SA Rugby Union (Saru) CEO Rian Oberholzer on Tuesday said a planned meeting to decide on the proposed sale of 20% of Saru’s commercial rights, including the Springboks brand, will proceed as scheduled on Thursday despite the strong opposition from seven of the 14 member unions.
Seven unions, including the Sharks, the Blue Bulls, the Lions and the Stormers, requested a three-month postponement of the meeting to enable them to present a counter-offer that keeps ownership of the rights in SA, while injecting cash into the technically insolvent Saru.
The deal, which requires the approval of 75% of member unions, would see US-based private equity firm Ackerley Sports Group (ASG) buy a 20% stake in an entity called Saru Commercial Rights Company (CRC) for $75m and exercise control of the rights.
“Saru is currently engaged in an exclusive negotiation period, conducted in good faith, with Ackerley Sports Group. This exclusivity remains in effect, and any discussions or transactions regarding equity outside of this mandate may result in breach of Saru’s exclusivity agreement with ASG,” Oberholzer told member unions opposed to the deal in a letter dated October 15. “As a result, Saru is not in a position to consider any other offers during this time.”
Oberholzer is referring to a resolution taken at Saru’s December 2023 general meeting, which authorised it to engage ASG as an equity partner.
Oberholzer’s letter goes on to say that any alternative proposal from the unions would be at odds with what was agreed at the general meeting.
“In your letter, you propose to submit an equity offer to Saru and request a postponement of the meeting until such time an offer is ready. Any consideration by Saru of such an offer or postponement on this basis would constitute acting in bad faith, irresponsibly and illegally, thereby violating the mandate by the general meeting.”
According to ASG’s offer, payment of the $75m will be staggered, with the first tranche of $35m set to be paid on the parties putting pen to paper, and the balance over four years.
However, the capital must be repaid to ASG, though it will have perpetual rights to the 20% stake in CRC.
ASG will also have the upper hand on the CRC board, which will consist of seven equal voting members (plus certain non-voting members), including three appointed by Saru, three appointed by ASG, and an independent chair to the board appointed by ASG.
The disgruntled unions said in their letter to Saru’s top brass on Monday that the control ASG will exercise over the rights and the financial details of the proposed deal was not in Saru’s interest.
“ASG is reportedly targeting a dollar investment return of over 35%, which represents a highly lucrative deal for ASG and a very costly source of funding for Saru,” the unions’ letter reads.
“Raising surplus funds at this cost only to hold ±$40m in a ‘rainy day fund’ raises further questions about the suitability of the proposed deal construct. The valuation metrics of the transaction compare poorly to recent rugby transactions.”
The unions also object to the hefty fees set to be paid to former Formula One team boss Eddie Jordan for brokering the deal between Saru and ASG.
“The proposed fee structure of 10% net of transaction costs (about $7.5m/R131m), payable to Jordan & Associates is not market related for a transaction of this nature. Many of the senior executives of the undersigned members and their shareholders have significant experience in public and private capital markets and the fee proposed is not appropriate by any measure,” the letter reads.
“A transaction of this type should typically attract a raising fee in the range of 100 bps-200 bps. The fee is therefore five to 10 times the norm and compels that serious questions be asked of the advice received in this regard and the role played by Jordan & Associates.
“The fee structure as proposed furthermore raises serious issues of governance and ethics around the transaction, and the independent advice, if any, received by Saru.”
Under the unions’ alternative proposal there would be no success fees due. They also suggest that control of the rights not be ceded to outside parties.
“If equity contribution is required to implement an alternative funding solution, then Saru should approach its members first. Short-term funding solutions can be considered to guarantee Saru’s liquidity throughout the process,” they said.
ASG’s entry valuation of the SA rights is significantly below the $133m US private equity firm Silver Lake paid for a 6% stake in the All Blacks’ commercial rights in 2022. Moreover, New Zealand Rugby retained full control over the brand and the commercial entity.
The SA unions are unhappy about ceding control of the brand and commercial rights. “The valuation metrics of the transaction compare poorly to recent rugby transaction multiples (for example, All Blacks/Silver Lake). One of the most recognisable and marketable brands in rugby [the Springboks] is apparently being traded to an outside investor at a deep discount compared to peers.”
Some of the opposing unions are owned and have links to SA’s wealthiest people. The Blue Bulls and Boland Rugby are controlled by Johann Rupert and Patrice Motsepe, while the Sharks have Aspen CEO and founder Stephen Saad in their corner.
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