Dis-chem has been having two busy financial years on the acquisition front.
Quick history
Ivan and Lynette Saltzman founded Dis-chem in 1978. Dis-chem listed 27,5% of its issued share capital on the JSE in 2016. This was the second largest initial public offering (IPO) on the JSE. Dis-Chem raised R4,4bn through the placement of 236,8m shares at R18,50/share.
Dis-chem had intended to use the net proceeds received by from the IPO;
- to pay the total share repurchase price (R3,58bn),
- to pay down ~R700 million of existing debt,
- the remainder of the proceeds was used for general corporate purposes.
Which acquisitions did Dis-chem make in the last two financial years?
1) On 1 March 2022, Dis-Chem acquired 100% of the issued share capital of Superstrike Proprietary Limited (trading as Baby Boom) for R23 million.
Baby Boom is one of South Africa’s leading retailers of branded baby goods specialising in products for expectant mothers, newborns and children up to the age of 3. Baby Boom has 23 stores (including its Online Store).
2) October 2021, Dis-Chem’s acquired of 100% of the issued share capital in and shareholder claims of Pure Pharmacy, trading as Medicare Health (50 pharmacies) from existing shareholders. Dis-Chem will pay a final purchase consideration of R245.7m. The total identifiable net assets at fair value was a -R10.17m which led to a goodwill of R255.9m.
Many of the stores in the Medicare portfolio are in convenience centres, in geographies where Dis-Chem is currently under-represented which gives the Group access to new markets. Year ended 28 Feb 2021, Medicare generated revenue of R1.1 billion, with dispensary contributing 67%.
3) At the end of 2020, Dis-Chem acquired Baby City in a transaction valued at ~R430 million. Dis-Chem aims to open clinics to provide antenatal care to pregnant moms in the Baby City stores. Baby City operates a network of 33 stores across SA.
4) Dis-Chem entered into agreements with the shareholders of Kaelo Holdings to acquire 25% of the equity of Kaelo for a purchase consideration of R195 million, subject to company performance hurdles in each of the FY21 and FY22 periods.
Kaelo gives Dis-chem an entrance into the health insurance sector. Kaelo’s portfolio of health assets includes; benefit-rich gap and primary health insurance products, occupational health clinics, and is the owner of the AskNelson psychological wellbeing platform.
Kaelo has delivered impressive and consistent annual performance, with CAGR product revenue growth of 30% over the last 3-years.
5) On 1 Mar 2021, Dis-Chem acquired 87.5% of Healthforce for R48m. Healthforce offers clinic management software that, amongst other system capabilities, sets up clinic nurses as the low-cost entry point into the healthcare system.
The technology includes a telemedicine capability, which provides real-time video connections between patients and nurses with an on-demand remote doctor network.
Healthforce is implemented in close to 440 clinic rooms, mainly in pharmacies, across South Africa.
At the end of the 2022 financial year, the Dis-chem Group had a store base of 289, including Dis-Chem, Medicare, Mediclinic and Baby City stores.
For FY22, Dis-chem’s retail segment grew revenue by 15.6% to R27.1billion, underpinned by the mass and in-store vaccination sites and the Baby City and Medicare acquisitions.
Dis-Chem specialises in the retail and distribution of pharmacy and healthcare products. Dis-chem wanted to reduce rental payments so it entered into a serise of transactions.
6) 25 January 2022, Dis-Chem acquired 100% of the share capital of CT Distribution Centre, KZN Warehouse Proprietary Limited and Eleadora Proprietary Limited for R217 million. This was a related party transaction due to the companies acquired being wholly-owned by directors, previous directors and prescribed officers of Dis-Chem, who are also shareholders of Dis-Chem.
CT Distribution Centre is a rental property company that currently earns a monthly rental from Dis-Chem Distribution of R1,971,664. The value of the net assets and profits before tax attributable to the net assets as at 31 November 2021 were R86 million and R10 million respectively.
KZN Warehouse is a rental property company that currently earns a monthly rental from Dis-Chem Distribution of R1,252,067. The value of the net assets and profits before tax attributable to the net assets that are were bought based on management accounts prepared in terms of IFRS as at 31 November 2021 were R78million and R4 million respectively.
Eleadora is a rental property company that currently earns a monthly rental from CJ Enterprises Proprietary Limited of R494,316. The value of the net assets and profits before tax attributable to the net assets as at 31 November 2021 were R67 million and R4 million respectively.
The acquisition of the distribution centres was good. Dis-Chem now own three of its five distribution centres and will achieve a reduction in rental expenses incurred outside the Group. The ownership of the assets ensures that the Group holds the necessary strategic assets for long term growth.
These acquisitions seem to be timed and align to the Dis-Chem Group’s overall strategy. On the wholesale side, Dis-chem’s short- to medium-term financial and operational targets include gaining scale through acquisitions.
Ivan and his wife Lynette (founders of Dis-chem), through their investment vehicle, Ivlyn Local Investment (Ivlyn), raised ~R1.96bn through the sale of 65m Dis-Chem ordinary shares at a price of R30.30/share.
The Saltzman family elected to sell 7.50% of its current shareholding in Dis-Chem through its shareholding vehicle, Ivlyn Local Investment yesterday via an accelerated bookbuild offering to selected investors. This is how they raised the R1.9bn.
In addition to the 7.50% sale, the founders also announced its commitment to divest up to 3.75% of Dis-Chem’s issued share capital to a select number of key senior executives who are central to the delivery of the Dis-Chem’s strategic priorities.
Before the Bookbuild, Ivlyn held ~52.67% of Dis-Chem shares. After the Bookbuild, Ivlyn now owns ~45.2% of Dis-Chem’s issued share capital. The Bookbuild price represented a 4.0% discount to the pre-launch closing price of R31.55 per share on 24 August 2021.
The Saltzman family through their shareholding vehicle, Ivlyn Local. Investment had also agreed in principle to dispose of 86,468,741 Dis-Chem ordinary shares, representing 10.05% of Dis-Chem’s issued share capital to a BEE Consortium.
The BEE Consortium comprised of; Royal Bafokeng Holdings and the Black Panther Consortium.
Black Panther comprises of GloCap Empowerment Private Equity Fund, Zungu Pharmaceuticals (part of Zungu Investments Company) and Temo Capital (part of Modidima). GloCap Empowerment Fund 6 is the investor in the BEE Transaction through the Black Panther Consortium and GloCap is the private equity manager of Fund 6. Ivan Saltzman is an investor in Fund6.
The BEE Transaction has now been approved by all the BEE Consortium members and the required financing agreements have been entered into. Price at which the BEE Transaction was concluded was at a 17.5% discount and is subject to a lock-in period of the BEE Consortium for a 3 yr.
Following the conclusion of the BEE Transaction the shareholding (10.05%) of the BEE Consortium in Dis-Chem would be:
RBH: 6.63%
Black Panther Consortium: 3.42%
• Glocap : 1.34%
• Zico: 1.33%
• Temo: 0.75
July 2021, Dis-chem launched an on demand 60 minute delivery service called DeliverD that had a flat rate of R60 for deliveries. This was key in order to tap into the growing trend of online shopping.
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