franchises from franchisees to other franchisees or to new franchisees do not qualify for recognition).
  • We have seen some ‘sale and leaseback’ transactions i.e. a productive asset is sold to black people who then lease it back to the ‘white’ company, however, the codes clearly state that the business transferred must have clients, customers and suppliers other than the seller.

What other restrictions/tests apply?

  • No repurchase agreement: the seller cannot have the right to repurchase the asset/shares/business in any way during the 3-year period. A deal made to during this period to defer the repurchase to year 4 would also render the scheme invalid.
  • No jobs must be lost unnecessarily as a result of the transaction.
  • No double-dipping: Where a seller has claimed benefits in terms of Statement 102 under its ownership scorecard it may not claim under the enterprise and supplier development element.

How are ownership points measured?

Importantly, Net Value points apply: the calculation of these points under Statement 102 must be based on (i) the total value of the transaction; (ii) the value of Equity Instruments held by Black people in the separately identifiable related business; and (ii) the carrying value of the Acquisition Debt of Black people in the separate identifiable related business. The measured entity must use a Standard Valuation method when calculating the aforesaid values.

i.e. if the black buyers of the business unit finance their purchase with debt, then the amount of remaining debt will affect the calculation of the ownership points.

The seller, when applying Statement 102, will need to comply with the sub-minimum requirement for ownership, being 40% of the Net Value points only to the extent of the transaction involving the separately identifiable related business and will only have to comply with all other priority elements as required by the Generic Codes.

What about voting rights?

Voting Rights and Economic Interest are calculated using the formula set out in Annexure 102(A); the seller can achieve equivalency percentages in its ownership scorecard as if those percentages arose from a sale of equity Instruments in the seller to black people.

Where calculating the ownership score, recognition of the value of the sale transaction occurs on the basis that:

  • The separately identifiable related business must form part of the same chain of ownership and be owned by the seller. i.e. you can’t sell black people a division that is unrelated to the seller/measured entity to start with.
  • The recognisable Economic Interest will be the percentage of the value of the separately identifiable related business to the total value of the seller.
  • The percentage of Exercisable Voting Rights held by the new owners of the separately identifiable related business represents the recognisable right to Exercisable Voting Rights held by Black people. This is easy for 100% black owned buyers, but far more complex to determine where the BEE owners voting rights are not straightforward to determine (.e.g. share classes or other arangements).
  • The rights of ownership granted to Black people in the separately identifiable related business are comparable to rights that would have accrued had the sale/transaction taken place at seller level.

The final ownership score takes three years to measure:

One of the biggest risks in S102 transactions is that the final ownership score achieved takes three years to determine – as this is based on how the relative fortunes of the original measured entity and the spin-off business compare three years into the future.

For the first three years after the transaction, the seller will recognise the ownership points on the date of measurement in accordance with the (i) value of the seller and (ii) the value of the separately identifiable related business. On each measurement date after the third year, the seller can recognise ownership points based on the ownership indicator percentages achieved in the third year after the transaction.

While the transaction value is required to be reviewed by an independent expert, who is required to provide an opinion on the fairness of the transaction value. Continued recognition is subject to the opinion of the independent expert supporting the transaction value.

One of the most beneficial aspects for a seller in concluding a Statement 102 sale transaction is that it radically reduces the seller’s Net Value points requirement, an element that is a priority element and can result in the entity being discounted by a BBBEE status level if it fails to meet the 40% sub-minimum level of compliance.

Areas of confusion:

  • Not all asset sales qualify: the sale of an asset that isn’t an independent business would seldom qualify for recognition under this statement, which requires that the transfer of a viable, sustainable business, plus productive capacity and specialized skills. So, you can sell off a building, equipment, etc. but it will only receive recognition if all the qualifying criteria are met.
  • Calculation of Net Value, economic interest and voting rights: these have been described as “an interpretative lottery”. The formula included as a schedule to Statement 102 only applies to the calculation of economic interest and voting rights and not Net Value points, which requires another calculation method. This offers opportunity but also carries risk. Please ensure that any Statement 102 deal you are considering is carefully checked by your verification agent before you commit to it.
  • Cross-ownership: what happens if the measured enity sells an asset to a ‘black company’ in which the measured entity is also a shareholder’? Here, the requirement for a “separately identifiable related business” has also led to confusion regarding the nature of the purchaser; particularly whether it must be unrelated to the seller and whether it must be at least 51% black-owned. Compounding that, the advice on the B-BBEE Commssion’s website seems to conflict with the position stated in the codes: the answer to the question “Can a measured entity recognize points for assets sold to a company it has shares in, for the purpose of Statement 102?” is “Points can be recognized where assets are sold to a company in which the seller has no relationship with the purchaser, which means it has to be a separately identifiable business”.

What’s the Tusker position on Statement 102 deals?

Complexity is nothing new to BEE deals, but Statement 102 deals are especially complex with many criteria to be met, different measurements for net value, voting rights and economic interest, and confusion as to whether the selling business can have any interest in the buying business. Each of these items is a possible obstacle, and every single deal will by nature be bespoke – pushing up legal costs etc.

But the main thing that concerns us is that one won’t have any certainty about the actual ownership score achieved until three years after the deal – this is because it’s only the relative valuation of the seller and spin-off at that time that determines the points achieved. We commonly hear that businesses are suffering because they’re not black owned, and our clients use this to justifiably reduce their valuations pre-deal. But say one sells a division worth 51% of the original measured entity’s value to black people: the measured entity being deemed 51% black owned should grow faster and be far more competitive. If this is the case, then by the end of year three the measured entity’s value is likely to have grown much faster than the value of the spin off business. Just a 0.1% difference in growth rates over 3 years is enough to screw up your deal! When revalued, the ownership would then be diluted to less than 51% envisaged – not the desired outcome. This risk is really hard to protect against while meeting all the other criteria.

What’s the why?

Moreover, there is one other point that we very rarely see discussed: what’s the strategic rationale for selling off a business unit in the first place? Although we conclude this article with this point, if you’re considering this approach to ownership then the first question should be ‘why’ the deal makes strategic sense. So many of the deals we’ve seen fail at this first hurdle. However, perhaps there is a division that no longer makes strategic sense – an adjacency to exit, or perhaps something lower growth or capital intensive (i.e. a ‘dog’) that can be dumped. But then watch out for relative valuations at the end of year three. Either way, the strategic rationale must be interrogated and understood before a Statement 102 transaction is considered- there is no point selling off the crown-jewels to achieve BEE, and there are other, far less risky or complex ways to achieve the same result.

Talk to us.