by Graeme West and Lydia West, Financial Modelling Agency
Black Economic Empowerment (BEE) transactions are very topical, with companies that have to date failed to put in place meaningful BEE schemes under serious pressure from various interested parties. What is involved is the sale of a stake in the business to suitably qualified partners.
The Broad-Based Black Economic Empowerment Act (2003) was introduced in order to assist in ensuring a more equitable distribution of wealth amongst the people of South Africa. This act defines ‘black people’ and introduces legal mechanisms for their economic upliftment.
The core feature of these transactions is that the seller (vendor company) exchanges company value for BEE credentials. The buyer (BEE partner) provides
- the legal requirement
- avenues to new business, in particular statal and parastatal businesses
- promotion of the vendor company, in particular as a BEE compliant company
- assistance for the vendor company in staffing, affirmative action and its social responsibility programs.
Under most circumstances the designated partner does not have the resources to pay cash for their stake. Thus, structures need to be put in place to facilitate the purchase of the designated stake.