#78 The Truth about what your Business is Worth with James Moody

[00:00:45] Graham Stephen: Today’s guest is a CA, he’s an FMVA — all these acronyms. He’s currently Head of Valuations at PSG Capital, one of the most respected corporate finance associates in South Africa. James Moody, welcome to the BizVal Podcast.

[00:01:09] James Moody: Thank you for having me, Graham. Appreciate your time. I know you’re a busy man, so thanks for having me.

[00:01:15] Graham Stephen: Fantastic. James, just for our listeners today, we’re going to follow our usual recipe — get to know you a little bit, a bit about your upbringing, your path to corporate finance, a little bit about your time at PSG, and then we’re going to have a discussion around valuations in general. I’m quite excited about today’s chat, because often we’re interviewing founders and entrepreneurs, and it’s not often that we get to chat to fellow professionals in the industry. Part of our values at BizVal is around lifting the entire industry — it’s not about one valuation firm being better than the next, it’s about how we make sure valuations are done credibly across the board, locally and internationally.

[00:02:15] Graham Stephen: So James, let’s start at the beginning. You grew up in Durban, born in Durban, went to Westville Boys for primary and high school. What was it like growing up in Durban, and what were some of your early influences?

[00:02:33] James Moody: Durban is a relatively relaxed place in comparison to the likes of Joburg — a relatively small-ish town vibe, but incredibly down-to-earth with a really good sense of community. I thoroughly enjoyed my upbringing there. I met some incredible people and made some lifelong friends along the way. The community of people within Durban are really easy to engage with, and you can make friends very easily. After that, I moved on to various places within South Africa and abroad, but it was a great upbringing.

[00:03:22] Graham Stephen: Yeah, I think we see a lot of that — people who grow up in smaller towns or smaller cities develop this ability to build relationships and human connections. It’s not all about building wealth, and I think it grounds you. I grew up in Port Elizabeth, which is also a small coastal city, so I can relate to a lot of that. You went to Westville Boys — a proper, traditional boys high school. What were some of your hobbies and interests growing up?

[00:03:58] James Moody: I’ve grown up in a family that’s relatively sporty, so we always believed in being outdoors as the best way to keep fit and healthy. What came with that was mom and dad trying to instil an element of balance — making sure we were outdoors and not spending too much time in front of the TV, but also making sure that, in addition to being on the sporting field, we were applying ourselves academically. The upbringing was good, and the experience and exposure I got at Westville Boys — somewhere north of a thousand scholars — meant the competitiveness, both on the sporting field and in the classroom, was of the highest standard. I feel like I got a really good quality education that enabled me to grasp key core fundamental principles that have served me well in my professional career to date.

[00:05:07] Graham Stephen: What are some of those things that have stayed with you as you moved into the professional world? Is it things like camaraderie, teamwork, competitiveness? What are the big things you’ve carried with you?

[00:05:24] James Moody: Relationships is a very important one. You often hear the phrase, it’s not what you know, it’s who you know, and I think there is an element of truth to that. Just trying to be a good human being and keeping in touch from a relationship perspective — continuing those friendships and checking in, always keeping relationships warm. That really does help a hell of a lot. If you need to reach out to somebody and you’ve engaged with them consistently, and they can see that you’ve put in the effort historically — that makes a big difference in building your community from a social, entrepreneurial, and work perspective. With the click of a button on your phone, you can call on X, Y, and Z people to assist you, because the reality is we each choose our individual career paths and are experts in those respective paths, but we aren’t experts in everything. It’s incredibly important to build an ecosystem of people around you who can complement all of that.

[00:06:51] Graham Stephen: Fantastic. And as I say, that network matters — whether you went to a top school or a small school doesn’t change the fact that you’ve got people you’ve grown up with and got to know, and being able to have that familiarity when reaching out is super important.

[00:07:22] Graham Stephen: So let’s move on. You decided to become a chartered accountant. I always joke about this — nobody’s really born wanting to be a chartered accountant. You probably start with firemen and policemen, and somewhere along the way these careers come about. What pulled you towards accounting? Have you always been an analytical person, a problem solver?

[00:07:45] James Moody: I’ve come from a family of CAs — my father’s a CA, my uncle’s a CA, my grandfather’s a CA. There’s a pretty strong finance vein within my family, so I’m probably one of the closest to actually wanting to be a CA from the outset.

[00:08:05] Graham Stephen: So you were basically born as a CA — like Max Verstappen was born a racing driver.

[00:08:13] James Moody: Something like that. Interestingly, my first career thought was I wanted to be an airline pilot, because I love travelling. Travel and experience is a big part of my life, and that led me to think it would be a great career — but it has its own cons in terms of being away from family for significant periods of time. So more realistically, outside of being on the sporting field, it was being involved in some element of finance, corporate, and business that really resonated with me and where I feel I can add the most value.

[00:09:18] Graham Stephen: You had that entrepreneurial backdrop and environment, but what did you learn in your studies beyond the textbook — beyond IFRS, beyond all the accounting stuff? What were the standout things from your university days?

[00:09:37] James Moody: There were a number of things. The first being resilience. In life, nothing lands on your plate for free — you’ve got to work for what you have, and varsity really enabled that resilience factor. It’s not easy, but if you’re consistent and persevere and put in that effort when nobody’s watching — the long, hard hours when other people are perhaps out partying — over the long term, that really does pay off. We see it in many professions. Professional athletes like Michael Phelps put in exceptional amounts of hours when nobody’s watching, and it’s those hours that pay off.

[00:10:55] Graham Stephen: It’s that iceberg principle — nobody sees it, but it’s all that hard work underneath. Those who’ve done their chartered accounting exams know exactly what James is talking about. Let’s move on a bit. You finish your studies, you’re doing your articles at Deloitte in Johannesburg. What did you learn from that experience? You’ve moved from Durban to the big city — tell me about those early days.

[00:11:19] James Moody: The big smoke — Johannesburg was a step up in terms of pace compared to Durban. But in terms of the articles experience at Deloitte, it was fantastic. I got really good exposure to a broad array of clients, worked really hard, but also had the ability to interact and socialise with people of varying skill sets and levels of seniority — from fellow article clerks to directors and partners. People who’ve been there and done that. It was really valuable to interact with them, pick their brains, hear their life experience, and learn what not to do as well — which is an incredibly powerful thing. You see a lot of really great companies and businesses, and not only what you should do to achieve similar success, but also the learnings of what you should probably not do, and which principles could better manage your business, your people, and your stakeholders.

[00:13:02] Graham Stephen: People often underestimate that. A lot of people go into articles thinking they’re going to learn the technical parts of auditing, but the real value is far deeper. Not many 21- or 22-year-olds have the ability to walk up to a CFO at a listed business and have a real conversation with them. It’s about building connections — something you spoke about that I can also relate to. Moving from Port Elizabeth to Johannesburg, of our cohort at PwC, I think 60 of 100 article clerks were from outside of Johannesburg. You’re building a career, building a life away from family — and those softer parts really grow you as an individual and show you the world is a bigger place than a small coastal town in South Africa.

[00:14:00] James Moody: Absolutely.

[00:14:01] Graham Stephen: So James, you then did an interesting detour. Like many article clerks, at the end of your articles you had the opportunity to go to London on a secondment programme. Many go and never come back. You did a short stint in London, then came back to South Africa and joined a compliance business, moving out of the audit space. Tell us a little about that part of your journey — going to London, what was that like? And then why did you come back, change tack a little, and resettle in South Africa? Was it a love interest, or did you just want to come back and make a difference?

[00:14:52] James Moody: In terms of my experience in London, it was absolutely incredible, and I would encourage any chartered accountants who have just finished, or are close to finishing their articles, to look at something like that. It gives you a worldly experience that you can’t fully get here in South Africa, being a relatively small market in relation to what’s out there globally.

[00:15:21] James Moody: If I had to summarise the biggest takeaway from my exposure in London, it’s how good South African CAs are relative to CAs or accountants in the UK and more broadly globally. We are heads and shoulders above the rest. It comes back to that consistency I was talking about earlier — in school you do maths and accounting, then at tertiary level you study accounting or business, which gives you further technical understanding. Then in your articles you actually put that knowledge into practice, interacting with CEOs and CFOs, so you really are a very well-rounded individual. The ability to apply your technical expertise from the textbook, combined with application in the professional environment, is absolutely invaluable. It was really easy to see how South African CAs conducted themselves on these secondment programmes — heads and shoulders above others of similar age who just hadn’t had this kind of thoroughbred upbringing.

[00:16:52] Graham Stephen: It’s quite a confidence boost as well, because you realise you can compete on the world stage — and not just compete, but excel. So you do your stint in London, back to South Africa — tell us a little about that.

[00:17:10] James Moody: I had a decision to make, and I was lucky enough to go on secondment with my girlfriend at the time, who’s now my wife — we managed to go together. She was also at Deloitte. We had a decision to make: do we stay abroad like so many have, or do we come back and start things out in South Africa? I think the quality of life in South Africa is second to none — the weather, the ability to do entrepreneurial things. So we decided the best route for us was to come back after the secondment. The more conservative side of me wanted to have a job in place when I came back, hence the slight detour to TechX, which in retrospect was a fantastic part of my journey — getting to learn about a different industry, interacting with different people, seeing a lot of entrepreneurial flair, and understanding cross-border transactions and the movement of goods.

[00:18:37] Graham Stephen: That’s fascinating, because as you say, you move out of the technical space and at the time it might feel like you’re out of your comfort zone, but looking back, there’s a lot you learned through that. In my own career, there are many parallels — on paper it didn’t look like a great career move, but in hindsight, those steps off the garden path into the little narrow alleyways were really helpful.

[00:19:09] Graham Stephen: Okay, and then from there you joined Mazars in the corporate finance team — and I guess that’s where your valuation and corporate finance career really starts. Let’s talk about your time at Mazars. For some of our listeners, corporate finance is one of those terms like M&A — what does it actually mean? Talk about your time there, your experiences, and why you moved into the corporate finance space.

[00:19:42] James Moody: My experience at Mazars was basically where I cut my teeth from a corporate finance perspective — putting all the previous learnings into place and really getting into the nitty-gritty of valuations, due diligences, transactions, and structuring. I learned an enormous amount at Mazars and it was really where I understood and made the decision that corporate finance was something I was passionate about and the industry in which I wanted to further my career. It was a really important stepping stone, and I made a lot of friends and business connections there.

[00:20:40] James Moody: In terms of what corporate finance actually means — it’s a word that’s thrown around by many people, and interestingly, not many of them can actually tell you what it entails. It’s essentially all initiatives around corporates — fundraising, raising of capital, buying and selling of businesses. It’s all the corporate activity surrounding companies that are largely essential services to enable growth and continuation, or if you need to pivot, the ability to raise funding or understand the value of your business.

[00:21:35] Graham Stephen: And I think what’s really intriguing is that you really need to understand the nuts and bolts — the heartbeat of a business, how it operates, what the risks are. The words “corporate finance” almost gloss over that. You really get to see the engine room of businesses and the people running them. So what drew you towards valuations specifically as a special interest?

[00:22:18] James Moody: One of my core principles is to add value to people or transactions — I like to have a purpose and the ability to help people and create something better than it was before. Understanding the value of a business, and the power that gives you to obtain additional debt financing, go into an M&A transaction, or enter a partnership — that can add a huge amount of value to a particular person. From a valuation perspective, there’s just so much in this world and industry. There are prescribed ways or standards that people generally follow, but you’ve got to assess each case differently and determine the most appropriate way to value the business. No single valuation transaction is ever the same — you always see nuances, you’ve always got to think about different ways to position things. It keeps things interesting and exciting on a day-to-day basis.

[00:23:50] Graham Stephen: We’re going to come back to a bit of that in a second, but I want to talk about where you’re at now. You served your time at Mazars, gained great learnings, and then joined PSG Capital as Head of Valuations — which also involved a move from Johannesburg to the Western Cape. For listeners who don’t know PSG Capital, can you paint a picture of who you guys are and what you do?

[00:24:27] James Moody: Most South African participants would have heard of PSG or PSG Group, which was previously a listed company up until about four years ago when it unbundled a whole bunch of its assets — including the likes of Capitec and a few other very successful stories — and has now moved into the unlisted environment. PSG Capital sits as a subsidiary of the PSG Group and is essentially a fully-fledged corporate finance house. We compete with the banks and other investment banks within South Africa, offering the full suite of corporate finance services — buy-side and sell-side M&A from both private and listed perspectives, listings, delistings, valuations, financial modelling, structuring, and BEE transactions. Essentially everything you could encounter in some form of business or company transaction.

[00:25:31] James Moody: Our team is comprised of CAs and CFAs, but then also corporate, commercial, and M&A lawyers. That combination of the finance hat coupled with the legal hat allows us to really run transactions from nose to toe, and in my opinion sets us apart from a lot of our competitors. We have the ability to run deals start to finish without bringing in too many specialists — though there are of course situations where it’s important to bring in specialists around tax or certain BEE laws. But we’ve built up this ecosystem and base of people we can call on and draw on as and when we need them.

[00:26:27] Graham Stephen: I love that. And something that stood out for me, both in knowing who PSG is and in preparing for this podcast, is the PSG values page. When we talk about values — not valuation, but values — when you’re doing deals, a lot of it is about trust. You’re dealing with people. The people I’ve engaged with, like yourself and others in the team, seem to genuinely live out those values. Can you talk about how important that is to you, and as a team, and highlight a couple of the values that stick out for you and why they matter in this space?

[00:27:26] James Moody: It’s fundamentally important. It draws on what I said initially — I want to create value, and in doing that you’ve got to have an ecosystem of people around you and build these things up over time. The trust element and building of relationships, coupled with good communication, builds over a period of time such that people know you can be relied on. Even if you don’t necessarily respond immediately, you will get back to them — and it’s this inherent build-up of trust where this person has a track record of doing this thing consistently.

[00:28:20] James Moody: We are more on the boutique side than the massive corporate side — a team of between 20 and 25 professionals split between Stellenbosch and Johannesburg — but we really make it our mission to understand the clients and build the relationship, so that we truly know the ins and outs of that client’s business and their needs. Even if we don’t do a deal for them at the outset, we’ve built up this credibility and knowledge of what they’re looking for, such that when an opportunity arises, we can approach them and say: we understand what you guys do, we’ve found this for you, and this is why. It’s that sustained, continuous effort over a period of time that will ultimately bear fruit and create value for all parties involved.

[00:29:31] Graham Stephen: And that’s where there’s a strong alignment in terms of why we’ve connected. One of our values is that we want to empower the client to make a better decision — understanding their needs, being passionate about their business, and listening to them. Unfortunately, there are a lot of professional service providers out there where it’s kind of an afterthought — a compliance tick box. There’s definitely space for that, but I think that’s what sets you guys apart — you really try to understand the client and make sure they make the best decision for themselves. Sometimes that might even mean walking away from a deal.

[00:30:37] Graham Stephen: So James, I want to move on to valuation. In plain language, to a business owner listening in — what is a valuation, and why is it important? What is it actually telling a business owner at the end of the day?

[00:31:05] James Moody: There are many ways to value a business, but ultimately you want to get an understanding — from both an internal and external perspective — of what your business is worth. And this is where some people get it wrong: they focus on a singular metric, such as EBITDA. Most people know about EBITDA and fixate over that number. However, you can’t look at a singular metric in isolation, and historic performance is not necessarily a determinant of what could happen in the future. You need to look at a number of metrics, pull everything together, and triangulate a reasonable outcome in terms of valuation.

[00:32:10] James Moody: The key for investors is cash. Taking away from accounting profitability — what could this investment generate for a particular investor or business owner from a cash perspective, which would enable the payment of dividends and, further down the line, the sale of the business? A willing buyer and willing seller will transact at a price that’s ultimately premised on what cash generation this business can produce in the future, not historically.

[00:32:57] Graham Stephen: Absolutely. Fundamentally, you’re trying to simulate what a real-world buyer and seller would pay for a business. With listed companies it’s reasonably easy — you’ve got a market where those transactions happen daily. With private companies, that information’s not readily available. And the point you touched on is that you can’t look at it through just one lens. To use a simple analogy: if you’re trying to date someone, just because they’re smart doesn’t make them a good partner — you look at the whole package. Our role as valuation professionals is to put the facts on the table, not be biased, and not be monolithic in our approach. What are some of the key things that owners typically get wrong when thinking about the value of their business?

[00:34:20] James Moody: I did touch on it briefly — it’s the singular metric lens. But understanding that accounting profits don’t necessarily correlate with cash generation is critical. Not everything on the income statement is cash. There are IFRS-prescribed metrics where you need to make certain provisions — depreciation and so forth — which are non-cash. In addition to not fully understanding the difference between the accrual basis of accounting versus cash, investors often don’t take into account the capital structure of the business — including the capital expenditure profile required.

[00:35:19] James Moody: A very simple example: you could have a business generating 100 rands of EBITDA, which on paper looks great. However, to generate that EBITDA, the business might have an enormous amount of debt, which reduces profitability below the EBITDA line and could result in a net loss. From an EBITDA perspective it’s attractive, but you are funding the growth through debt, which increases the risk profile of the business. In addition, there could be a significant requirement for capex that’s not accounted for on the income statement — hard growth capex that’s often capitalised to the balance sheet won’t be reflected in your income statement. You’ve got to cater for those large cash outflows to get a full picture of the current and continuing value of the business.

[00:36:21] James Moody: Ultimately, it distils to a very simple thought process: if I’m going to invest in a business, similar to a listed share, what could I earn from that business in the form of dividends? What dividend yield does it have? And if I had to sell it, what could I sell it for? It’s not going to be satisfying to see paper gains that don’t result in cash, when it’s ultimately cash you need to fund certain things and life expenditures.

[00:36:59] Graham Stephen: You touched on good points there. It is about cash and making the appropriate adjustments, but you also can’t oversimplify things — you have to go into a fair degree of detail to understand all the moving parts. The bigger and more complex the business, the more you need to know where to look.

[00:37:23] James Moody: And that’s why we’re in business, right? BizVal, PSG — we can drill into all those key aspects and work with you as the people who understand the business best, and work with us as investment or finance professionals to get to an informed outcome.

[00:37:43] Graham Stephen: Absolutely. I want to ask you three more questions, James, and then a few rapid-fire questions. First — is there any story over the last few years, without mentioning names, where there’s been a complete disconnect? Anything you’re willing to share?

[00:38:06] James Moody: Thankfully, no major stories from a personal perspective, which I’m happy to report. One of the key reasons for that is making sure your communication is sound. When there’s engagement with the client — from that initial meeting — it’s about setting the tone and the expectation clearly and concisely upfront, and then communicating throughout the journey: this is where we are, we don’t understand this, let’s workshop this. It’s keeping the client up to date so that there’s no scenario where you get to the end of your scope of work and you’ve completely missed the boat.

[00:38:55] James Moody: I’ve heard of other stories — not in relation to myself or PSG Capital, thankfully — where there’s been a breakdown in communication resulting in a lot of hardship, because all the work that’s gone in up front is essentially null and void. So thankfully, nothing from a personal perspective on that.

[00:39:19] Graham Stephen: As you say, it’s around communication, expectations, and taking the client along the journey. It’s not just handing over a data room and coming back in six weeks with a number. Having that ongoing conversation means there’s far less likely to be an expectation gap.

[00:39:46] Graham Stephen: The second question — you’ve met some interesting people over the years. That’s one of the privileges of being in corporate finance: you’re dealing with CEOs, founders, family offices. Without naming names if you’d prefer — is there a type of person or persona who interests you most in your conversations? What do they do differently? What makes them stand out?

[00:40:21] James Moody: I won’t mention specific names, but in the industry and the position I’m in, you get to engage with a lot of key decision-makers — CFOs and CEOs of medium to large listed and private companies. The breadth and wealth of knowledge from an engagement perspective is incredible. You get to see the inner cogs and workings of how these people think about investment decisions and running a business across all different industries. Not many people have access to that, so I’m incredibly grateful for that exposure. Each person is different, each industry is different, but you learn how to think laterally about a certain idea or transaction — not taking things at face value, but thinking: how can we optimise this situation? How can we get the best possible result? That may not mean a straight path — it may mean moving around a little and thinking cleverly to get to the best outcome. The ability to think on your feet and think laterally is a really key thing I’ve picked up from engaging with so many high-powered leaders in public and private markets.

[00:42:21] Graham Stephen: I echo that. A lot of people make a big thing about focus, but many of these really successful business leaders have this ability to think laterally, think out of the box, and plan around all the different permutations. The other thing you didn’t mention — which I’m sure you will — is that often there’s also a deep sense of humility. They’re not doing it just to be the richest person in the world. There’s a bigger drive than just making money — they make money because they want to make a positive difference in the world. I’m sure a lot of the clients you work with are like that.

[00:43:07] James Moody: That’s absolutely right. I’ve spoken to and engaged with many people who could have retired ten years ago, but they continue because they love what they do and they’re adding value to their broader communities and ecosystems. It’s not primarily for monetary or personal gain. A brief example — and it’s public news — is the Kura transaction with the Jannie Mouton Foundation, contributing to the broader South African education ecosystem and being, on an absolute basis, the largest public donation in history. People like that are creating a legacy and significantly enhancing the lives of others. Really, really heartwarming to see.

[00:44:07] Graham Stephen: Absolutely fantastic — a really powerful case study, that one.

[00:44:13] Graham Stephen: James, we’re about to wrap up with a quick rapid fire. First answer that comes to mind — ocean or mountain?

[00:44:36] James Moody: Ocean.

[00:44:38] Graham Stephen: Well, in Stellenbosch you’ve got both! Coffee or tea?

[00:44:46] James Moody: Definitely coffee.

[00:44:48] Graham Stephen: Even after three months in London you didn’t convert!

[00:45:04] James Moody: I love a good cup of coffee — I’ll go around to many different coffee shops and try them to see if the next one is better than the previous. Definitely coffee over tea.

[00:45:05] Graham Stephen: Morning person or night owl?

[00:45:09] James Moody: Probably more morning, but in this industry you’ve got to do a bit of both to meet the demands and expectations. More morning though.

[00:45:22] Graham Stephen: And you’ve got fairly young kids, so you’ve had those unwelcome night owl experiences too!

[00:45:30] James Moody: Absolutely.

[00:45:30] Graham Stephen: Last question — if you weren’t a CA or in the corporate finance world, what would you be doing?

[00:45:40] James Moody: In my younger years I briefly considered taking up golf professionally. I still really enjoy my golf and welcome a round with anyone — but I got realistic. Seeing the top professional athletes, the likes of Rory and company, it seems like a very glamorous life. If I had to do something different, it would probably be that.

[00:46:26] Graham Stephen: Never too late to start, James!

[00:46:29] James Moody: I’ll continue practising.

[00:46:30] Graham Stephen: Listen, as we wrap up — it’s been an absolute pleasure having you on the show. A really great conversation with a lot of nuggets and learnings in it. For any young professional listening — let’s call it a 23-year-old version of yourself walking into corporate finance and valuations — what single piece of advice would you leave them with?

[00:46:57] James Moody: Single biggest piece of advice: be a sponge. Not in the sense of freeloading off of other people, but whenever somebody is talking, make sure you listen. You learn the most when you’re listening and not when you’re talking, and you will often engage with people who are more experienced than you. Just being able to listen, process, and think about why they’ve said something in a certain way or why they’ve done what they’ve done — that will significantly enhance your knowledge base and your ability to engage with people going forward. Be a sponge, and retain all those pearls of wisdom you’ll hear along the way.

[00:47:48] Graham Stephen: I love that. You’ve got two ears and one mouth for a reason — use them wisely. James, thank you so much for being so generous with your time and your thoughts and your stories. I’m sure we could fill another two podcasts diving deeper into all of this, and hopefully one day we have you back on the show. For our listeners, if you want to find out more about PSG Capital, go to www.psgcapital.com, or connect with James on LinkedIn. Thanks for joining us, and until next time — goodbye.

[00:48:25] James Moody: Thank you, Graham. Cheers all.