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Pepkor Sells The Building Company ("TBCo") to Capitalworks in $62.4 Milion South African DIY Acquisition

Pepkor Holdings, a leading retail group, divests its stake in TBCo to Capitalworks Private Equity for $62.4 million (i.e., ZAR 1.2 billion), pending regulatory approval. This strategic move reflects Pepkor's focus on consolidating its core business segments. TBCo is a significant player in South Africa's DIY and timber market and thus provides Capitalworks a good foundation to grow the business and take on the more established players of Builders Warehouse and Cashbuild.

In a significant move to streamline its operations and focus on core business segments, Pepkor Holdings, a leading retail group has announced a sale of its entire stake in The Building Company ("TBCo") to Capitalworks Private Equity. The transaction is valued at approximately $62.4 million (i.e., ZAR 1.2 billion) and is subject to regulatory approval.

One reason for the sale is that while the TBCo business is a well-established player in South Africa in the DIY and timber market, compared to the overall business it is a small player and contributor to the bottom line. Pepkor is considered the largest retail group in South Africa and one of the top five retailers in all of Africa based on total revenues across the markets where it operates. The brand was founded in 1965, operates in twelve African countries, and specializes in lower-end consumer segments looking for value and low prices.

Virtually every real estate developer and owner in South Africa is aware of the brand since they own more than 5,100 stores, across seventeen brands, and are known to be pleasant to work with from a landlord-tenant point of view. Known for high foot traffic, Pepkor rarely experiences store closures and maintains a strong track record of timely rent payments. It's not uncommon to see multiple Pep stores in the same neighborhood and even in adjoining malls.

History of The Building Company

TBCo was founded in 1971, just a few years after the holding company was launched in 1965. It began as a single timber yard in Johannesburg, South Africa, and over the years expanded, organically and through acquisitions, to become a leading DIY and timber company in South Africa.

The three brands are Buco, Timbercity, and Tiletoria. Buco is a DIY chain catering to professionals and household weekend warriors. Timbercity on high-quality timber products and building materials. Tiletoria on bathroom and tile supplies for pros and do-it-yourselfers. Combined they have around 160 stores in South Africa and compete mostly with Builders Warehouse (i.e., Walmart) and Cashbuild. TBCo is by most measures third in market share behind its two main competitors with a market share of between 15% and 20%.

The Acquirer Capitalworks

For Capitalworks Private Equity, the firm gains a foothold in the South African DIY and timber market through this acquisition. The brands within the holding company, such as Buco and Timbercity, hold a significant market share and offer a great starting point to build what could be a very exciting business for the private equity firm.

Capitalworks is an established private equity manager in South Africa having raised over $1 billion since its founding in 2003. Its latest fund, Capitalworks Fund V has a vintage of 2021 and is likely the source of the bulk of the capital used to make the Pepkor acquisition, along with bank financing and potential co-investment partners.




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