Pepkor's Possible Interest in Bidding for Tapestry Home Brands

  • Stock Market Analysis

The wave of recent announcements of foreign acquisitions of South African firms and consequent foreign direct investments (FDI) into South Africa may disguise the fact that the bulk of such mergers and acquisitions are in fact by local firms of local targets.

Tapestry Home Brands is on the market as its private-equity partners Actis and Westbrooke Alternative Asset Management look to exit – and the most likely purchaser will be a firm which understands the local retail market. Pepkor (JO: PPHJ ) is among the leading names in this category, already having Ackermans, Russells and Sleepmasters in its stable, so it would make perfect sense to add Tapestry’s chains Volpes, Coricraft and Dial.a.Bed so as to further expand in furniture and bedding.

This is because it is often the case that the most obvious candidate to buy your business is a natural competitor – they’re usually the ones causing you the most difficulties in your various markets. They will consequently best understand your business and the marketplace, putting them in a position to appreciate the value of your company – especially where the acquisition offers synergies that can boost the combined profits.

Why both Pepkor and Foschini Group (JO: TFGJ ) may downplay their interest is because a local deal comes with a number of risks. If the sale transaction does not proceed the interested acquirer/competitor is recipient to valuable competitive information that it can use to its advantage – even without breaching the usual confidentiality agreement. Both parties may well wish to keep negotiations hush-hush.

Of course, it is not only competitors that might which to acquire a target company, but often it is the target’s own suppliers looking to enhance the value of their product offering, or one of its own customers looking to increase their profit margin by acquiring a retail competency. Such a buyer is often preferred over a pure competitor.

When we act on behalf of a South African company wishing to find a buyer, we find that the best approach is to speak to as wide a range of prospective buyers both local and foreign. An important aspect is to first establish a process of collaborative trust to finalise a sale. To approach a deal any other way establishes an almost schizophrenic win-lose relationship when what is vital is a win-win structure. After all, the ex-owner who has just sold the business will in most cases remain in the business in a management role.

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