SA can learn from 3G Capital

AB InBev shareholder has a transparent, no-frills management style that brews success, writes Stephen Asbury

Business Day – Oct 20, 2015

AS A roadmap to success and executive skills development, most insights from global entrepreneurs are next to useless for South African managers looking to improve their performance and multiply related financial rewards.

You get a similar take on making millions whether you research Elon Musk (Tesla), Sergei Brin and Larry Page (Google), Mark Zuckerberg (Facebook) or Jeff Bezos (Amazon). They tell you to be brilliant, parlay one game-changing idea into big money and move up from there.

Fortunately for wannabe management go-getters who did not turn a college website into a mega money-spinner, the proposed R1-trillion takeover of SABMiller by Anheuser-Busch InBev (AB InBev) provides a more useful heads-up.

For those interested in how-to information on value creation, the transaction shines a light on the wealth-building business models and operating methods of some highly resourceful (and extremely rich) global players.

The deal — whether consummated or not and whatever shape it takes — is confirmation that developing markets can produce global winners. Ambitious South African managers could share in substantial rewards if the model influences other emerging market players (and burnout doesn’t get them first).

LOCAL managers without the brilliance of Musk and Zuckerberg share some common ground with the AB InBev buyers, aka The Boys from Brazil. They also come from an emerging market and confront tough business conditions. SABMiller shares several similarities.

SABMiller has strong domestic roots, going back to 1895 at Charles Glass’s Castle Brewery. Growth and local dominance were early priorities. Big competitors Ohlssons and Chandlers were bought in 1955, delivering local dominance and ultimately creating a platform for international expansion.

SAB first focused on Africa, China and Eastern Europe. Access to capital through a London listing in 1999 freed SAB to move out its emerging market playpen and it entered the US in 2002 with the Miller Brewing takeover, showing high regard for strong brands every step of the way. Those driving growth became legendary as value creators: Meyer Kahn (chairman 1990-2012), strategist Graham Mackay (group CEO 1997-2012), deal maker Malcolm Wyman (corporate finance director from 1990 and chief financial officer 2001-11) and roving MD and Mr Fixit, Norman Adami (retired 2014).

SABMiller and its top people are proud of their roots. Five of the nine London-based executive committee members are South Africans. A major driver was always the ability to execute, usually because of homegrown talent. SAB developed a managerial talent factory at an early date, while establishing a culture of performance and accountability.

Integrated management processes drive goal-setting and goal-getting for individuals and teams and ensure continual management interaction with subordinates, backed by formal performance reviews, management incentivisation and behaviour that reflects core values. Merit is remarked and rewarded.

THE inspiration and driving force behind AB InBev is another legend. Jorge Lemann grew a Rio brokerage into Banco Garantia (at one time Brazil’s leading investment bank), then teamed up with a couple of high-energy partners and launched a private equity business that went on to become 3G Capital.

3G Capital concluded a string of megadeals under its mantra of “dream, people, culture”. It bought Burger King and partnered with Berkshire Hathaway’s Warren Buffett to buy HJ Heinz, followed by the Kraft Foods acquisition and the creation of Kraft Heinz.

In 1989, 3G Capital bought a small. under-performing Brazilian brewer, then acquired a major competitor to secure local dominance. Further acquisitions followed across Latin America before the 2004 merger with Belgium’s Interbrew. InBev subsequently bought Anheuser-Busch, the owner of Budweiser, to become the world’s biggest brewer. Lemann and partners transact with a big chunk of their own money, making them hands-on, activist owners and directors. They set strategy at board level. Managers implement it … relentlessly. They develop or hire workaholic managers; invariably PSDs – poor, smart and desperate (to get rich). 3G Capital trusts and challenges its Brazilian go-getters, often inserting them into important positions at acquisition targets.

The managers cut costs and waste, making big impression, as 3G Capital frequently buys firms with fragmented ownership that might also be lazy and weak. Jobs often face the axe along with costs. Efficiencies and margins are pushed ever higher. I saw the 3G Capital management style at America Latina Logistica, a state-owned Brazilian railway the partners bought and transformed, doubling revenue and driving a 17-fold earnings before interest, taxes, depreciation, and amortisation increase in four years.

Shirt-sleeved executives sit with their teams in open-plan offices. There are no frills. Transparency is built in. A boss’s targets and actuals are taped to the wall behind his desk, open to subordinates and workers. 3G Capital businesses generally offer low pay and high incentives. Junior managers have the chance to nail down 16-times their salary in annual bonuses. Stock options are also available and partnerships are offered to exceptional performers.

FOR overachievers from poor homes, a 3G Capital job fast-tracks financial independence, but at a price. Some former 3G Capital executives say taking calls in the early hours to confirm one figure in a report wears you down. They quit, pocket their perks and usually do exceptionally well elsewhere. The business model builds wealth for shareholders, while creating a cadre of super managers with super remuneration.

If the SABMiller bid goes through, an already efficient South African brewer will doubtless be expected to deliver even higher returns. The 29% AB InBev margin may become one target (quite a leap from the current 22%).

For local managers — not necessarily at SABMiller but in businesses across the country — some net positives might accrue. Our managers are quite capable of achieving ongoing savings and volume growth while driving up productivity.

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