Over the rainbow

World Finance’s Roger St. Pierre reviews South African prospects with the team at top law firm Bowman Gilfillan


Though it was established some 105 years ago, the 300-lawyer strong South African legal firm of Bowman Gilfillan does not rest on its formidable laurels.

“We are judged not by our history but by the level of service we can give our clients in the here and now,” avers senior partner and chairman Jonathan Schlosberg.

With a total staff of more than 500, the firm is based in Johannesburg, with a large Cape Town base and a small but vibrant London presence. Besides South Africa – the so-called ‘Rainbow Nation’ – those clients have come historically from the UK, Europe and the USA but, increasingly, the firm is advising large financial institutions, multi-national companies and individual investors from China, the Middle East, India, other parts of Asia and Eastern Europe. “There are very few, perhaps only three, law firms in South Africa of our size, reach and capabilities.

Bright graduates
In addition, there are a number of medium sized and smaller firms and some very small ones but there is room in the industry for all sorts of players,” says Jonathan, adding, “There is, however an ever present shortage of qualified and capable lawyers, despite the high quality of bright young graduates being turned out by our law schools, so we are engaged in an ongoing ‘war for talent.’

“Traditionally, lots of this country’s most promising young law graduates have simply upped sticks and moved to the US or UK once they’ve qualified. “Fortunately, our firm’s reputation and our ability to provide lots of experience working with international clients on interesting and often very  large-scale projects,  enables us to persuade many of the best people to stay in South Africa and join us.

“We have very good retention rates. We rarely lose people to other South African firms – it’s usually banks and overseas law firms who attract them.

We must be doing things right because we score highly in the ratings. For instance, Ernst & Young named us as “M&A Law Firm of the Year’ for 2006. We also took the Chambers ‘African Law Firm of the Year’ title for 2007 and have recently been awarded PLCWhich Lawyer: “Best Law firm of the Year: Africa 2008.” In 2007, again, we were highly ranked in M&A and Corporate Finance by Ernst & Young and Dealmakers.

“We have very strong international relationships with banks and foreign law firms. One of our prime strengths is that our team of lawyers is spread across all age groups and there’s a wide spread of knowledge and experience within each of those age groups, enabling us to cover all the angles for our clients.”

One of Bowman Gilfillan’s biggest recent projects was its role acting for Standard Bank in that institution’s sale of a 20 percent stake to Industrial & Commercial Bank of China – a $5.5bn deal stamped with superlatives. It’s the biggest ever single investment into South Africa and, at the time, China’s largest ever outward investment.

“It was a surprisingly quick process,” recalls Jonathan, “Negotiations began in mid-September and six weeks later the heads of agreement were signed – and not one word of the deal leaked out, which was amazing.” Another major project for Bowman Gilfillan was the de-merger of PPC (Pretoria Portland Cement) from the massive Barloworld industrial conglomerate: “The business is now a free-standing independent, as is Freeworld Coatings, another former division of Barloworld.

Market capitalisation
In further major deals, the Tongaat – Hulett Group, with interests in steel and property, listed its massive Hulamin steel-making division with a market capitalisation of $2.28bn while Bowman Gilfillan was one of the legal advisors in the $279m sale of Anglo American’s shareholding in Anglo Gold-Ashanti – which was the biggest individual capital market spin-off ever seen in South Africa.

“Additionally, we have been advising Airports Company South Africa on raising $1.5bn to finance new developments and upgrades of its existing facilities and power company Eskom on their $38bn five-year capital investment programme, which is designed to deal with the ongoing power crisis that currently afflicts the country.

“These and other deals reflect the upbeat nature of the economy, even if some individuals may feel rather less upbeat about their own circumstance in a country whose infrastructure needs a lot of updating and where crime rates are still worrying. And, of course, when America sneezes, Europe sneezes too and we catch a cold.

“We’ve been enjoying GDP growth of five per cent plus but the global slowdown means this is predicted to drop to around four percent this year.

“There’s still no shortage of things for us to do, especially as a major overhaul of South Africa’s corporate law, to bring it more into line with American practice, is now in its fourth draft and will be enacted in 2010.

“To help not just our clients but other members of the public to understand the new process we commenced holding a programme of in-house and public seminars in South Africa and abroad which will run for an 18 month period.”

Ezra Davids, head of  the firm’s Corporate Department, takes up the theme: “Reflecting what’s happening globally, there’s been a bit of a tapering off, not in the number of M&A deals but in their size, and the bulk of them can now be described as mid-market.

“There are lots of FDI deals, corporate restructurings and de-mergers to keep us busy and cross-border M&A work is growing in importance for us. The Chinese are showing a lot of interest in South African investments, and so too are the Indians.

“There’s talk of some $2bn worth of investment from that country into the Coega industrial development zone, for instance. “As well as all this inward investment, BEE, or ‘Black Economic Empowerment’ has been a very important development in our economy. There’s still a worrying wealth gap problem here but the black middle-class is growing all the time and most of the economy is now driven by their wants and needs, plus they are now interested in acquiring ownership as well as being consumers.”

Sustainable manner
According to the South African Department of Trade and Industry’s BEE strategy document: “Our country requires an economy that can meet the needs of all our economic citizens – our people and their enterprises – in a sustainable manner.

“This will only be possible if our economy builds on the full potential of all persons and communities across the length and breadth of this country.”

“No economy can grow by excluding any part of its people and an economy that is not growing cannot integrate all of its citizens in a meaningful way.”

Says Ezra Davids: “Unfortunately, there is still a rich/poor divide, mainly based on colour, but things are improving. BEE is not aimed at taking wealth away from whites and giving it to blacks but is a growth strategy, targeting the economy’s weakest point, which is inequality.

“Legislation and regulation is the driving force behind BEE. A key feature of the BEE Act of 2004 is the balanced scorecard, which measures companies’ empowerment progress in four key areas: direct empowerment through the ownership and control of enterprises and assets; management at senior level; human resource development and employment equality, and indirect empowerment through preferential procurement, enterprise development and corporate social investment.

“If they want to do business with any government enterprise or organ of state, then private companies must apply all of the codes. Additionally, they are actively encouraged to apply them in their dealings with other private companies.

“Today, foreign investors are increasingly adopting these principles. Fortune 500 company Old Mutual’s BEE deal, launched in 2005, gave more than half-a-million South Africans an interest in the company and led to a rise in its share price, while Merrill Lynch announced in 2006 that it would sell a stake of up to 15 percent in its South African business to black staff, women investors and a local educational trust.”

There are other interesting developments in the shareholding world: “Private equity is a growing phenomenon and last year saw South Africa’s largest ever deal of this type; with the $4.56m buy-out of the Edcon retailing and department store group by private equity firm Bain Capital.

“The commodities markets have seen lots of activity too. Having won pre-eminence in the global manufacturing sector, the Chinese are now seeking to secure the supply of the raw materials that keep their factories going by buying into mining companies and the like. There’s been substantial FDI here from the Indians and Australians too.

The future of Africa
As a British ex-pat who has made his home in South Africa after 20 years at City giant Allen & Overy, Jonathan Lang, head of Bowman Gilfillan’s Africa Group, is able to take an informed international overview of South Africa’s prospects: “The future of Africa as a whole very much depends on what happens in this country.

“As a firm, we have been advising on projects in places like Nigeria, Kenya, Mozambique, Zambia, Botswana, Tanzania, Angola, Ghana, the Ivory Coast, Togo and Senegal – in fact, all over sub-Saharan Africa. “While Asia is investing in Africa, South African capital is flowing northwards. Standard Bank, for instance, has recently bought a controlling stake in Nigeria’s IBTC Chartered Bank.

“We were advising the government of Botswana on the proposed privatisation of Air Botswana but those plans were scuppered by political machinations. But activity throughout the rest of Africa is growing all the time. Thanks to an overall reduction in the number of conflicts afflicting the continent, there are more economic opportunities now.

“Despite blips like what happened recently in Kenya, there’s more political stability on the continent these days – foreign aid is becoming less relevant while the resources’ boom of the past few years has helped spur FDI and M & A.

“Projects like the rebuilding of the strategic Benguela Railway, connecting the copper belt to Atlantic sea ports will help growth and are attracting large-scale Chinese involvement. The Chinese understand that there’s no point digging a big hole in the ground to extract ore if you’ve no means of easily transporting it to market.

“That’s why they are putting so much money into infrastructure projects. It’s interesting, they bring in their own machinery and labour for all this construction work, and they get the job done fast. There are over expanding enterprises too: “The continent’s true tourism potential is only now being recognised and we can expect a lot of FDI in that area. “Africa still has a long way to go, of course, and a lot of problems to solve. But these are very exciting times and the potential is enormous.”

For further information:
Tel: +27 116 699 450
Email: j.schlosberg@bowman.co.za or j.lang@bowman.co.za