INTERVIEW | Cashbuild's biggest acquisition in eight years marks a major shift in strategy

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Cashbuild has reached an agreement to acquire Pepkor’s The Building Company.
Cashbuild has reached an agreement to acquire Pepkor’s The Building Company.
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  • Cashbuild is acquiring Pepkor's The Building Company for R1 biillon.
  • Cashbuild CEO Werner de Jager has described the acquisition as exciting and daunting.
  • The TBC acquisition will make Cashbuild the biggest retailer and wholesaler of building materials and supplies in South Africa, with a 26% market share.

For the past few years building supply retailer Cashbuild has relied on a organic and a steady approach to growth. It's an approach that has cost it market share. So the move to acquire Pepkor subsidiary, The Building Company, is a break with the norm as it pursues a more aggressive expansion strategy.

In an interview with Fin24 on Friday, Cashbuild CEO Werner de Jager described the largest acquisition the company has undertaken since he became CEO almost eight years ago as “...exciting and daunting.”  This week Cashbuild announced it had reached an agreement with Pepkor to acquire subsidiary, The Building Company (TBC), for R1 billion.

“We’ve got a strategy of growth, we want to service the whole spectrum of the market and we want to service the middle to higher (Living Standards Measure), as well,” de Jager said. 

He explained that when he became chief executive of the retailer it had embarked on the growth strategy and the purchase of P&L Hardware for R350 million in 2016 was the first step.

It's a transaction that was not without its challenges due to issues such as the once-off business combination costs, which De Jager describes as a “...recipe for lots of frustration”.

De Jager says the lessons learnt from that acquisition will be applied in the acquisition of TBC, which owns 13 brands including the likes of Timber City and Buco. The acquisition grows the 41-year old Cashbuild's store base from 318 to 499.

Regardless of the lessons learnt from previous acquisition, de Jager admits that integrating the Pepkor subsidiary into Cashbuild was not going to be an easy process.

“We are going to have our hands full,” he said.

And that’s a sentiment that Anthony Clark, an analyst at Small Talk Daily Research shares.

What will make the transaction challenging is that TBC has 13 businesses across the country that need to be rationalised as they are over staffed and have 13 head offices, regional offices, layers of management of bureaucracy, he said, adding that  “...they all need to be slimmed down fast”.

"What Cashbuild has bought is a legacy of 10 to 15 years of corporate transactions trying to amalgamate varying companies into two entities.” Sorting through the operational challenges could take as long as two years to fix, Clark says.

Overlooking the difficulties that will come with bedding down the acquisition, it will make Cashbuild the biggest retailer and wholesaler of building materials and supplies in South Africa with a 26% market share when it's done.

“The transaction of P&L and now TBC takes them back to being the market leaders,” he said. 

For most of De Jager's tenure as CEO, the retailer's conservative approach to expansion has resulted in competitors such as the Massmart owned Builder’s Warehouse, Spar’s Build it and Italtile grabbing a greater share of the market.

Compounded by a weak SA economy, Cashbuild's shares have plunged around 63% from its peak in the middle of March 2018, compared to a JSE All Share Index that has declined close to 16%.

The slower growth strategy comes down to De Jager, a former accountant, being more conservative, methodical and strategic in his approach, Clark says.

Unlike his predecessor, Pat Goldrick, who Clark described as an energetic, passionate maverick and operator who preferred to be at the coalface of the business. He credited the former CEO for aggressively growing the business to a "...very strong urban and rural footprint."

While P&L transaction four years ago gave Cashbuild a foothold in Mpumalanga and Limpopo, the latest acquisition of TBC will ensure that the construction materials retailer is in every province in the country.

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