AutoZone, the biggest privately owned automotive component retailer and wholesaler in Southern Africa, announced that it entered into voluntary business rescue on 1 July 2024.
AutoZone boasts 214 wholly-owned retail branches and 33 member-owned franchise branches across South Africa, Namibia, Eswatini, and Botswana, employing approximately 1,452 workers.
It has a supporting supplier base of 688 companies and brands contributing to a catalogue of over 75,000 parts.
In a notice published on 5 July, CEO Dion De Graaff said that AutoZone’s financial difficulties date back to 2014 when it underwent a private equity transaction funded by a “responsible level” of debt.
Following the transaction, the company started reporting lacklustre performances primarily due to the “increasingly challenging South African economy,” said De Graaff.
Efforts to turn this around were hampered by the Covid-19 pandemic, social unrest, and a period of virtually zero economic growth.
To address these challenges, a lender agreed to provide quarterly debt service holidays, and a sales process was initiated to recapitalize AutoZone.
“While liquidity was sufficient to halt the negative leverage, it was not enough to return to positive leverage, effectively keeping the business at break even,” said De Graaff.
The debt facilities from ABSA were set to mature on 30 June 2024, however, with the sales process aimed at recapitalising the business falling through, the bank declined to give another extension.
As a result, AutoZone found itself “financially distressed” as defined in terms of Section 128(1)(f) of the Companies Act 71 of 2008, thus motivating the directors to place the company into business rescue.
Light at the end of the tunnel
While AutoZone is in dire straits at the moment, there are prospects for recovering the parts supplier.
De Graaff said AutoZone has a strong brand presence in South Africa, a very loyal customer base, and valuable intellectual property on certain products.
“All of this makes the company attractive to those in the automotive spares industry and should in the result enhance the company’s prospects of being rescued,” he said.
On that note, the CEO said he has already received interest from three parties regarding potential investments into AutoZone.
“A business rescue proceeding will afford the company a breathing space to allow its business rescue practitioner to explore all of the approaches and opportunities and/or to engage with new potential investors and/or purchasers all with a view to restructuring the company to render it solvent and, failing which, to sell its assets or business,” said De Graaff.
Any of these outcomes would provide a better return for AutoZone’s creditors and shareholders than the immediate liquidation of the company.
“I hold the view that there are reasonable prospects for the rescue and recovery of the company through using the business rescue processes,” concluded De Graaff.
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