SA’s wealthiest entrepreneur, Natie Kirsh, disappeared off the public radar in 1986 when he lost his listed assets to Sanlam. Behind the scenes, he’s been busy — a serial deal maker. Ian Fife talks to him about building his global empire.
In 2003 Kirsh went to US investor Warren Buffett, the world’s third-richest man, and offered him a 27% stake in his 100%-privately held US trading business, Jetro Cash & Carry. Buffett saw the potential in Jetro and accepted a minority holding, against his normal rule of buying control. But they could not agree on the terms.
In the next few years, Kirsh transformed Jetro into one of the largest private companies in the US, worth more than US3,5bn. Now Jetro — modelled on SA’s Metro Cash & Carry, which he once controlled — dominates the distribution of food and dry goods to small stores in big cities. It is his cash cow.
At 78 he has quietly built a private global empire spanning about a dozen countries, worth well over the R20bn or so wealth of each of the three South Africans — Patrice Motsepe, Nicky Oppenheimer and Johann Rupert — on the latest Forbes
list of global billionaires.
Though Kirsh is uncomfortable about ranking his wealth, each week he enthusiastically shows the latest Jetro turnover and margin reports — a business that seems to have no limits. He has built a cash pile, of more than 1bn, with which he is snapping up bargains created by the financial crisis. Property is his main focus. He recently failed in his first bid to get control of UK-listed property fund Minerva, but has 30% in Australia’s Abacus. At the time of the FM
going to print he pulled out as the preferred bidder for one of the biggest property deals in the world.
Kirsh already has a range of businesses: Magal, a Nasdaq-listed security company that protects the perimeter of Buckingham Palace in the UK; an Argentine leather company; an Indian pipe manufacturer; a chain of health and fitness clubs across Europe and Israel; a UK/Swiss asset management company; and Chefworks, a fast-growing manufacturer of clothing for the catering industry. It doesn’t end there.
He spends six months of summer in SA and the rest of the time in London, New York, the south of France and Israel — all this time scouring for bargains to add to his global empire, one he has had to build from a low point in his life.
It’s a story about a man who did his first deal at age 26 and in a few years built one of the biggest business empires in SA, only to lose it through one big mistake.
It started in Potchefstroom, where at 20 he helped his mother run the family malt factory. His big break came in 1958 when he wanted to use a £1200 insurance payout for his father’s death to build a brewery in Swaziland. “Instead the Swazi colonial government asked me to manage its maize industry.”
Kirsh’s monopoly had to buy all the maize the farmers wanted to sell and build storage facilities and a mill. He needed £45000 to set it up. He assembled a consortium of investors who paid £15000 for their shares and lent the company £15000. “My brother Issy — he had £1200 — and I went to the manager of Standard Bank at Potchefstroom, whom I knew from running my mother’s business,” says Kirsh. “The limit of his lending discretion for a company without having to get higher approval was £5000, or £2500 for individuals.”
So the Kirsh brothers formed a holding company, which borrowed £5000, and the banker gave them £2500 each. They each added their own £1200 and borrowed an additional £2500 from their mother to complete the capital. In 1959, Kirsh started the Swaziland Milling Company, which made £1400 the first year and £10000 the second.
This became the base for Kirsh’s expansion into every sector of the Swazi economy. Soon he became the kingdom’s most influential investor, establishing efficient and competitive businesses. He still is today.
As their Swazi businesses grew, the brothers bought their father’s original malt business, King Food, from their mother, and formed Kirsh Industries in 1959. Issy (former CEO of Primedia) managed the malt business. They converted malt from a generic product into one of SA’s top black market brands — King Korn, possibly only second to Coca-Cola in brand recognition. They later sold the malt business to Tiger Brands.
Distribution is the direct link between Swaziland and Jetro. “Up to World War 2, when most goods were imported, wholesalers dominated distribution,” says Kirsh. “World War 2 provided SA with the chance to create a manufacturing base to replace imported goods.”
These new industries enjoyed protection against imports and many created their own selling channels across SA. After the war, there was rapid expansion of chain stores which replaced small traders. The large wholesalers that controlled the imports found themselves with overcapacity in a shrinking market.
So in 1970 Kirsh bought a big listed SA wholesaler, Moshal Gevisser, which had a pilot cash & carry project in Newcastle, Trademarket. At that time, the apartheid government’s growing race legislation prevented white businesses from operating in black townships. Kirsh saw an opportunity to supply goods to small black traders. “Metro transformed distribution in SA,” says Kirsh.
Within a couple of years he opened 17 Trademarket branches. At the same time he merged with businessman Lionel Katz’s eight Metro Cash & Carry branches. Metro was a listed company, 30%-owned by Kirsh, 30% by Tiger Oats founder Rudi Frankel. Katz and partners had 20% and the rest was publicly held. Kirsh and Tiger Oats shared control, but Kirsh did not like this arrangement. He bought a further 10% on the market and got around Frankel’s pre-emptive right by buying the holding companies that owned the Katz Group’s shares.
He had control of Metro but offered Tiger 50% of Katz’s shares, still leaving him in control. Frankel rejected the offer and launched a court bid to stop Kirsh from taking over the Katz interests. The judge, Mervyn King, found in favour of Kirsh. A long business relationship between Kirsh and King followed.
To finance the deal, Kirsh created a pyramid structure which gave him and his brother control of Metro. A new entity, Kimet (Kirsh and Metro), was formed and listed in 1978. Kimet quickly took over Checkers, Dion, Union Wine and Russells. By 1979, it was one of the top JSE companies, handling about 12% of all consumer goods sold in SA. Kirsh became SA’s takeover king.
Meanwhile Kirsh was developing interests and contacts around the world. In 1975, while in New York, he had a good look at food distribution in the city. This led to the birth of Jetro in June 1976, which coincided with the Soweto student uprisings in SA. Politics and the economy were in crisis and the markets crashed.
Other trouble was looming for Kirsh in SA. He recruited a senior Tiger executive to run Checkers. The executive used Kirsh’s guarantees to develop shopping centres that Kirsh didn’t know about. This put his empire under strain at a time when the townships were being made ungovernable and international sanctions were eating away at SA’s shaky economy. The final straw was President PW Botha’s “Rubicon” speech in 1985. Investors abandoned SA, the rand collapsed and the country was in a crisis.
At no stage was the Kirsh empire considered to be in financial trouble. But Kirsh wanted to continue growing and he needed a financial partner. At a lunch, he found himself next to Sanlam chairman Fred du Plessis and asked him to become a partner. They formed an unlisted holding company, Sanki, in 1984 in which Kirsh had 51% and Sanlam 49%.
It was Kirsh’s big mistake. A clause in the agreement could have been interpreted as giving Sanlam a veto over capital increases. Kirsh wasn’t happy but concluded the deal on his lawyers’ advice.
A few weeks later one of SA’s leading Afrikaans businessmen had dinner at Kirsh’s home. He said: “Natie, you chose the wrong partner. You know that Sanlam logo, the two hands holding a globe of the world? Those hands are around your balls now and when they get the chance, they’re going to squeeze them.” He was right.
Sanlam disputed the interpretation when Kirsh wanted to raise further capital. His effective economic interest was only 6%, with a pyramid structure giving him outright control over the business. “I had a choice: fight them through the courts, which would put the entire group in jeopardy, or sell at a giveaway price. My decision was also coloured by the prevailing feeling that SA’s future was looking pretty bleak,” says Kirsh.
So he sold out Sanki — which included his best asset, Kimet (Checkers, Greatermans, Dion and Metro) — in 1986 for a pittance, but kept Jetro. It was a cruel blow for Kirsh. “I lost my fortune and the stature that came with controlling the country’s largest trading operation, employing more than 40000 people.”
He was still wealthy, though, when he moved to New York after the Sanlam blow, to rebuild an empire through Jetro. He kept out of the public eye. He maintained his business contacts and slowly found partners for new ventures around the world. He kept control of his growing interests in private partnerships.
Like Buffett, he invests in wide-ranging businesses and looks for undervalued but well-run investments.
Says his former deputy, King: “He knows legal and accounting principles, and applies them correctly. His greatest business so far is Jetro in the US; it’s hugely successful. He doesn’t want to list any of his companies. He built all his companies with his own money and he’s very private and wants to have control of his businesses at all times.”
He is also a classic philanthropist who applies the same energy and ingenuity to his social causes as his business. And the impact of his philanthropy could be just as powerful as his business.
His seed fund, Inhlanyelo in Swaziland, has financed 5500 successful small businesses. Standard Bank is applying the model in SA to finance many more emerging entrepreneurs. Kirsh is so convinced of the enormous economic power of social entrepreneurship that he and his wife, Frances, plan to dedicate their time to expanding the seed fund beyond SA and Swaziland.
He has gone back to Buffett and asked for 100m to help start a 1bn seed fund, which “will transform Africa”.
But Kirsh is 78 and what will happen to his empire? None of his children is involved. Kirsh is fine-tuning a new top structure, and his good friend, former Lloyds and Natwest CEO Ron Sandler, has agreed to be his informal deputy “for continuity if anything happens to me”.
So the empire, owned ultimately by two trusts — in which the Kirsh children are involved — will continue for the foreseeable future, ending rumours that Kirsh intends to eventually sell out.