Peu Group was formed with a strong belief in the value of entrepreneurship and this can-do attitude has stood the 10-year-old group in good stead

It has been argued that the dilution of blackness in mainstream empowerment groups through the surrender of equity to financial institutions is inevitable, but one black economic empowerment (BEE) firm, Peu Group, seems to be proving this conventional wisdom wrong.

But only time will tell how long Peu will continue to resist the pressures and ignore the temptation of giving away equity to financial institutions.

Under the leadership of entrepreneur Peter Malungani, Peu celebrates its 10-year anniversary this year, with no sign of giving in to this trend. "It's not something we are considering," says Malungani.

WHAT IT MEANS

• Today's enterprise began with R246
• Group has resisted giving away equity

It is fair to say that Peu is proud of how things stand - this is clear in the following statement from the company's brochure: "Peu has managed to build its asset base without the involvement of an institutional investor as a shareholder."

The group has concluded high-profile BEE deals with giants such as Investec, Super Group, Capital Alliance, Aspen and Tsogo Sun. Its activities spread across a number of sectors - from financial services, to the supply chain and fleet management, information & communication technology (ICT), car retailing and infrastructure development.

"We run this business on a model that commands reasonable independence, requiring no substantial cash injection from the institutions," says Malungani.

The model, says Malungani, creates viable and sustainable businesses. The logic of the model is that Peu's businesses, which, along with other start-ups, need substantial capital, soon grow into self-sustainable enterprises.

There has been no need for Peu to surrender capital to raise money to keep afloat. Peu remains 72% owned by management and staff, 20% by Intsika Enablement Trust and 8% by Intsika Investment Trust.

Its emphasis on viability and sustainability comes from the group's entrepreneurial roots, which can be traced back to the early 1980s, when Malungani was already displaying his skills as an entrepreneur.

Peu's phenomenal story begins with R246. That is the amount 26-year-old Malungani invested in a start-up business in 1984. The business, Malungani & Associates, focused on offering financial advisory services to other small black-owned businesses. "Looking back, we were glorified book-keepers," says Malungani.

Six months later, Malungani spotted a gap in the market and pounced. He acquired a plumbing business for R700 and spent a further R400 on new equipment and expanding into general construction.

"That was my first encounter with mergers and acquisitions, and out of it came the best return on investment I have ever made," says Malungani.

"With the advent of democracy I knew things were going to be different and the business needed to adapt," says Malungani. By 1995 some divisions within Malungani & Associates had been disposed of; Peu was incorporated the following year.

"It was clear that the post-1994 government's drive to deracialise the economy would offer enormous opportunities," says Malungani. "But at Peu we never pinned our hopes solely on acquiring stakes from BEE equity transactions," he says. He adds that the principle of creating viable and sustainable businesses was still adhered to in the new business model.

Though Peu has participated in some of the most prominent BEE equity transfer deals, the group continues to focus on start-ups and medium-sized businesses with strong growth potential. Examples of this include Peu's 100%-owned IT subsidiary Masana Technologies.

Masana was established in 1999 and has become one of SA's most prominent black-owned IT services providers. The City of Johannesburg is one of Masana's main clients. "We started the relationship with the city as a junior partner in our relationship with IBM and have graduated into a prime contractor," says Masana CEO Duncan Todd. From a base of zero, Masana now has about 200 employees. The group experienced 100% growth last year, says CEO Duncan Todd.

"We have benefited from the fact that we have shareholders who understand entrepreneurship," says Todd.

But Peu was not going to stand by and watch other players enjoy the BEE equity transfer market. The group has done relatively well on this front.

When Peu beat many other companies to become one of the key participants in Investec's R810m BEE equity deal, it was clear it would become a serious player in the market. The deal,with SA's fifth-largest banking group, Investec, was the first among SA's first-tier financial institutions and it showed that Peu would be a serious player in the market.

The deal involved Peu and Tiso Group each receiving about 6,8% of Investec's shares. About 6,8% was allocated to an entrepreneurship development trust and about 4,7% went to a trust representing Investec's black employees.

Asked why Investec chose Peu as one of its key BEE partners, Investec SA joint MD Andy Leith said: "We had a relationship with Peu for some time before the BEE deal. And we were aware of similarities between Peu's culture and our own - a culture of true entrepreneurship."

When the Investec deal took place in 2003 it was another important milestone for Peu. The group had earlier become a favoured partner of listed transport and logistics firm Super Group. Similar to the Investec situation, Peu had partnered Super Group before the relationship yielded an equity stake.

The relationship with Super Group started at lower operational levels, which led to Peu acquiring a 30% shareholding in Super Group's subsidiary Fleet Africa in 1999. Peu then graduated from holding shares in a subsidiary to shares in the holding group.

The deal was done partly through Peu swapping its Fleet Africa shares for 25,1% of Super Group.

Peu's interests in Super Group are complemented by its investment in car retailing business Lazarus Motors.

At the time of concluding the Peu deal, Super Group CEO Larry Lipschitz said the overwhelming shareholder approval of the transaction resulted from Peu's excellent track record of tangible value creation within FleetAfrica. "It also shows confidence in Peu and Super Group's ability to replicate our successful growth-based transformation strategy within other group businesses, thus resulting in all stakeholders benefiting materially."

Peu earned the right to appoint a minimum of 25% of Super Group's board of directors and participate on all committees. That seems to have benefited transformation, with Peu financial director Busi Tshili a director in Super Group and Malungani serving as chairman.

There are good reasons for other groups selling equity to financial institutions. Many black businesses lack financial resources - cash or collateral- to effect growth. Getting close to financial institutions through an alignment of interests is one way of overcoming this hurdle.