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Johannesburg – The Spar Group [JSE:SPP] has entered into an agreement whereby it will buy a majority 80% stake in the BWG Group for R800m.
Spar is funding the deal with a short-term rand-denominated loan.
BWG Group is a leading food retail and wholesale distribution company which owns the Spar brand in Ireland and South West England
In addition, the transaction provides Spar with a well-positioned international retail platform for future expansion.
Spar said the benefits of the transaction include a more geographically diversified revenue stream, foreign currency diversification, enhanced scale and critical mass.
Strong synergies exist between the businesses of Spar and the BWG Group, particularly in relation to their retail models, wholesale businesses and logistics.
The BWG Group services more than 1 100 stores, including 100 company-owned stores, with a total annual turnover of approximately R17.4bn.
The BWG Group owns the Spar brand in Ireland and South West England with approximately 700 Spar stores and an estimated 35% share of the Irish convenience store market.
Buying out minority shareholders
The agreement also gives Spar the right to buy out the remaining 20% minority shareholders over a three to five year period.
“The expansion of our business internationally is an important strategic move for Spar and provides an attractive entry point into food retail and wholesale industry in Ireland at a time when several sectors of the economy are already showing strong signs of recovery and consumer spending is improving," said Spar Group CEO Graham O’Connor.
"On a pro-forma basis, the transaction and acquisition of minority interests would have increased our first half normalised headline earnings per share by 6.8% to 397.2 cents with a 30.2% increase in Spar’s consolidated revenue. The impact on the net asset value per share is an increase of 10.4%."
BWG Group has a particularly strong position in the convenience market with the Spar, Spar Express and Mace brands.
The BWG Group will continue to be managed by its three founding partners to ensure continuity.
"Based on the strength of its management team, we don’t anticipate relocating any of our South African executives in the short term. We will however provide strategic input to unlock the key strategic benefits of the transaction," said O'Connor.
Further growth opportunities
The BWG Group has identified further growth opportunities in its current markets to leverage the economic recovery and has a five year capital investment programme to expand its wholesale and retail operations in Ireland and South West England, which it will fund internally.
"We will bring to bear our track record in migrating Spar stores in South Africa to larger store formats in South Africa, to assist in evaluating expansion opportunities that arise," said O'Connor.
"We will also contribute our demonstrated capabilities in logistics, warehousing and distribution, an area in which the BWG Group has relied heavily on third party providers to supplement the capacity of its existing distribution centre."
- Fin24
