SA Taxi owner, Transaction Capital has concluded an agreement to subscribe for a non-controlling 49.9% interest in car buying platform, WeBuyCars.
Based on an enterprise value of R3.69 billion, the subscription price payable by Transaction Capital for 49.9% of the ordinary shares in WeBuyCars will be a maximum of R1.84 billion.
WeBuyCars’ profit after tax for their financial year ended 31 March 2020 attributable to its net assets was R357 million.
Two years ago, a subsidiary of Naspers bid to buy 60% of WeBuyCars; however, the Competition Commission blocked the deal citing a substantial reduction in competition in the car buying market, with Naspers owning OLX and AutoTrader .
“WeBuyCars will continue to operate as an independent business within its specialised market, adjacent to SA Taxi, with this investment establishing Transaction Capital’s third market vertical. As such, the investment carries no integration risk for Transaction Capital,” the group said in a statement on Tuesday (8 September).
Transaction Capital’s CEO, David Hurwitz said: “This investment is an exceptional opportunity to own a significant interest in a trader of used vehicles in South Africa, serving its clients through both an e-commerce and physical dealership infrastructure.
“The investment in WeBuyCars will be immediately value accretive, converting interest income on our undeployed capital into higher yielding operating earnings, accelerating Transaction Capital’s earnings growth rate. Options are in place, which if exercised and implemented, after regulatory approval, would result in Transaction Capital increasing its interest in WeBuyCars at a future date.”
By way of rationale for the deal, Transaction Capital said that as a buyer, distributor and retailer of vehicles, also offering finance, insurance and other allied products and services, WeBuyCars provides an offering across the value chain with optionality, convenience and competitive pricing.
It said that WeBuyCars currently buys more than 6,000 vehicles a month on average from private consumers, allowing it to offer a wide variety of vehicles for sale.
WeBuyCars CEO, Faan van der Walt said: “Over the years we have been approached by many high-profile buyers interested in partnering with us. Transaction Capital’s entrepreneurial ownership mindset, underpinned by the ongoing involvement of its founders, makes the group a good shareholder for founder-led businesses like WeBuyCars.”
In South Africa there are a total of 10.8 million new and used passenger vehicles in circulation. This vehicle ‘car parc’ (the number of cars and other vehicles in a region or market) has grown steadily, increasing the size of the overall market at around 5% to 6% per year over the last decade, despite the contraction in new vehicle sales, Transaction Capital said.
New vehicle sales are forecast to fall 31% to 372,000 vehicles in 2020 before recovering by 20% to approximately 450,000 vehicles in 2021 (10% below 2019 levels).
By comparison, only about 3% of total vehicles (approximately 350,000) are written off every year, resulting in vehicle ‘car parc’ growth, Transaction Capital said.
“The large used segment of the market, which conservatively trades more than one million used vehicles a year, has shown a compound annual growth rate of 1.7% over the last five years. This steady growth has been achieved despite the segment being fragmented and inefficient, characterised by low levels of consumer trust.”