ADDING ON WITHOUT CHANGING TOO MUCH
After a few years of lacklustre performance, building materials retailer Cashbuild has hit its stride. Now it has announced its first major deal, a R350m swoop on hardware group P&L. Giulietta Talevi put CEO Werner de Jager on the spot
Q You’ve made your first major acquisition. Why, after so long growing the business organically, have you splashed out so much money for a competitor? A You’re right, it is the first one of this size ever. We’d previously bought one or two stores, but I’m talking 10 years ago. About two years ago, we changed our strategy in terms of how we’re going to approach the market by expanding further into other African territories where we’re not trading, alternative store formats, growing the current store base, and acquisitions. Q So is P&L quite an entrenched brand? A It’s a very well established business (in Limpopo and Mpumalanga specifically). It’s a well-run business and there are lots of potential synergies to be had out of it.
In terms of what we paid, it works out to about a 10 PE if you look at the profitability only. [It] is not the richest deal, but we believe it’s fair.
It’s a family business but as close as you’re going to get to a very corporate-run family business. Obviously because of the size — 39 stores — they were quite good at following corporate governance structures. Q You may also have to pay R80m over and above R350m over the next three years. Are P&L’s management staying in the business? A Existing management will stay in place — they will be on a retainer. They need to deliver those profits to us that they’ve guaranteed and that’s how they’ll earn the R80m. It’s a fairly stiff target. Q You haven’t ever done a big acquisition like this before, which will raise questions about your ability to bed it down. A The plans are not to change anything in the interim. We’ll handle it as an investment and leave management to get on with what they’ve been doing well over a number of years. Luckily we’ve not had to retrench one person in our history so it should give the guys some fair indication that we’re not there to cut. Q Cashbuild itself seems to be incredibly resilient, in defiance of economic conditions out there. How is that possible? A I wish I could tell you there’s one specific thing that drives it, but it’s a number of different factors resulting in the market still being fairly decent for us.
We’ve invested lots of time internally in getting the business what we call “ready for business” — making sure we’re well stocked and ready to serve customers. So we’ve done a lot of work to become a better business [from the customers’ perspective].
Then the market in which we operate has been fairly resilient over the years.
Through good and bad economic times, Cashbuild has always had decent growth. Q Are you ever tempted to add a credit offering? A No. Years ago we had a company called CreditBuild and we sold it off and that’s how it’ll stay for the foreseeable future. We tried to do a bit of credit here and there but it’s not our game; we’re not good at it. You trade for a year with someone, then they have a bad debt and you lose all your money. Q How big is the home renovations or “bakkie builders” market really? Former CEO Pat Goldrick always used to say that it was worth about R100bn/year. A We still believe that the building materials market via distribution is about R103bn/year — that’s [counting] everything and everybody. If you look at the large-chain builders’ merchants, of which we’re one, we believe the market is about R52bn/year. The local hardware stores and independents do about R31bn and then some of our products go through supermarkets and specialist stores, which [account for] about R10bn each. Q Your full-year revenue for 2014 was R6,8bn. How do you view Cashbuild’s growth capacity in view of the size of the market? A One of the pillars in our strategic growth objective is our existing business and the current Cashbuild model, where we currently have 22 stores. We still want to grow that to the 300 mark at least in the territories where we trade.
We’ve got a store that’ll do R100m turnover, which tells you that there’s not a limitation on