A look under the bonnet of Dis-Chem’s R156 million OneSpark deal

On Monday, Dis-Chem announced that it was buying a 50% shareholding in the life insurance provider OneSpark.

OneSpark is an authorised Financial Services Provider (FSP) that designs and sells insurance products underwritten by Guardrisk Life.

It promotes itself as a life insurance company that uses digital tools, including AI, to make insurance quicker, more accessible, smarter, and fair.

Dis-Chem will buy a 50% stake in OneSpark forR155,940,228. This means it values OneSpark at R311,880,456.

Apart from the buying price, Dis-Chem has not provided much information about OneSpark’s financials, leaving investors little information to determine whether it is a good deal.

Dis-Chem informed investors that PWC was appointed as the independent professional expert and has furnished its board of directors with its opinion.

The retailer told shareholders that PWC found that the terms of the transactions were fair to Dis-Chem shareholders.

However, this expert opinion lacks hard data or numbers that investors could use to make their own assessmentss.

Dis-Chem did reveal that OneSpark generated a loss before tax of R25,330,780. It further said the company had total equity of R1,289,502 for the year ended 30 April 2024.

These two figures can be used to calculate relative valuation ratios to analyse the acquisition.

Dis-Chem’s share price is currently around 6.4 times greater than its total equity per share. This represents a good benchmark for the valuation of companies that Dis-Chem wants to acquire.

The valuation and equity value of OneSpark translates to a share price that is 242 times greater than its total equity value per share. It is much higher than Dis-Chem’s.

If OneSpark had been valued at the same valuation ratio as Dis-Chem, it would have been worth R8 million instead of R312 million.

Similarly, Dis-Chem and OneSpark’s earnings before tax yields can be calculated and compared.

Dis-Chem generated an earnings before tax yield of 5.3% in the last financial year. Simply put, an investor received a profit before tax of 5.3% of the share price.

At the same valuation, investors would expect OneSpark to generate earnings before tax of around R16.5 million.

Instead, Dis-Chem is accepting a R12.7 million loss before tax for its R155 million investment.

These two measurements show that OneSpark is significantly overvalued compared to Dis-Chem.

It further means that Dis-Chem shareholders’ value will be reduced after the OneSpark acquisition.

Ivan Saltzman and Saul Saltzman own a large stake in OneSpark

Another concern is that former Dis-Chem CEO Ivan Saltzman and his son Saul Saltzman are large shareholders in OneSpark.

Ivan and Saul Saltzman, both directors of Dis-Chem, own an indirect 12% shareholding in OneSpark.

This may spark speculation that Dis-Chem is overpaying for a 50% interest in a company where two of its directors own a significant shareholding.

Daily Investor contacted Dis-Chem regarding this related party transaction and whether Ivan and Saul Saltzman would benefit financially from the deal.

The company said Ivan and Saul Saltzman have no plans or discussions to sell their indirect shareholding in OneSpark to Dis-Chem.

Dis-Chem’s health solutions executive, Craig Swanepoel, also said they would not benefit directly from the transaction.

“I can confirm that there are no discussions or plans for Dis-Chem to acquire Ivan’s or Saul’s indirect shareholding in OneSpark,” Swanepoel said.

However, although they will not sell their stake to Dis-Chem, it creates a high value for OneSpark, which can influence future deals.

The acquisition valuation of R312 million means that Ivan and Saul Saltzman’s indirect stake in Dis-Chem is valued at R37.4 million.

Should Dis-Chem plan to increase its stake in OneSpark in future, this valuation will impact discussions.