1. BACKGROUND HISTORY
The business consists of two retail stores and a wholesale solution for customers that do bulk buying, big building groups and large civil contractors. The business has its origin more than 20 years ago in the Free State when it first trade as a humble hardware and DIY store with limited resources as a typical neighborhood store in the city. The new store was converted to a hardware and building store recently with a trading area over 2,000 square meters and an outside area of 3,000 square meters.
The current owner relocated to the Western Cape to be closer to his main core businesses and is therefore keen to sell the business as one combined going concern or alternatively 100% shares in the operating company. The owner has invested in an ambitious repositioning strategy of both stores and are prepare to stay on for 6 months or longer after handover, to oversee a smooth and proper handover. The two retail stores serve the builders and DIY markets in different areas, while the wholesale from the new store serves the large building groups and big civil contractors and tender business, with bulk supply.
Part of the repositioning strategy was to upgrade the systems and repositioned the business in the hardware and building market environment on an ongoing basis to serve a much bigger client base with a more diversified range of services and products in the industry. The business underwent a comprehensive revamp at the same time which includes the replacement of equipment, shelves, fleet of delivery vehicles and specialized equipment to meet the demand for advanced services. The changes not only significantly accelerate the growth in revenue but also improved the volume capacity to service the growth in a much greater hardware and building market segment at better competitive pricing due to large bulk buying at better prices.
2. FINANCIAL OVERVIEW
A comprehensive financial overview was carried out over Annual Financial Statements as well as Management Accounts up till February 2023 (12 Months). The relevant source documents were confirmed against more than 85% of the operational expenditure and a benchmark model was applied to compare the balance of expenditure. There are summaries of the supporting documentation for the relevant overview periods available. The current financial overview does include a projection module based on combined information, obtained from the February 2023 financial statements for of the business and a comprehensive Independent Fusibility study compiled for the new store. There are indeed a complete viability analysis and financial projections for five years compiled for the business, if requested.
2.1. Analysis
2.1.1 Sales
Average annual sales have increased dramatically over the past months up to the end of February 2023. The reason for the growth trend is due to the implementation of a strategy to serve a more diversified customer base and investment in a much larger stock holding of a wider variety of products. The effect of this together with better trained staff who focus on quality service delivery shows a positive effect on the business's net profit and results. The sales grew with more than 26% from February 2022 to February 2023 on average per month.
2.1.2 Gross Profit
The gross profit represents a solid income for the business and generated a gross margin between 27% to 31%. The sales mix of higher margin items are essential to cross subsidize the volume sales of lower margin items and therefore the implementation of a balance in the sales mix show good progress to achieve the best gross margin, still at competitive pricing and clever management of purchasing principles to keep an eye on cost of sales.
2.1.3 Operational Expenses (OPEX)
The operational expenses of the business are relatively low at a 15% benchmark, the premises rent are low against the normal industry benchmark.
2.1.4 Net Profit (EBITDA)
The EBITDA was calculated after deducting certain Non-Operational Expenses. The combined adjusted monthly EBITDA average more than R1,2Million net profit and project to more than R15Million for the first year.
2.2 Price Valuation
The proposed price valuation was calculated against industry benchmarks and considering that the business has a good historical growth trend and very good potential to grow to the next level. The business was brand new revamped with state-of-the-art equipment (cutting machinery, etc) and a fleet of delivery vehicles, no major capital expenditure is needed in the near future.
2.2.1 Acquisition Value
R38Million: Business Value (Selling Price, ex Stock)
R12,5Million: Stock Value (Estimated, and there are payback options)
R50,5Million: Total Acquisition Value
2.2.2 Provability
R14,8: EBITDA per Annum
R 1,2: EBITDA per Month
2.2.3 Investment Returns
2.6: PE Ratio (Price Earnings Ratio, Before Tax)
39%: ROI (Return on Investment, Excluding Stock)
32: MPB (Months’ Pay Back)
3. IMPORTANT NOTE
There are certain terms and conditions and requirements in terms of our agreement with the seller under which we are restricted to introduce to a potential purchaser/investor, no detailed operational/financial information will be disclosed without the required documentary and sours documents being processed according to the seller's criteria.
