Three big South African retail companies in business rescue

Three well-known South African retail brands, Petzone, AutoZone, and WestPack, are in business rescue and face an uncertain future.

This month, automotive parts retailer and wholesaler AutoZone entered business rescue proceedings after landing in financial trouble.

AutoZone joined several prominent companies, including West Pack, Petzone, and Ellies Holdings, in entering business rescue proceedings this year.

Ellies Holdings is the only listed company in this group. It entered business rescue proceedings in January 2024.

However, its financial situation was so dire that its business rescue practitioner said the company could not be saved, and they 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.

Last week, SMD Technologies announced that it had acquired the Ellies electrical brand and intellectual property.

“Ellies is a trusted name with consumers, given its long-standing heritage,” said SMD Technologies managing director and co-founder Avi Mishan.

“We are excited to integrate the Ellies electrical brand into our portfolio and continue providing high-quality products to our customers.”

SMD said the sale of the Ellies electrical brand would ensure that the trusted name remains available to its loyal customers.

“The acquisition by SMD Technologies is set to revitalise the brand, leveraging SMD’s innovative approach and robust distribution network,” the company assured.

“By integrating the Ellies electrical brand into its portfolio, SMD Technologies aims to uphold the legacy of the Ellies brand.”

SMD Technologies highlighted that it only acquired the Ellies brand and intellectual property, not the operating units.

While Ellies’s fate is clear, the other companies that entered business rescue face an uncertain future.

Here is a look at the situation at Petzone, AutoZone, and WestPack.

Autozone

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

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

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.

It said its financial distress dates back to 2014, following a private equity transaction funded by debt.

AutoZone’s performance did not meet expectations, and it faced increasingly burdensome debt service obligations.

It was forced to divert cash from operations to meet funding needs, and by 2021, it had fallen into a cycle of negative operating leverage.

Absa, its main lender, tried to assist through a debt service holiday, but it did not help, and AutoZone’s cash flows remain challenging.

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

AutoZone CEO Dion De Graaff said three third parties have expressed interest in investing in the company’s business.

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

The first meeting with employees and their representatives, including trade unions, was held on 12 July 2024.

WestPack

In May, West Pack Lifestyle, one of South Africa’s most recognisable retail brands, has entered voluntary business rescue proceedings.

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

The group’s related companies further include Café Estreito, Café Estreito Franchise, and Beija Flor Investments.

West Pack employs 924 employees, and the business rescue proceedings aim to save the company and these jobs.

The company was financially distressed and was unlikely to pay its debts when they became due over the next six months.

West Pack explained that it landed in financial trouble because of its accelerated growth path, which strained its cash flows.

West Pack said there was a reasonable prospect of the company being saved and is executing initiatives to restructure the business and drive its turnaround.

These initiatives include exploring offers to acquire some of West Pack’s assets or the full business.

It is also considering a corporate finance transaction and selling non-core assets to improve its financial position.

Petzone

On 15 May 2024, Petzone and Petzone Franchise were placed under business rescue after the board of directors agreed to it on 9 May 2024.

Petzone operates 21 stores and employs 104 staff members. Petzone Franchise has 34 stores.

Like its holding company, West Pack, Petzone is in financial distress and will be unable to pay its debt when it is due.

To save the company, Petzone is exploring offers to acquire its assets or the company as a whole.

In June, the business rescue practitioners engaged with creditors, including financiers, landlords, and other stakeholders.

They have already closed non-performing stores and started discussions and processes to sell non-core assets.

The business rescue plan, which was set to be published on 24 June, has been delayed until 30 August.