Spar's UK deal good for SA

Spar's UK deal good for SA

2014-08-14 20:05

Durban - Spar Group’s acquisition of the brand in Ireland and supermarkets in other parts of the UK was given the thumbs up by analysts on Wednesday.

The deal represented a sound strategy to diversify the Pinetown-based distributor and wholesaler to Spar supermarkets’ income streams, said Vestact Asset Management portfolio manager Byron Lotter.

Spar said on Monday it plans to buy an 80% stake in UK-based BWG for R800m. The deal is being funded with a short-term rand-denominated loan. BWG is a food retail and wholesale distribution company that owns the Spar brand in Ireland and South West England.

Lotter said the deal made a lot of sense. The local economy was slowing and “facing a lot of headwinds”, such as tighter labour legislation, while the Irish and UK economies were recovering.

Spar was likely to be the next in a number of local companies that have successfully expanded overseas, said Lotter.

Imara SP Reid head of research Stephen Meintjes said local supermarket groups did not have a good record of success in trying to enter developed markets.

However, a relatively low price was paid for the UK business and there was a long relationship and trust between the executives of the groups.

BWG had recently been restructured, to the detriment of its earnings, but it remained profitable and the restructuring was likely to enhance its earnings, said Meintjes.

Spar said in a statement the deal provides it with a good international retail platform for future expansion.

Benefits of the deal include a more geographically diversified revenue stream, foreign currency diversification, enhanced scale and critical mass.

BWG services more than 1 100 stores, including 100 company-owned stores, with an annual turnover of about R17.4bn.

BWG owns the Spar brand in Ireland and South West England with some 700 Spar stores and an estimated 35% share of the Irish convenience store market.

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.

“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 contribute our capabilities in logistics, warehousing and distribution, an area in which BWG has relied heavily on third parties to supplement the capacity of its distribution centre,” he said.

- Fin24.

* Edward West is the business editor at The Witness.

  • Spijo Skhokho - 2014-08-15 05:26

    i wonder how much thy pay their employees here in SA, bcos in Brits they set a minimum income for retailers.

  • Joseph Tettey - 2014-08-16 11:37

    When Sage Life at the height of its business success moved to USA and bought over into the Insurance Industry the analyst said it was good for South Africa.It never came back with anything but destroyed all the much needed Dollars.Pick 'n' Pay followed with its adventure in Australia and it was the same story. You can purchase a rickety business in some obscure corner of the UK and some obscure analyst paid for the PR business tell us it is good for South Africa.We have seen many but we just look on not that we are fools.

  • William Steven Pearson - 2015-02-23 19:59

    Wow, go Spar.

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