Truworths to Buy Office Retail of U.K. in $385 Million Dealby
South African clothes chain in new foray outside continent
Office management to take 11% stake; can cash out in 3 years
Truworths International Ltd. agreed to buy a majority stake in U.K. shoe chain Office Retail Group Ltd., the company’s first move into Europe and the latest in a string of international acquisitions by South African retailers.
The deal values Office at 256 million pounds ($385 million), with the management team reinvesting a portion of its sale proceeds and retaining an 11.1 percent shareholding, Truworths said in a statement on Monday. The Cape Town, South Africa-based company has the right to buy the stake in three years to five years. The main seller in the deal is London-based private equity firm Silverfleet Capital.
“The acquisition enables the Truworths group to expand its operations, extend its product offering, benefit from currency diversification and balance its revenue between cash and credit sales,” Truworths said. While sales made on credit accounted for 70 percent of the total in the year through June, about 54 percent of Truworths’ revenue will be generated from cash sales following the acquisition.
The deal adds to a list of overseas takeovers by South African companies this year, including the 780 million-pound acquisition of British fashion retailer New Look by investment company Brait SE and the purchase of U.K. clothing chain Phase Eight by retailer The Foschini Group Ltd. International expansion helps companies diversify their sources of revenue beyond the rand, which has weakened about 19 percent against the dollar this year.
Truworths will pay the acquisition amount and transaction costs with 3.6 billion rand ($249 million) of cash from the South African business. Office’s existing debt will be refinanced through 80 million pounds of term loans and 5.9 million pounds of revolving U.K. credit facilities.
Truworths shares declined 1.6 percent to 94.51 rand at the close in Johannesburg, valuing the company at 40.6 billion rand. The stock has jumped 22 percent this year, compared with an 11 percent gain on the FTSE/JSE Africa General Retailers Index.
The company expanded in Australia in 1994 with the purchase of clothes chain Sportsgirl Sportscraft, before putting it into liquidation five years later. Truworths, which sells mens’ and womens’ clothing ranging from office apparel to casual wear, has also been expanding its children’s fashion offerings in South Africa.
Office’s net assets at Jan. 25 were 60 million pounds, with sales of 270.2 million pounds. The deal is expected to be completed by no later than Dec. 24, Truworths said.
The management shares will be valued at an agreed earnings multiple, with additional value accruing if certain performance targets are met, Truworths said.