BWG sells majority stake to fund €70 million debt deal

Business Affairs Correspondent

BWG, the operator of the Spar and Mace retail brands, has wiped more than €70 million from its debts by buying back loans at a discount from Ulster Bank and Lloyds, using fresh investment from a listed South African group.

Spar South Africa (SSA), a wholesaler with extensive operations across southern Africa, yesterday told the stock exchange in Johannesburg it had agreed to pay €55 million for an 80 per cent stake in BWG, which has a network of more than 900 stores in Ireland and about 280 in Britain.

BWG's existing shareholders, comprising its chief executive Leo Crawford, property director John Clohisey and finance director John O'Donnell, will retain a 20 per cent stake in the business, which has sales of €1.2 billion.

They will continue to run BWG for at least the next five years, after which they are obliged to begin selling down their remaining stake to SSA using a pricing formula calculated upon the group’s future profitability.

SSA told the stock market that BWG, which is unlimited so does not file detailed accounts, made underlying profits in 2013 of more than €11 million.

AIB, Bank of Ireland and Blackstone will remain on board as lenders to the BWG group, but AIB and BoI will relinquish warrants they held over the group's equity.

The warrants held by the two Irish banks were granted as part of a restructuring last November that reduced BWG’s property-related borrowings by €100 million to about €200 million.

Following the impending deal with SSA, BWG’s net debt would be reduced further to €130.6 million, the South African group told its shareholders, and those debts would be consolidated into the listed group’s balance sheet.

AIB and Bank of Ireland will step in to replace BWG’s working capital facilities that were previously provided by the exiting banks, Lloyds and Ulster, which are both rapidly reducing their exposure to the Irish market.

Investec Corporate Finance in Dublin advised BWG on the deal, while Investec's South African banking arm is providing loans to SSA.

The restructuring following the cash injection will free up about €100 million of BWG’s earnings over the next five years to plough into a major expansion.

It is understood that BWG, which in 2012 bought the €30 million-a-year Morris Brothers wholesaling group, wants to acquire other retail wholesaling businesses.

SSA's entry into the Irish retail market will also bring a new competitive dimension to the cut-throat Irish convenience store market, where BWG's main rival is Musgrave, the owner of the Centra brand.

Following the latest deal, SSA’s network of stores will have global sales of close to €5 billion, making it, overnight, one of the biggest players in the Irish grocery and convenience retail market.

SSA also told its shareholders that it saw a long-term opportunity to help BWG “migrate its offering from the convenience retail segment into larger store formats”.

“This announcement is a great vote of confidence in BWG’s business, our brands and our wider management team,” Mr Crawford said.

Graham O’Connor, SSA’s chief executive, said its involvement in the Irish company would “bolster BWG’s purchasing power”. The South African group will also assume a controlling majority of BWG’s board of directors.