Martin Kingston's key M&A lessons over 40 years

"One of the things you learn is that deals always take longer than you expect."

Martin Kingston (pictured) has struck over 200 deals during his 40-year illustrious career.

But Martin, who recently stepped down as CEO of Rothschild’s South African unit after 13 years to take on an executive chair role, is still enthusiastic about crafting and completing a deal as if he’s doing it for the first time.

“If you have been in the industry as long as I have, you learn a lot of lessons,” he says during a Mergers and Acquisitions (M&A) Africa interview from his Johannesburg office.

“One of the things you learn is that deals always take longer than you expect. The second is that clients try to drive aspirational and ambitious time frames that generally cannot be met. And the more complex a deal is, the more it is exciting for me.”

Any M&A process is complex and involves a multitude of bankers, lawyers, accountants, and other stakeholders with competing interests.  Martin is usually up for the challenge as working with people and managing their expectations is a personal highlight.

“Working with clients of the highest calibre and colleagues who are really top drawer in terms of their insights, experience, and capabilities is exciting. One is operating in a stimulating environment with top quality people, who are not driven by short-term benefits but by adding value to their clients.”

Martin, who relocated to South Africa from the UK in 1995 to help Deutsche Bank acquire local stockbroking firm Ivor Jones, Roy & Co and later joined the bank as its chief country officer, has a reputation as one of the country’s deftest dealmakers.

It’s a reputation that immediately commands adulation from his peers in M&A circles. “A tough but skilled negotiator”, “doesn’t take hostages”, “relentless in making sure that his clients get value during a transaction” is how Martin was described by a banker who has worked with him. 

A dealmaker of the year award that Martin received at the DealMakers Awards in February has prompted him to reflect on his career. “When it was announced at the awards that I have been in the industry for 40 years, I did think to myself; I wonder how many people in the room were not born when I started plying this particular trade. I think a lot of people in the room were younger than 40.”

In conversation, Martin doesn’t come across as a boastful dealmaker, even though he has helped many companies build scale and morph into global giants. Any investor trading on South Africa’s Johannesburg Stock Exchange will come across blue-chip companies that Martin has advised on their initial public offerings (IPO), mergers and acquisitions, and restructurings.

He advised on the South Africa and New York IPO of Telkom in 2003; Anglo American’s acquisition of diversified miner Kumba Resources in 2003 and the latter’s IPO in South Africa as Exxaro Resources after a name-change; and helped commercial bank Standard Bank spurn hostile takeover advances by its rival Nedcor (now Nedbank) in 1999.

Over the past two years, Martin was involved in mega-deals including black economic empowerment transactions of Vodacom and Sasol worth R16.4 billion and R21 billion respectively, Chevron’s disposal of its South Africa-based assets operating under the Caltex brand, the sale of Anglo America’s coal assets, and the managed separation of Old Mutual into four independent business units and the move of its primary listing to South Africa from the UK.

My toughest deal

Martin regards the Old Mutual transaction, which was announced in 2015 but completed in 2018, as the most complex he has ever worked on.

It’s not hard to see why. The transaction could have been scuppered by three seismic political and economic events that unfolded after it was announced; the UK’s decision to leave the European Union, the election of US president Donald Trump and haphazard changes of finance ministers in South Africa. All three events amplified volatility in financial markets and unleashed economic uncertainty – a nightmare for any dealmaker managing a pending mega-deal.

The transaction’s structure added another layer of complexity; a shareholding structure that involved retail and institutional shareholders across five different exchanges had to be unwound, onerous regulatory hurdles had to be navigated, and there were 400 overlapping workstreams in multiple jurisdictions. Rothschild alone had 20 people working on the deal globally.

A lot was at stake for the deal to be completed. The managed separation of Old Mutual marked the return of the company to its South African roots after it moved its headquarters and established its primary listing in the UK in 1999. This move was seen as the company turning its back on a country in which it built its fortunes.

Asked how Rothschild saw the deal through to completion, Martin says it required endurance more than patience.  “It boils down to having the stamina to maintain the momentum and enthusiasm of the deal. When you announce such transactions, there is a lot of pressure to execute and implement them as quickly as possible,” he says. “But the reality is that the preparation that goes into ensuring they are fit for purpose takes a long time and requires a number of people to be aligned in their opinion from management to other stakeholders.”

A good deal, he says, is one that contributes to a country in a meaningful way rather than being simply “financially accretive for the company involved or its stakeholders.”

Fixing South Africa

Throughout the conversation, Martin makes references to how M&A activity should contribute to the fortunes of South Africa.  It leaves one with the feeling that he not only has the interests of business at heart but that of the country and its citizens as well.

Ceding his CEO role to Paul Bondi and Giles Douglas to become Rothschild’s executive chairman from April 1, will give him more time to be involved in supporting South Africa’s government in its efforts to reform economic growth and the solvency of state-owned enterprises (SOEs).

It will be a tough task as SOEs, which are critical to South Africa’s economy, have buckled under the weight of corruption and mismanagement over the past ten years and are on the brink of collapse. But Martin is no newbie in supporting government efforts. He already sits on the board of struggling South African Airways and is vice president of Business Unity South Africa, an apex business organisation.

More than two decades after the end of white minority rule, South Africa still has one of the highest jobless rates among major global economies, with more than a quarter of its workforce unemployed. The economy, which is barely growing by two percent annually, is hampered by intensified power cuts, corruption, strained business and investor confidence. He believes that President Cyril Ramaphosa is equipped to lift the country out of its morass. Unlike former President Jacob Zuma, Ramaphosa is seen as being business-friendly because he has taken a consultative and collaborative approach with the private sector on major economic growth policies and decisions.

For example, he has set an ambitious goal of raising $100 billion over the next five years, which would assist in reducing the country’s unemployment, poverty and improve people’s lives which, in turn, would also support long-term economic growth. Achieving this target will require the private sector’s support. “By any measure, the economy is not driven by the state. It is driven by the private sector. The President has been clear that government needs to address constraints in the investment environment and enable the private sector to play its proper role,” says Martin.

He’s mindful that South Africa’s reform will take time and there won’t be an “overnight metamorphosis” to the country’s perennial problems.

“On the one hand, I am confident that the environment is much improved in terms of the sentiment compared with the recent past. However, there are significant headwinds. This is a country with major structural challenges that Mr. Ramaphosa has to address. My sense is that South Africa is no longer going to enjoy most favoured nation status and the benefit of the doubt. It is another country in a complicated world. When you are just another country, you have to fight hard to attract investment.”

There will be pain in the short-term. Business opportunities and investments will be slow to materialise until South Africa goes through an election in May 2019, he says. Once the uncertainty that comes with any election cycle passes and the investment environment improves, Martin expects to see more domestic and cross-border M&A activity.