- Kamoso's liquor arm will boost Choppies' liquor sales.
- Builders Warehouse will aid Choppies' hardware strategy.
- Kamoso's mills and tissue units will supply Choppies.
Choppies Enterprises, the Botswana retail giant, has announced the acquisition of a 76% stake in Kamoso Africa for P2 a share of the issued ordinary shares of Kamoso Group plus taking over shareholders loans of P28 million. The deal will give Choppies a strategic foothold in the liquor and hardware sectors as well as supply chain synergies.
The Kamoso transaction is classified as a category 2 transaction by the Botswana Stock Exchange and has received all required approvals including from Choppies' Audit Committee, Competition Authority and lenders. The deal is expected to close on July 19, 2023.
Kamoso's key businesses include Liquorama liquor stores, Builders Warehouse hardware stores, maize milling, tissue manufacturing and wholesale trading. Post-acquisition, Kamoso will operate as a separate segment within the Choppies Group.
Extract from Choppies Cautionary announcement
The acquisition is expected to benefit Choppies in several ways. First, Liquorama will plug a major gap in Choppies' product offering in Botswana where it is the only major grocery retailer without a liquor license. Liquorama is the leading liquor retailer in the country with 15 stores.
Second, Builders Warehouse will help accelerate Choppies' hardware expansion strategy across all its markets. Rapid urbanization and housing demand in Africa provide a big opportunity for the hardware business.
Third, Kamoso's tissue and milling operations will become key suppliers to Choppies, achieving backward vertical integration and supply chain synergies. Currently, Kamoso supplies around 60% of Choppies Botswana's needs for these products.
The Kamoso Group has been making losses in recent years due to COVID impacts, high inflation and interest rates as well as impairment charges. However, Choppies believes the acquisition will allow it to achieve synergies and turnaround Kamoso with EBITDA margins of 4-6% in the short term.
The transaction represents a win-win for all parties. Choppies gets a readymade entrance into the fast growing and high margin liquor and hardware sectors with established brands. Kamoso benefits from Choppies' expertise in retail operations, sourcing and financial support. Botswana also gains by having a more integrated and profitable local retailer.
From a financial perspective, the deal will increase Choppies' net debt by P164 million to fund the acquisition. However, this is ringfenced and will not impact existing covenants with Choppies' lenders. Goodwill of P81 million is also expected to arise from the transaction.
In conclusion, the Kamoso acquisition has the potential to supercharge Choppies' growth in Botswana and the region based on the strategic strengths and synergies discussed. Revenues and profits are likely to rise substantially in the medium term as the deal bears fruit through higher liquor and hardware sales, cost savings and margin improvements. The market will be watching closely to see if Choppies can successfully integrate Kamoso and achieve the projected turnaround. If done right, this deal could be transformative for Choppies and deliver significant returns for shareholders over time.
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