Top South African automotive company saved

JSE-listed Metair has completed the acquisition of AutoZone, which entered business rescue in July 2024 after a private equity deal saddled the company with debt. 

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.

Metair revealed in a SENS announcement on 17 December that all the remaining conditions for its acquisition of AutoZone have been finalised, including approval from the Competition Commission. 

Metair, through its subsidiary Nikisize Limited, acquired all of AutoZone’s issued share capital.

The deal comprises of a nominal amount for the acquisition of the shares in AutoZone and an aggregate amount of R278.5 million advanced by Nikisize to AutoZone. 

Of this amount, R188.5 million is payable to ABSA to settle its secured claim, R15 million to settle pre-commencement unsecured creditors, and R75 million to fund AutoZone’s working capital requirements.

Metair said the acquisition will enhance its ability to diversify strategically within the aftermarket automotive sector, aligning well with the increasingly active used vehicle market in South Africa. 

It will also provide Metair with an established distribution channel to grow its current aftermarket parts business in Southern Africa. 

Metair currently manages an international portfolio of companies that manufacture, distribute and retail products for energy storage and automotive components.

In July 2024, AutoZone announced that it would enter business rescue as a last resort to save the struggling company. 

It explained that its financial problems dated 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.