Key message: Cashbuild has made a large acquisition, but TBC does fill in some important gaps in the building supply market for Cashbuild.
- Cashbuild announced the acquisition of 100% of The Building Company (TBC) from Pepkor Holdings for R1.074bn, including R2.929bn of shareholder loans of Pepkor against TBC.
- The price paid implies a negative net asset value of R1.855bn for TBC (subtracting the shareholder loans from the purchase consideration). TBC had impaired assets to the value of R1.247bn in 2019.
- The purchase price (enterprise value) is at a 5 times trailing EBITDA multiple (excl. IFRS 16 adjustments). The implied EBITDA for the 12 months to March 2020 is R215m.
- This implies an EBITDA margin of 2.7% for TBC, low relative to the 6.4% EBITDA margin for Cashbuild in FY19.
- TBC is a retail and wholesale building materials business with a revenue of R8bn to March 2020. Well known brands include Buco, Timbercity, MacNeil and Tiletoria.
- TBC has 160 owned and 21 franchised stores, the bulk (121) of which are Buco and Timbercity. The remainder of the portfolio covers wholesale and specialised sectors.
- The acquisition gives Cashbuild a greater presence in:
- Western Cape, Eastern Cape and KZN (Cashbuild has not had a strong coastal presence)
- Broader customer penetration into the middle-to-higher income segment
- The contractor markets
- Cashbuild has built its business around strong procurement practices, and a larger portfolio should provide opportunities to leverage purchasing power and operational efficiencies.
- Competition Commission approval is required, which is not guaranteed given the size of this acquisition and the enlarged presence in the building materials market. There are, however, several large competitors to balance this risk.