AutoZone, West Pack, Petzone under business rescue

AutoZone, the automotive parts retailer is amongst well-known South African brands that have entered into business rescue in 2024.  

The others are retail stores West Pack, Petzone and Ellies Holding. 

AutoZone’s financial woes  

The board of AutoZone has decided to voluntarily commence business rescue under the supervision of Piers Marsden and Jenna Osborne from Matuson & Associates as business rescue practitioners. The recovery of the business under business rescue commenced on 1 July 2024, with the first meeting with employees held on 12 July 2024.

In an affidavit, AutoZone CEO Dion de Graaff details how the company found itself in financial distress, which includes the Covid-19 pandemic effects. It all started in 2014 when the company underwent a private equity transaction.

“However, AutoZone’s performance did not meet expectations, primarily due to the increasingly challenging South Africa economy,” said De Graaff.

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He says that efforts to address the lack of performance were further made difficult by the Covid-19 pandemic, civil unrest, and a period of stagflation. Throughout this period of difficulty, AutoZone faced increasing debt service obligations, diverting money from operations to these funding needs.

By 2021 operations were contracting below break-even levels, initiating a cycle of negative operating leverage. A lender tried to assist the company, but its financial woes worsened.

Prospects for recovery in business rescue

De Graaff says a business rescue will afford the company breathing space to allow its business practitioners to explore all the approaches and opportunities. The business rescue practitioners will also engage with potential investors and purchasers, all with a view to restructuring the company to render it solvent.

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He is of the view that the company’s creditors or shareholders would benefit better from a business rescue, rather than an immediate liquidation of the company.  

West Pack ‘s accelerated growth path 

West Pack Lifestyle entered into business rescue on 15 May this year aiming to resolve its financial woes and to save 924 jobs. West Pack’s CEO, Jose da Silva, says the group has over the past four years been on an accelerated growth path, which has placed strain on the group’s cash flow.

West Pack Lifestyle is related to seven other companies such as West Pack Lifestyle Distribution; West Pack Franchise; Petzone, Petzone Franchise which have also entered into business rescue.

Other related companies to West Pack are Café Estreito, Café Estreito Franchise, and Beija Flor Investments.

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In an affidavit, Da Silva says the working constraints during 2023 resulted in the group facing several challenges, including difficulty in acquiring the correct stock and appreciating product mix. He includes that the country’s economy and load shedding changed the buying habits of South Africans.

“Due to these factors, the company’s turnover has steadily declined over the past number of months. Not being able to achieve its budgeted turnover, and trading at a loss,” he says.

West Pack’s turnaround

He says he believes through the business rescue, the company’s turnaround will improve. This can be done through the exploration of various offers to acquire either the assets or the business of the group; improved procurement procedures and achieving optimal stock levels and product mix; reduction of overhead expenses and restructuring.

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Petzone and Petzone Franchise have also entered into a business rescue on 15 May. Just like West Pack, Petzone has failed to service its debts. The reason for the company’s financial distress is similar to West Pack.

Da Silva says one of the reasons for Petzone’s financial distress is the high capital cost of opening stores. A decision has since been taken to close non-performing stores as the company was trading at a loss.

Petzone is entertaining the offers to acquire its assets or the company. Through the business rescue, he believes it is possible to achieve an ideal retail footprint with market-aligned rental rates.

Ellies Electronics acquired by SMD Technologies

Earlier in 2024, Ellies Electronics’ holding company, Ellies Holding, faced financial difficulties. The company’s business rescue practitioner said they did not believe the holding company could be rescued, therefore they believed a liquidation would be the only option.

However, Ellies Electronics would continue to trade despite the liquidation. The electronics company has since been acquired by SMD Technologies.

Avi Mishan, Managing Director and co-founder of SMD Technologies says the sale of the Ellies electrical brand will ensure that the brand remains available to its loyal customers.

“The acquisition by SMD Technologies is set to revitalize the brand, leveraging SMD’s innovative approach and robust distribution network,” said Mishan.