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Disposal by Group Five and renewal of cautionary announcement
GROUP FIVE LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1969/000032/06)
Share code: GRF
ISIN: ZAE000027405
(“Group Five” or “the Company” or “the Group”)
DISPOSAL BY GROUP FIVE OF THE ASSETS OF EVERITE PROPRIETARY LIMITED AND ITS
SUBSIDIARIES, AS WELL AS THE ASSETS OF SKY SANDS PROPRIETARY LIMITED AND
RENEWAL OF CAUTIONARY ANNOUNCEMENT
1. INTRODUCTION
In line with previous announcements made and the Group’s current cautionary, Group Five is
pleased to announce that it has entered into a binding offer to dispose of the assets of Everite
Proprietary Limited and its subsidiaries (“Everite”) and Sky Sands Proprietary Limited (“Sky Sands”)
for ZAR480 million to a consortium comprising Trinitas Private Equity (Pty) Limited (“Trinitas”) and
Agile Capital (Pty) Limited (“Agile”) (together “the Consortium”) (“the Transaction”). Everite and
Sky Sands form part of the Group’s Manufacturing cluster.
The effective date agreed in final negotiations last week will be retrospectively implemented to 1
July 2018 (“Effective Date”). The profits of H1 F2019 will therefore accrue to the Consortium.
The Purchase Consideration excludes the one remaining asset in the Manufacturing cluster, the
reinforcing steel business Barnes Reinforcing Industries (“BRI”). The Board has approved an in-
principle transaction that its shares in BRI will be sold to its joint venture partner, the Barnes
family. The sale agreements are currently in process, with the transaction expected to be
concluded in early H2 F2019.
2. OVERVIEW OF ASSETS FOR SALE IN THIS TRANSACTION
EVERITE
Everite operates under the Fibre Cement segment of Manufacturing. Everite manufactures a range
of building materials suitable for commercial, industrial and residential applications through its
main 100% owned subsidiaries, Everite Building Products and Everite Pipe.
Everite was established in 1941 prior to Group Five acquiring the entity in 1991. Everite operates
out of a 35-hectare factory in Klipriver, South of Johannesburg, South Africa.
SKY SANDS
Sky Sands is a sand mining and washing operation. Sky Sands is well located to serve its customers
and markets near Three Rivers in Vereeniging, South of Johannesburg in South Africa. Sky Sands
mines and sells approximately one million tons of plaster and washed silica sand per annum.
3. OVERVIEW OF THE CONSORTIUM
TRINITAS PRIVATE EQUITY
Trinitas, founded in 2008, is a generalist private equity investor with a South African focus. Trinitas
invests in a diverse range of mid-market businesses with enterprise values of R150 million to R1
billion. The directors of Trinitas are Andrew Hall, John Stipinovich and Soteris Theorides.
They have positioned Trinitas as an investor in established mid-market business across all industry
sectors that target market leaders or significant players in their specific sector, ideally in industries
with high barriers to entry. The fund has a preference for a minimum of significant influence, and
will invest up to majority stakes in either growth capital transactions, or replacement capital
transactions, including MBOs, (incorporating leverage), and MBIs.
AGILE CAPITAL
Agile Capital (Pty) Ltd (“Agile Capital”) is a 100% black owned private equity investment vehicle
which pursues investments in a number of diverse sectors in South Africa. With the backing of the
FirstRand Group and RMB Corvest, Agile Capital has a long standing and successful track record in
investing equity stakes in growing, well-managed and high-potential companies.
Through Agile Capital Fund III of ZAR1 billion, Agile Capital invests in businesses with enterprise
values of R100 million to R2 billion. The directors of Agile Capital are Tshego Sefolo and Londeka
Shezi.
4. RATIONALE FOR THE TRANSACTION
As announced in November 2017, Group Five’s board of directors and management re-evaluated
the Group’s strategy and structure to address its underperformance and the changes necessary
to achieve acceptable returns in a rapidly changing and challenging market landscape. This process
included the strategic re-positioning of the Group in its chosen markets and an assessment of all
the clusters and businesses, which resulted in a narrower focus on core businesses which will
provide growth and improve margins and returns.
Against ongoing market and economic changes, the Group sees an increasing role as an enabler
for the development of infrastructure projects in the markets in which it operates. This requires a
shift in emphasis from the Group’s traditional construction-related bias towards infrastructure
development and investment opportunities, which necessitated the rationalisation of some of its
businesses. Developments & Investments (D&I) and Operations & Maintenance (O&M) will
therefore be the core businesses of the Group going forward.
Although the Manufacturing cluster has remained a strong performer within the Group and
contributes solid earnings and cash flow, it is regarded as a non-core operation under the revised
strategy. It was therefore decided to dispose of this cluster.
The Manufacturing assets sold will be utilised to reduce the Group’s indebtedness.
5. PURCHASE CONSIDERATION AND SETTLEMENT MECHANISM
As outlined earlier, a purchase consideration of ZAR480 million has been agreed. Everite and Sky
Sands recorded a net profit after tax of ZAR59,6 million in the financial year ended 30 June 2018
(“F2018”), representing a price earnings ratio of 8.0 times for the transaction.
The book value of the net assets as at 30 June 2018 was ZAR503,2 million. The purchase
consideration does not exceed the book value due to the weak markets in which the businesses
have been operating. In the case of Everite, the roll out of new Autoclaved Aerated Concrete line,
with a capital cost of around R90 million two years ago, has taken longer than anticipated. This
has resulted in a lower return and little economic value so far.
The above information was extracted from Group Five’s annual financial statements for the year
ended 30 June 2018, which were prepared in accordance with the International Financial
Reporting Standards (“IFRS”) and have been audited.
The Purchase Consideration will accrue interest at a market-related rate from the Effective Date
until the fulfilment of all conditions precedent and the closure of the Transaction. The Purchase
Consideration and the interest accrued will be settled in cash.
ZAR50 million of the Purchase Consideration, attributable to Sky Sands, will be deferred pending
the approval by the Department on Mineral Resources (“DMR”) of the transfer of Sky Sand’s
mining right under s11 of the Mineral and Petroleum Resources Development Act.
As outlined above, the Purchase Consideration excludes the one remaining asset in the
Manufacturing cluster, that of the reinforcing steel business BRI.
6. CONDITIONS PRECEDENT
The implementation of the Transaction is subject to the fulfilment (or waiver) of certain
conditions precedent, inter alia:
- although terms have been signed, the negotiation and signing of legal agreements by the
Consortium and Group Five specific to the Transaction;
- negotiation and execution of legally-binding finance documents by the Consortium with a
third-party debt provider;
- final approval by the Consortium’s respective Investment Committees;
- final negotiation and execution of revised key employment terms and parameters
(including shareholding participation) of the key senior management team of the
Company;
- there being no material adverse change in the financial performance and financial position
of Everite or Sky Sands between the Effective Date and the closure of the Transaction;
- approval of Group Five shareholders, given the categorisation of the Transaction in terms
of the JSE Listing Requirements;
- approval by the Competition Commission of South Africa;
- where applicable, each counterparty to any contract being executed by the business
accepting the change in ownership; and
- specific to Sky Sands, the granting of approval by the DMR for the transfer of the mining
rights.
7. CATEGORISATION
The Disposal is classified as a Category 1 transaction for Group Five in terms of the Listings
Requirements of the JSE. Accordingly, approval is required by Group Five shareholders for the
requisite resolutions at a special general meeting of Group Five shareholders.
A circular, together with a notice of special general meeting setting out full terms of the
Transaction, will be posted to Group Five shareholders within the prescribed period.
8. RENEWAL OF CAUTIONARY ANNOUNCEMENT
Shareholders are referred to the cautionary announcement regarding expressions of interest
released on SENS on 13 December 2018 and are advised that Group Five is still in the process of
considering expressions of interest for various part of the Group’s business.
As the above may have a material impact on the price of Group Five’s securities, shareholders are
advised to continue to exercise caution when trading in the Company’s securities until a further
announcement is made in this regard.
Johannesburg
17 January 2019
Financial Advisor and Transaction Sponsor to Group Five
The Standard Bank of South Africa Limited
Legal Adviser to Group Five
Norton Rose Fulbright
Legal Adviser to the Consortium
Werksmans Attorneys
Sponsor to Group Five
Nedbank Corporate and Investment Banking
Date: 17/01/2019 03:22:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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