Top South African automotive company in deep trouble

Automotive parts retailer and wholesaler AutoZone has entered business rescue proceedings after landing in financial trouble.

AutoZone is the largest privately owned automotive parts retailer and wholesaler in Southern Africa. It has a presence in South Africa, Namibia, Swaziland, and Botswana

The company has 214 wholly-owned retail branches and 33 member-owned franchise branches.

It boasts a supporting supplier base of 688 companies and brands contributing to a range of over 75,000 parts.

The company is owned by Ethos and AutoZone Management. “AutoZone directors and management believe that responsible business practices result in good sustainability.”

AutoZone said it is a proudly black economic empowered company and holds a Level 5 B-BBEE certificate.

AutoZone published a notice on 5 July 2024 that its board of directors adopted a resolution on 1 July 2024 to voluntarily commence business rescue proceedings.

The company nominated Piers Marsden and Jenna Osborne to be its joint business rescue practitioners.

AutoZone explained that its financial distress dates back to 2014, following a private equity transaction funded by debt.

AutoZone’s performance did not meet expectations, primarily due to the increasingly challenging South African economy.

The COVID-19 pandemic, civil unrest, and stagflation further impeded efforts to address the poor performance.

AutoZone faced increasingly burdensome debt service obligations, diverting cash from operations to meet these funding needs.

By late 2021, it became apparent that operations were contracting below break-even levels, initiating a cycle of negative operating leverage.

The lender, Absa, agreed to provide quarterly debt service holidays, offering much-needed relief. Concurrently, a sales process was initiated to recapitalise AutoZone.

While liquidity was sufficient to halt the negative leverage, it was not enough to return to positive leverage, effectively keeping the business at break even.

The facilities from Absa matured on 30 June 2024. However, the sales process to recapitalise the business did not conclude in a sale.

Absa declined to give another extension. “The resultant future cash flows remain challenging and going concern is uncertain,” AutoZone said.

The company is confident it can recover, given its strong national brand and branded products in South Africa.

It also has a very loyal customer base and valuable intellectual property on certain automotive products.

“It makes the company attractive to those in the automotive spares industry and should enhance AutoZone’s prospects of being rescued,” it said.

“I have had three interested third parties that have expressed an interest in investing in the company’s business,” AutoZone CEO Dion De Graaff said.

He said the business rescue proceeding will give them breathing space to explore all of the approaches and opportunities.

It will also give them the opportunity to engage with new potential investors or purchasers to restructure the company and render it solvent.

There is also the option to sell the business and its assets, which would result in a better return for AutoZone’s creditors or shareholders than an immediate liquidation.

“I hold the view that there are reasonable prospects for the rescue and recovery of the company through using the business rescue processes,” De Graaff said.

AutoZone joined a few other prominent companies, including West Pack and Ellies Holdings, that have entered business rescue proceedings over the last few months.

Ellies Holdings entered business rescue proceedings in January 2024. In April 2024, its business rescue practitioner said the company could not be saved and placed it into liquidation.

Ellies Electronics said it will continue to trade despite the liquidation of its parent company, Ellies Holdings.

Ellies Electronics is the main operating subsidiary of the Ellies Group and contains all of the group’s cash-generating business units.

West Pack announced that its board of directors adopted a resolution on 9 May 2024 to voluntarily commence business rescue proceedings.

It comprises numerous companies, including West Pack Lifestyle, West Pack Lifestyle Distribution Centre, West Pack Franchise, Petzone, and Petzone Franchise.

The company cited several reasons for its financial distress. Notably, it cited its rapid growth, which led to cash flow problems.

West Pack said it opened stores too quickly and needed to stock them with inventory, which used up its cash reserves and made it difficult to repay debts.

It also pointed to South Africa’s struggling economy and load-shedding, saying these factors further hurt the business.


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