US private equity firm Bain Capital has sealed the largest buyout to date in South Africa, after agreeing to pay 25 billion rand ($3.5 billion) for listed retail chain Edgars Consolidated Stores.
Bain has had to pay a substantial premium to win the auction for Edgars, seeing off competition from rivals Kohlberg Kravis Roberts and the Blackstone Group. Bain is paying 46 rand per share, the companies said in a joint statement. This is a 51 percent premium on the share price on October 16, the day before Edgars said it was in talks about a potential buyout.
Edgars said the bid offered shareholders an attractive exit option. “[Edgars] recognises that although its prospects remain positive, its future performance and corresponding growth profile are not without risk. The rationale for the offer is to provide shareholders with the opportunity to realise significant value for their investment.”
The chain has also agreed not to solicit any competing offers, and to pay Bain Capital a break fee of 1 percent of the transaction value if the bid fails. The existing management team will remain in place, and will participate in a “future equity scheme”.
Edgars was founded in 1929 and now operates 10 retail chains in South Africa, Botswana, Namibia, Swaziland and Lesotho. Its stores include Boardman, a homeware retailer, Can, a stationery chain, and shoe shop Jet.
Citigroup and Kirkland & Ellis advised Bain Capital, while Barclays and Absa Capital provided debt financing. PwC gave a fairness opinion on the bid.
The deal now awaits approval from 75 percent of Edgars’ shareholders, the competition authorities and South Africa’s central bank.
Bain Capital has substantial experience in the retail market, having previously invested in US chains Toys R Us, Domino’s Pizzas and Burger King. It is currently being linked with a bid for Sainsbury’s, a UK grocery retailer.