To view the PDF file, sign up for a MySharenet subscription.

THE FOSCHINI GROUP LIMITED - Acquisition of Tapestry Home Brands Proprietary Limited by TFG

Release Date: 07/03/2022 07:15
Code(s): TFG TFGP     PDF:  
Wrap Text
Acquisition of Tapestry Home Brands Proprietary Limited by TFG

The Foschini Group Limited
Incorporated in the Republic of South Africa
Registration Number: 1937/009504/06
Ordinary share code: TFG
ISIN: ZAE000148466
Preference share code: TFGP
ISIN: ZAE000148516
(“TFG" or “the Company”)

ACQUISITION OF TAPESTRY HOME BRANDS PROPRIETARY LIMITED BY TFG

1. INTRODUCTION

TFG is pleased to advise its shareholders that on 4 March 2022, the Company entered into a sale and
purchase agreement (“SPA”) to acquire the entire issued share capital of Tapestry Home Brands
Proprietary Limited (“Tapestry”) ("Sale Shares") for a purchase consideration, as further set out in
paragraph 4, of R2.35 billion (“Transaction”). TFG is acquiring the Sale Shares from Westbrooke
Investments Proprietary Limited, funds managed by Actis, as well as the current and previous
management of Tapestry (collectively, “the Sellers”).

2. DESCRIPTION OF TAPESTRY

Established in 2005, Tapestry is a prominent direct-to-consumer, vertically integrated designer,
manufacturer and omnichannel cash retailer of home furnishings serving consumers’ living and sleeping
needs, targeting the middle to upper LSM markets. The Tapestry brands include popular made-to-order
furniture retailer, Coricraft; South Africa’s renowned branded bedding retailer Dial-a-bed; home textile
retailer, Volpes; and value bedding retailer, The Bed Store. The Tapestry brands are well positioned for
growth in the medium to long term. Tapestry’s own, locally manufactured product accounts for c.47% of
net sales, employing a total of approximately 2 500 people, with manufacturing facilities located in Cape
Town, Johannesburg and Gqeberha. Tapestry operates c.175 stores across South Africa, Namibia and
Botswana. The three business segments, namely living, linen and bedding, are run on a decentralised
basis by a strong management team.

3. RATIONALE FOR TRANSACTION

The Transaction will provide TFG with exposure to new products and categories as well as new
customers that will complement the current TFG customer base in existing categories. Furthermore,
Tapestry’s unique business model, with easily scalable local manufacturing and distribution capabilities,
is an excellent strategic fit for TFG. The Transaction is in line with TFG’s stated strategy of vertical
integration in key product categories, and the continued development of its quick response local
manufacturing capability. Opportunities exist to further leverage the strength of the manufacturing and
sourcing capabilities of both businesses and to continue developing local procurement in a segment
dominated by imported goods.

Acquiring this highly cash generative business presents significant revenue opportunities within the TFG
ecosystem. In addition, TFG’s retail credit offering and its digital and omnichannel capabilities are
expected to substantially enhance Tapestry’s growth and digital transformation efforts.
The acquisition of Tapestry will augment TFG’s current @home operation which offers premium home
textiles, kitchenware, décor and furniture in the middle to upper segments, and provides further
opportunities for Jet Home, which offers value fashionable homeware. Following the acquisition, TFG
will have nine home consumer brands (@home, @homelivingspace, Jet Home, Coricraft, Volpes, Dial-
a-Bed, The Bed Store, Granny Goose and Biggie Best), and four vertically integrated factories
(mattresses, upholstered furniture, household textiles, duvets and pillows). This acquisition will offer
TFG an expanded distribution network and its own last-mile furniture delivery and assembly service.

4. KEY TERMS OF THE TRANSACTION

The cash purchase consideration of R2.35 billion (“Purchase Consideration”) is structured on a debt-
free, cash-free basis and payable at the time of implementation of the Transaction (“Closing Date”),
subject to:

4.1       a normalised level of working capital being retained in the business;

4.2       normalised earnings before interest, taxes, depreciation and amortisation (“EBITDA”) of
          R360.9 million (“Target EBITDA”) being achieved for the financial year ended 28 February
          2022. To the extent that the audited normalised EBITDA for such period (“Achieved
          EBITDA”) is less than R342 million (being c.95% of the Target EBITDA), the Purchase
          Consideration will be adjusted downwards at the transaction enterprise value / EBITDA
          multiple of 6.51 multiplied by the difference between R342 million and the Achieved EBITDA;

4.3       an escalation rate based on the South African prime lending rate commencing from the date
          which falls on the last day of the calendar month preceding the date of which the last of the
          conditions precedent are fulfilled or waived, as the case may be (“Locked-Box Date”), until
          the Closing Date; and

4.4       a portion of the Purchase Consideration being retained for the Sellers who are also executive
          management and which retention amounts will be paid on the first and second anniversary of
          the Closing Date, subject to remaining in the employ of TFG.

The Transaction is subject to warranties and indemnities consistent with transactions of this nature. The
Transaction will become effective following the settlement of the Purchase Consideration.

5. CONDITIONS PRECEDENT

The Transaction is subject to the fulfilment of the following conditions precedent, by no later than seven
months following the date of signature of the SPA:

5.1       approval being obtained from the relevant competition authorities and the Takeover
          Regulation Panel (as defined in the Companies Act No. 71 of 2008);

5.2       lessors in respect of lease agreements which relate to stores that contribute at least 80% of
          the total revenue of Tapestry (“Lease Threshold”) having consented to the change of control
          which will result pursuant to the Transaction and/or waived their rights to terminate the lease
          agreements pursuant to the change of control; and
5.3       lessors in respect of lease agreements relating to a number of key stores having consented
          to the change of control which will result pursuant to the Transaction and/or waived their rights
          to terminate the lease agreements pursuant to the change of control.

6. FINANCIAL INFORMATION

The value of the net assets of Tapestry was R115 million at 28 February 2021, being the date of the last
audited annual financial statements, which were prepared in terms of International Financial Reporting
Standards for Small Medium and Micro Enterprises. For the 11 months ended 31 January 2022, the
value of the net assets of Tapestry, based on unaudited management accounts provided by the Sellers,
was R209 million.

The EBITDA as per the unaudited management accounts and audited profits after tax attributable to the
net assets (“PAT”) for the year ended 28 February 2021, were R264 million (including a Covid-19 related
insurance claim of R86m) and R34 million respectively. Tapestry’s financial performance for the year
ended 28 February 2021 was impacted by the Covid-19 pandemic. For the 11 months to 31 January
2022, per the unaudited management accounts of Tapestry, there has been a strong financial recovery
with Tapestry reporting EBITDA and PAT of R329 million and R175 million, respectively.

TFG is satisfied with the quality of the management accounts of Tapestry provided by the Sellers,
nonetheless TFG shareholders are cautioned that these management accounts are unaudited.

7. CLASSIFICATION OF THE TRANSACTION

The Transaction constitutes a category 2 transaction in terms of the JSE Limited Listings Requirements
(“Listings Requirements”) and no related parties are involved in the Transaction. The escalation rate
referred to in paragraph 0 is limited by the time period set out in paragraph 5 and accordingly will not
impact the categorisation of the Transaction.

8. OTHER

The Company confirms, for purposes of paragraph 9.16 of the Listings Requirements, that nothing in
the constitutional documents of TFG and/or Tapestry, will, in any way, frustrate or relieve the Company
from compliance with the Listings Requirements.

Enquiries: TFG Investor Relations
Email: investor_relations@tfg.co.za

Cape Town
7 March 2022

Financial Advisor, Sponsor and Corporate Broker to TFG: Rand Merchant Bank (a division of
FirstRand Bank Limited)

Legal Advisor to TFG: ENSafrica

Financial Advisor to the Sellers: Investec Bank Limited

Legal Advisor to the Sellers: White & Case LLP

Date: 07-03-2022 07:15:00
Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE'). 
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
 the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct, 
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
 information disseminated through SENS.

Share This Story