AutoZone in serious trouble – but there is a plan

Business rescue practitioners (BRPs) have begun implementing a plan to save AutoZone, taking effective control of the company and engaging in potential buyers for the business. 

This was revealed in a presentation by Piers Marsden and Jenna Osborne, AutoZone’s designated business rescue practitioner.

The presentation detailed their actions to stabilise the business and their opinion on whether Autzone can survive in its current form. 

“It is the view of the BRPs that, notwithstanding inevitable risks and challenges, there is a reasonable prospect of rescuing AutoZone Holdings,” they said. 

However, this depends on the availability of funding, the underlying quality of the business after the BRPs complete their assessment, and the potential for investment in or the outright acquisition of the business.

AutoZone is the largest privately-owned automotive parts retailer and wholesaler in Southern Africa, operating in South Africa, Nambia, Swaziland, and Botswana. 

Prior to entering business rescue, it had 214 retail branches owned by the company and 33 franchise branches. The company is owned by Ethos and AutoZone Management. 

Marsden and Osborne said they have now taken effective control of AutoZone while working closely with executive management. 

The company will continue trading with a new daily payment approval process and a weekly stock-ordering system focused on only top-selling items. 

They will also conduct an analysis of the individual stores and meet with employee representatives to determine whether some outlets need to be closed. 

Importantly, Marsden and Osborne have begun discussions with several parties who have expressed an interest in acquiring AutoZone. 

This raised the possibility that the company may be sold and the proceeds from the sale used to cover its debts. 

“We believe that the business rescue process will provide a reasonable prospect in achieving a better outcome for all stakeholders than an immediate liquidation.” 

How did it get this bad

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.

In this statement, the company said its financial problems go as far back as 2014, after it was bought through a private equity transaction, which saddled it with massive debt. 

Following this, AutoZone’s performance did not meet expectations due to a tough economic environment. 

This was compounded by several severe shocks, from the Covid-19 pandemic, the July Riots, and a sharp rise in inflation, followed by interest rate hikes. 

The combination of these factors ensured the company could not meet its debt-servicing obligations, increasingly cutting any expenditure on growing the business or its operations to pay off its debt. 

Towards the end of 2021, the company said it became clear that operations were contracting below break-even levels. 

Absa, the primary lender to AutoZone, agreed to provide the company with some relief and gave it quarterly debt-service holidays. 

This, alongside a recapitalisation of AutoZone, managed to return the company to break even but failed to grow past that. 

Absa finally ran out of patience on 30 June 2024 and declined to give another extension following the failure to sufficiently recapitalise the business. 

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.