| Wed 4 May 2005, 15:05 | | Super Group - Acquisition Of SMB Fleet Management |
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Super Group - Acquisition Of SMB Fleet Management Pty Limited
Super Group Limited
(Incorporated in the Republic of South Africa)
(Registration number: 1943/016107/06)
(ISIN number: ZAE000011334)
(Share code: SPG)
(`Super Group`)
ANNOUNCEMENT TO SHAREHOLDERS OF SUPER GROUP LIMITED REGARDING THE ACQUISITION OF
SMB FLEET MANAGEMENT PTY LIMITED
Shareholders of Super Group are advised that S.G. Fleet Services Australia Pty
Limited (incorporated in Australia) (`SG Fleet Services`), a subsidiary of Super
Group, has acquired 100% of the issued share capital (`the acquisition`) of SMB
Fleet Management Pty Limited (incorporated in Australia) (`SMB`).
Salient terms of the transaction
SMB is Australia`s premier provider of novated lease fleet management services
and was founded by Messrs Howard Andrew Symington and Andrew George Griffith
(hereinafter collectively referred to as `the vendors`).
SMB owns 100% of the issued share capital of SMB Car Sales Pty Limited (`Car
Sales`) and 60% of the issued share capital of the Car Allowance Company Pty
Limited (`Car Allowance`). The remaining 40% of the issued share capital of Car
Allowance is owned by the vendors and a senior employee of Car Allowance.
The effective date of the transaction is 1 April 2005 (`the effective date`).
SG Fleet Services will pay the vendors a purchase consideration of not more than
A$61 129 354 plus interest of A$162 740 on the initial consideration, as defined
below. The purchase consideration will be settled as to -
- A$30 million (`the initial consideration`) on the closing date of the
transaction (which occurred on 4 May 2005) plus interest thereon at the
rate of 6% per annum from the effective date amounting to A$162 740;
- A$5 million (`the second consideration`) subject to SMB and Car Sales
(hereinafter collectively referred to as `the SMB group`) achieving an
EBITDA of greater than A$5 635 400 for the twelve month period ending on
31 March 2006 (`the 2006 EBITDA`);
- subject to the SMB group achieving an EBITDA for the twelve month period
ending on 31 March 2007 (`the 2007 EBITDA`) of -
* 110% of the 2006 EBITDA - if the 2006 EBITDA is greater than or equal
to A$5 635 400, or
* 121% of the EBITDA for the twelve month period ended on 31 March 2005,
which was A$5 123 090 - if the 2006 EBITDA is less than A$5 635 400,
(i) the lesser of:
- 7 times the average of the aggregate of the 2006 EBITDA and
the 2007 EBITDA; and
- A$50 050 000;
(ii) plus the lesser of:
- 3.5 times the average of the aggregate of the 2006 EBITDA
and the 2007 EBITDA that exceeds A$7 150 000; and
- A$9 950 000;
(iii) less the aggregate of the initial consideration and the second
consideration;
- an amount of A$1 129 354 (`the fourth consideration`)
provided that the profit earned by Car Allowance is at least
equivalent to the amount of the fourth consideration and
there is sufficient free operating cash flow in Car
Allowance to repay SMB`s loan account in Car Allowance and
to meet the ongoing working capital requirements of Car
Allowance. Should the aforesaid requirements not be met
within a period of five years from the closing date, then
the fourth consideration will not be payable.
SMB has committed a maximum of A$450 000 to fund the ongoing working capital
requirements of Car Allowance. The vendors will match this funding on the basis
of A$2 for every A$3 funded by SMB.
The vendors have a loan account of A$1 200 000 against SMB, which will be repaid
within a period of six months after the effective date.
The initial consideration and other costs associated with the acquisition will
be settled as to -
- A$11 million by the shareholders of SG Fleet Services pro rata to their
respective shareholdings, (Super Group A$7.7 million and the private equity
consortium A$3.3 million) via ordinary and preference shares;
- the balance via loans raised by SG Fleet Services from Australian banks.
These loans are secured solely by the assets of SG Fleet Services and the
lenders have no recourse to Super Group and its remaining subsidiaries
whatsoever.
It is envisaged that two thirds of the balance of the purchase consideration
will be funded via loans raised by SG Fleet Services from Australian banks and
the balance via ordinary and preference shares issued to the shareholders of SG
Fleet Services, pro rata to their respective shareholdings, and cash resources
of SG Fleet Services.
SMB has purchased auction software for A$1 from a company owned by the vendors,
which enables it to source motor vehicles on behalf of its customers.
Usual in a transaction of this nature -
- The vendors have given to SG Fleet Services a comprehensive set of
warranties and indemnities;
- The vendors have signed service and restraint of trade agreements with SMB;
and
- SG Fleet Services completed a comprehensive due diligence investigation
into SMB and its subsidiaries using internal resources as well as external
legal and accounting firms.
Regulatory Approvals
The requisite approvals have been obtained by -
- Super Group from the Exchange Control Department of the South African
Reserve Bank; and
- SG Fleet Services from the Australian Foreign Investment Review Board, that
it does not have any objection to the transaction.
Rationale for the transaction
Prior to its acquisition of Fleet Australia in May 2004, Super Group identified
the Australian fleet leasing and management market as an exciting industry
offering good growth opportunities. The solid growth experienced by Fleet
Australia encouraged Super Group to target the fast-growing novated lease
segment of the Australian vehicle leasing market.
Novated finance leases are essentially private consumer leases, currently
prohibited in South Africa, where the employer pays the monthly rental but the
employee carries the risks and rewards of ownership. Growing at approximately
12% per annum, the novated lease segment is the fastest growing segment in the
Australian fleet management and leasing market.
Established in 1990 by the vendors, SMB pioneered novated lease fleet management
systems in Australia and is the acknowledged market leader in the novated lease
segment. SMB currently manages approximately 14 000 vehicles and its fleet,
which has achieved compound annual growth in excess of 20% over the last three
years, is budgeted to achieve similar growth to March 2006. SMB is managed by a
highly competent and experienced team who are passionate and motivated to grow
the business.
SMB offers Government, multinationals and other companies a comprehensive range
of vehicle and other salary packaging options. It generates income from multiple
revenue streams which have the effect of maximizing income while simultaneously
diversifying business risk. The principle revenue streams are management fees,
finance income and other vehicle-related services.
The majority of SMB`s clients have long term rolling contracts, with a
significant proportion signing exclusivity agreements. Many of these contracts
have been in place since in the inception of the business.
SMB has a principal and agency agreement with Macquarie Bank, which takes the
credit risk on all funding arrangements. As the leases are managed `finance
leases`, SMB does not have an exposure to either residual value or maintenance
risks on its vehicle fleet.
SMB is based in Sydney with operations in Melbourne and Brisbane and services
clients nationally through its service and maintenance programmes with leading
service providers across Australia.
SMB`s ability to offer superior service in the novated lease segment is
supported by its bespoke information technology system which current management
believe is unrivaled in terms of its capabilities and customisations in this
market segment.
SMB`s business has grown strongly over the last three years and this growth is
expected to continue. SMB generates significant free cash flow annually. To
capitalise on SMB`s excellent cash generation ability, the acquisition has been
partly financed using debt ring-fenced to SG Fleet Services` balance sheet.
SMB`s management believes that there are significant growth opportunities in its
core novated lease sector, which are yet untapped. These opportunities arise
from signing new clients and from further selling into the very large number of
the employees in its current client base, which are as yet not using the novated
lease products. In addition significant potential exists to sell other fleet
products to SMB`s current client base.
Financial effects
The table below set out the pro-forma effects of the acquisition on earnings and
net tangible asset value per share based upon the following assumptions -
1. Earnings of Super Group for the 12 months ended 30 September 2004 and net
tangible asset value of Super Group as at 30 September 2004.
2. Normalised earnings of SMB for the year ended 30 June 2004 and the net
tangible asset value as at 30 June 2004.
3. The acquisition had been implemented for 12 months ended 30 September 2004.
Before the After the
acquisition acquisition % change
Earnings per share 117.9 118.8 +1%
(cents)
Headline earnings per 133.5 134.4 +1%
share (cents)
Net asset value (cents) 434.9 434.9 Nil
Net tangible asset value 220.9 180.6 -18%
(cents)
Sandton
4 May 2005
Sponsor
Deutsche Securities (SA) (Pty) Ltd
Australian legal advisors
Morgan lewis attorneys
SA legal advisors
Fluxmans Attorneys
Corporate advisors
Nucleus Corporate Finance (Pty) Ltd
Date: 04/05/2005 02:26:07 PM
Produced by the JSE SENS Department
