Three big South African companies in business rescue
Three large South African companies – The Cross Trainer-owner Frame Leisure Trading, West Pack Lifestyle and AutoZone – entered business rescue this year. While two of these companies are still in the process, one recently received a lifeline.
West Pack Lifestyle, one of South Africa’s most recognisable retail brands, was the first to enter business rescue this year.
West Pack entered voluntary business rescue in June this year after its board of directors adopted a resolution on 9 May 2024 to voluntarily commence business rescue proceedings.
West Pack comprises numerous companies, including West Pack Lifestyle, West Pack Lifestyle Distribution Centre, West Pack Franchise, Petzone, and Petzone 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 are aiming to save the company and these jobs.
Next in line was automotive parts retailer and wholesaler AutoZone, which entered business rescue proceedings in July this year after landing in financial trouble
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.
The latest company to enter business rescue was family-owned Frame Leisure Trading, which owns The Cross Trainer, Xkids, and Xtrend.
The Cross Trainer is the company’s most well-known brand in South Africa. The family-owned and operated retailer first opened its doors in 1995 and has since grown to 67 stores and hundreds of employees.
The Cross Trainer has been run by the Frame family under its investment vehicle, Frame Leisure Trading.
Cash-flow problems stemming from the Covid-19 pandemic and its lockdowns resulted in the company failing to keep up with increasing operational costs.
This resulted in some stores being shuttered by landlords due to disputes over rent payments.
Ultimately, the company officially entered business rescue on 14 August before having to shut down any of its stores.
The company appointed George Nell and Gideon Slabbert from Corporate Business Rescue as joint business rescue practitioners.
Nell said his goal was to keep all jobs safe while saving the struggling company, which employs around 400 people.
Based on updates from the three companies’ business rescue practitioners, they all stand a change to survive and exit the business rescue proceedings stronger than when they entered.
However, a lot of work and in some cases a substantial cash injection is needed to turn these companies around.
Below is an overview of where the three companies are in the business rescue process.
West Pack Lifestyle
West Pack’s business rescue practitioners published an update on the company’s proceedings on 13 September 2024.
The first meeting of creditors has already occurred, where the business rescue practitioners requested an extension on the deadline for publishing the business rescue plan.
The extension was granted, and the deadline for publication was moved to 23 September.
However, a wrench was thrown in the plan when news broke that major retailer Spar is considering an offer to acquire West Pack.
Spar said it plans to expand beyond the food segment and win more market share in South Africa.
“While we are always reviewing or exploring ways to increase our offerings and expand our business, discussions such as this would be confidential until finalized, and Spar is not in discussions with West Pack Lifestyle currently,” Spar said in a response to questions.
A spokesperson from Matuson & Associates, the administrators handling the rescue process, told Bloomberg that it had received several binding offers for West Pack, which it will now evaluate.
No update has been given on any of these offers yet, and the business rescue plan has not yet been published on Matuson & Associates’ website at the time of this article’s publication.
AutoZone
When announcing that it had entered into business rescue proceedings, AutoZone said it was confident the company could recover, given its strong national brand and branded products in South Africa.
AutoZone CEO Dion de Graaff said the business rescue process will afford its practitioners the “breathing space” they need to explore all possible outcomes for the company.
At the time, De Graaff said three third parties had expressed interest in investing in AutoZone. It has reportedly received several offers from potential bidders seeking to acquire the company.
These reports led the business rescue practitioners to request a deadline extension for the publication of the business rescue plan, which was granted.
AutoZone’s business rescue plan was published on 2 September 2024.
However, on 4 October, it was announced that MetAir would be acquiring AutoZone in a R290 million deal.
In its announcement, Metair noted that a key driver of AutoZone’s historical trading performance has been the impact of the significant debt on its balance sheet, predominantly related to the 2014 leveraged buyout of the business.
“This funding structure impacted AutoZone’s ability to invest in working capital sustainably, ultimately impacting historical profitability,” Metair said.
“All of AutoZone’s historical debt will be settled following implementation of the Business Rescue Plan.”
“Metair is of the view that following the restructuring of AutoZone in terms of the Business Rescue Plan and investment in working capital, the business can return to profitability and be value accretive for Metair.”
In terms of the agreement, the maximum amount Metair would pay is R290 million. This consists of the following:
- A nominal amount for the acquisition of the sale shares
- An aggregate loan facility of up to R290 million
In addition, the company said AutoZone will need to use this money to pay R200 million to ABSA to settle the bank’s secured claim.
AutoZone must spend R15 million to settle pre-commencement unsecured creditors and R75 million to fund its working capital requirements and operate as normal.
The Cross Trainer
Frame Leisure Trading CEO Mark Frame said the group’s finances were hurt by the outbreak of the Covid-19 pandemic and its key creditors changing payment terms from 90 days to 60 days or even 30 days.
Business Day reported that this led to a situation in which the company reduced its working capital, leaving it unable to manage its operational expenses effectively.
“The financial situation was further exacerbated when key suppliers invalidated previously agreed-upon rebates and opened ‘mono brands’, which directly competed with Frame Leisure Trading,” Fram said.
“Brands also changed their strategy to a direct-to-consumer model, which reduced the amount of product and certain styles to retailers like Frame Leisure Trading.”
“This strategic shift by suppliers eroded the company’s market share and profitability.”
He added that the mass lootings in 2021 had a devastating impact on Frame Leisure Trading, affecting 50 stores and leading to the closure of six.
“The compensation from Sasria was insufficient to cover the losses, and the company received no relief or redemption from landlords, further deepening its financial woes,” he said.
Since the company has entered business rescue, its financial woes have seemingly worsened.
Newzroom Afrika reported at the start of September that the company’s workers have started looting its stores over the alleged non-payment of their August salaries.
Nell confirmed to the broadcaster that the employees had been paid 70% of their salaries, and some severance packages for laid-off employees were not paid.
When asked about the other 30%, Nell said the company is in a very difficult position.
He said that since their appointment as the company’s business rescue practitioners, Nell and Slabbert have been “fighting the good fight” and trying to save the company.
Their work thus far has included attempting to secure post-commencement finance for the company, which is the capital that is provided to a company once business rescue proceedings have commenced.
“A company in business rescue is virtually in a twilight zone, and there is not just all of a sudden money available,” he said.
However, he said some large national retailers have shown interest in investing in the company.
“In a sense, we think there’s a possible good story that can come out of this,” he said.
Daily Investor contacted Nell for comment and an update on the proceedings’ current status, but it did not receive a response by the time of publication.
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