Wrap Text
Transaction Capital subscribes for a non-controlling 49.9% of the ordinary shares in We Buy Cars Proprietary Limited
Transaction Capital Limited TransCapital Investments Limited
(Incorporated in the Republic of South Africa) (Incorporated in the Republic of South Africa)
Registration number: 2002/031730/06 (Registration No. 2016/130129/06)
JSE share code: TCP Bond Company code: TCII
ISIN: ZAE000167391
("Transaction Capital" or the "Company" or the "group")
TRANSACTION CAPITAL SUBSCRIBES FOR A NON-CONTROLLING 49.9% (ON A FULLY DILUTED BASIS) OF THE
ORDINARY SHARES IN WE BUY CARS PROPRIETARY LIMITED, INVESTING INTO ITS THIRD ADJACENT MARKET
INTRODUCTION
Transaction Capital is an investor in and operator of alternative assets in credit related and specialised market
verticals, with a near 20-year track record for high-quality earnings growth and attractive risk-adjusted returns.
Both SA Taxi1 and Transaction Capital Risk Services2 (TCRS) have demonstrated resilience in their agile responses
to the volatile dynamics accompanying the COVID-19 pandemic. Their operational, financial and strategic
flexibility have allowed them to quickly align their operating models, financial structures and growth plans to
prevailing economic realities and emerging opportunities, with operational activity in most instances nearing
pre-lockdown levels. This has enabled Transaction Capital to carefully assess other potential opportunities for
capital deployment occasioned by the current dislocation in markets.
The subscription for a non-controlling 49.9% interest in We Buy Cars Proprietary Limited, registration
number 2015/130772/07 (WeBuyCars), detailed below, provides an exceptional opportunity for Transaction
Capital to acquire a significant interest in a trader of used vehicles serving its clients through its vertically
integrated, data and technology-led e-commerce and physical dealership infrastructure, operating in this
resilient segment of South Africa’s automotive market. 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.
The transaction will immediately be value accretive, converting interest income on undeployed capital into
operating earnings, and accelerating Transaction Capital’s earnings growth rate.
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 the group.
It is worth noting that this investment is a vote of confidence – from the leaders of both Transaction Capital and
WeBuyCars – in South Africa’s economic recovery and longer-term growth prospects. Both parties believe
WeBuyCars can develop and grow into another exceptional business and reach its full potential notwithstanding
the difficult economic conditions that will be with all of us for some time to come.
INVESTOR CONFERENCE CALL AND WEBINAR
Transaction Capital will host an investor briefing, together with the chief executive of WeBuyCars, at
15h00 (South Africa time) on Wednesday, 9 September 2020, with conference call details available on
our website: https://www.transactioncapital.co.za/index.php.
A replay will be available shortly after the end of the call.
ACQUISITION BY WAY OF A SUBSCRIPTION FOR A NON-CONTROLLING STAKE OF 49.9% OF THE ORDINARY SHARES IN WeBuyCars
1. Overview
We are pleased to announce that Transaction Capital or its nominee (the Subscriber) has concluded an
agreement (subscription agreement) to subscribe for a non-controlling 49.9% interest in WeBuyCars
(the proposed transaction).
The shares in WeBuyCars, prior to implementation of the proposed transaction, are ultimately held as
to 60% by the family trusts of the founders of WeBuyCars (Faan and Dirk van der Walt), as to 31.5% by
a private equity investor, Fledge Capital Proprietary Limited (co-founded by Konrad Fleischhauer and
Louis van der Watt, also co-founder of Atterbury Group ) and as to 8.5% by other minority shareholders.
On completion of the proposed transaction, Transaction Capital will hold 49.9% of the issued shares in
WeBuyCars with the remaining 50.1% being held by WBC Holdings which will ultimately be controlled
by the family trusts of the founding shareholders, Faan and Dirk van der Walt.
The parties to the proposed transaction have also concluded:
1.1 a subscription put option agreement in terms of which Transaction Capital will, upon exercise of
the subscription put option by WBC Holdings Proprietary Limited (WBC Holdings), being the
majority shareholder of WeBuyCars at that time, be obliged to subscribe for, subject to the
fulfilment of certain conditions including obtaining the necessary regulatory approvals, 10% of
the shares in WBC Holdings. The subscription put option must be exercised within 5 business
days of the first anniversary of the Effective Date (refer to 9 below). Upon the subscription put
option being exercised and implemented (after obtaining regulatory approvals), Transaction
Capital’s shares in WeBuyCars will be exchanged for shares in WBC Holdings, resulting in
Transaction Capital owning 59.9% of the shares in WBC Holdings (equating to an effective 59.9%
in WeBuyCars);
1.2 a subscription call option agreement in terms of which Transaction Capital will, upon exercise of
the subscription call option, be entitled, subject to the fulfilment of certain conditions including
obtaining the necessary regulatory approvals and shareholder approvals (if any), to subscribe for
(i) 25% of the shares in WBC Holdings (if WBC Holdings does not exercise the subscription put
option referred to in 1.1. above or if certain conditions to the subscription option fail) or, (ii) if
the subscription put option in 1.1 above is exercised by WBC Holdings and implemented, 15% of
the shares in WBC Holdings. The subscription call option must be exercised on 31 October 2023.
Upon the subscription call option being exercised and implemented (after obtaining regulatory
approvals, if required), Transaction Capital will own 74.9% of the shares in WBC Holdings
(equating to an effective 74.9% in WeBuyCars).
2. Introducing WeBuyCars
WeBuyCars is a uniquely positioned, highly competitive and entrepreneurial founder-led business, with
an impressive 20-year track record. As a highly experienced buyer and seller of used vehicles, it trades
through its vertically integrated, data and technology-led e-commerce and physical infrastructure,
supported by a national footprint that includes seven “vehicle supermarkets” and 19 "buying pods".
As a well-known and reputable brand, WeBuyCars provides a reliable, affordable and convenient
alternative to selling or buying a new vehicle. With vehicle valuations determined by artificial
intelligence and not individual buyer sentiment, sellers can be certain of a fair price and immediate cash
settlement on acceptance of the offer. With no affiliation to any particular make of vehicle, WeBuyCars
offers an extensive range of popular vehicle brands and a simple, seamless buying experience. Buyers
are given independent vehicle condition reports and high-resolution photos to facilitate their purchase
decisions.
Its extensive and continuously enriched proprietary vehicle, price, consumer and other data enables
WeBuyCars to adjust its pricing according to the value of and demand for a vehicle. This protects its
margins and drives high stock turn, which supports predictable earnings and high cash conversion rates.
3. Rationale for the investment in WeBuyCars
Transaction Capital has a proven track record of creating value by identifying, pricing and investing in
businesses in resilient markets, that have the potential to achieve scale and leading positions in their
market segments. WeBuyCars presents an almost perfect fit with the group’s investment framework,
meeting most of our investment criteria even when conservatively applied.
Our due diligence investigation has confirmed WeBuyCars’ immediate and longer-term potential.
Transaction Capital’s entrepreneurial ownership mindset, underpinned by the ongoing involvement of
our founders, makes Transaction Capital a good shareholder for founder-led businesses like
WeBuyCars. On a standalone basis, WeBuyCars is a resoundingly strong and specialised business with
more than 20 years of experience in buying and selling used vehicles. Although it is well established, we
believe that WeBuyCars is well placed to grow its scale and competitiveness. Most importantly, we are
investing in a company whose owner-managers are deeply invested in growing the value of their
business.
An important feature of Transaction Capital’s attraction to WeBuyCars is our reputation for operating
trusted brands that contribute to the formalisation and development of markets with low levels of
consumer trust and service levels, and to elevate consumer, regulator and investor confidence in these
markets. Our status as a responsible and ethical corporate citizen, which operates according to the
highest standards of fiduciary duty, governance and compliance, subject to the scrutiny expected of a
listed entity, is a powerful differentiator in these market spaces and will, in its capacity as a shareholder
of reference, deepen WeBuyCars’ credibility.
3.1 Market context
Notwithstanding the heavy reliance most South Africans place on the minibus taxi industry, personal
vehicles remain a necessity for many South Africans, given long travel distances and limited public
transport options. Furthermore, vehicle ownership is an aspiration deeply rooted in South African
culture. However, new vehicle sales have contracted for seven years, impacted by adverse economic
conditions and changes in consumer buying patterns. As consumers’ disposable income has come
under strain, and a weakening rand has pushed up new vehicle prices, more consumers are opting to
trade down from new to used vehicles, and to own their vehicles for longer.
In South Africa there are a total of 10.8 million3 new and used passenger vehicles in circulation. This
vehicle 'car parc' 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. New vehicle sales are forecast
to fall 31% to 372 000 vehicles in 20204 before recovering by 20% to approximately 450 000 vehicles in
2021 (10% below 2019 levels)5. In comparison, only about 3% of total vehicles (approximately 350 000)
are written off every year, resulting in vehicle 'car parc' growth. 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.
Favourable trends amplified by COVID-19, both in marked shifts in what consumers can afford and their
growing preference for online channels, are likely to accelerate growth in the used vehicle segment.
Although the adoption of e-commerce in the vehicles market has been slower than in other categories
(such as electronics), experts estimate that e-commerce adoption in South Africa has leap-frogged
some five years into the future as the desire for contactless services has escalated. Industry players that
offer the most trustworthy, secure and credible e-commerce platforms will gain significant competitive
edge in the vehicles market in the coming years.
3.2 WeBuyCars’ position in the used vehicle market segment
WeBuyCars competes with dealership groups that are either affiliated to Original Equipment
Manufacturers (OEMs), which limit the brand optionality and pricing flexibility they can offer, but hold
them to high standards of service and marketing; and independent dealership groups that can offer
greater choice of brands but have limited available stock and tend to attract low levels of consumer
trust. These dealerships will invariably be stockholders that carry inventory on their balance sheets.
Newer entrants to the market have generally been online marketplaces that facilitate buying and selling
of vehicles between trade and private customers, and earn a commission, subscription and/or
advertising fees, but do not carry inventory. In many instances WeBuyCars will compete against these
platforms.
As a buyer, distributor and retailer of vehicles, also offering allied products and services, WeBuyCars
provides a uniquely composed offering across this value chain with a credible brand and high levels of
trust, optionality, convenience and competitive pricing. WeBuyCars currently buys more than 6 000
vehicles a month on average from private consumers, allowing it to offer a large variety of vehicles for
sale. Some of these are sold directly to dealerships via online auction on its e-commerce platform, with
the majority sold to private consumers. Buyers are not restricted to any one brand of vehicle or limited
in their choice of affordable options with the majority of vehicles sold being older than 5 years at a price
ranging between R40 000 and R160 000.
WeBuyCars earns an acceptable risk adjusted gross margin on vehicle sales (vehicle margin), with
additional gross margin earned on add-on products (product margin). The latter includes agency fees
earned from finance, insurance related and allied products (F&I products) sold on behalf of major banks
that provide asset-backed and unsecured vehicle finance, leading insurance providers as well as vehicle
tracking businesses.
Participating in both the purchase and sale of used vehicles enables WeBuyCars to leverage 20-years of
proprietary vehicle price, consumer and other data to generate granular insights to adjust its pricing
according to the value and demand for a particular vehicle. This preserves its margins and ensures a
high stock turn, indexed to customer affordability.
3.3 WeBuyCars’ growth potential
3.3.1 Enhancing unit economics and margin potential
WeBuyCars has a medium-term target to increase the volume of vehicles traded per month, by
expanding its nationwide footprint and enhancing brand awareness to capture growing demand. It also
seeks to optimise its operations to further improve vehicle acquisition and stock turn efficiency.
In addition WeBuyCars has the opportunity to improve its product margin earned by enhancing
commercial arrangements with existing F&I providers, increasing F&I take-up among existing clients
and ultimately converting WeBuyCars into a principal provider of certain F&I products. Further
opportunity to drive up product margin will come from adding relevant new allied products, including
vehicle tracking and telematics services.
3.3.2 Deeper penetration of the used vehicle value chain by WeBuyCars to build finance,
insurance related and allied product offerings as principal
Opportunities to further penetrate the used vehicle value chain underpin WeBuyCars’ strong organic
growth prospects. An assessment of the WeBuyCars’ international peer group shows that leading
international participants in this market segment with the highest valuation multiples are fully
integrated along the entire used vehicle value chain. Penetrating more of the used vehicle vertical will
enable WeBuyCars to extract operational and financial synergies across buying, selling (mainly online),
financing, insuring and providing specialised and relevant value-added products and services to clients.
This will also enable WeBuyCars’ to extend its services to clients that are unable to access credit through
traditional channels, which SA Taxi has done so successfully.
3.3.3 Harnessing technology and data to drive e-commerce potential
WeBuyCars’ established business-to-business (B2B) e-commerce capability, which connects to a variety
of third party dealerships, and its proven but nascent business-to-consumer (B2C) functionality,
underpins its longer-term growth prospects. Significant potential exists to drive penetration and uptake
of its B2C offering. On-line and e-commerce trading will drive higher levels of efficient and reliable
service, while dissolving physical and geographic barriers, with the expectation being that e-commerce
in the South African vehicles market will gain traction.
4. Subscription price and funding thereof
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 (Subscription Price),
payable as follows:
4.1.1 on the Effective Date (refer to 9 below) R1.47 billion in cash, and 16 467 000 newly issued
ordinary shares in Transaction Capital (at a price of R20 per share), for an aggregate value of
R329.3 million, will be transferred to WeBuyCars;
4.1.2 Transaction Capital will finance the payment of the R1.47 billion from a combination of existing
cash resources (approximately R900 million), existing debt facilities (approximately R220 million)
and by way of funding from WeBuyCars in the amount of R349.3 million which will be facilitated
through a subscription by WeBuyCars of preference shares in the Subscriber;
4.1.3 on the first anniversary of the Effective Date (refer to 9 below) , R40million paid as follows:
(i) R20 million in cash, and (ii) R20 million by newly issued ordinary shares in Transaction Capital
(valued at the 30 day volume weighted average price per ordinary share at such time) .
4.2 The Subscriber has provided a warranty to WeBuyCars that the volume weighted average price per
ordinary share in Transaction Capital for the 30 day period immediately preceding the first business
day immediately following the second anniversary of the Effective Date will not be less than R18.00.
The underpin shall not be payable if prior to the second anniversary of the Effective Date,
Transaction Capital has procured an offer for the shares at a price per share that is greater than or
equal to R20.00 and the shareholders of WeBuyCars prior to the Effective Date rejects such offer.
4.3 Ample liquidity is available in the form of undrawn bank facilities at SA Taxi, TCRS and at Transaction
Capital holding company level. However, as market dynamics in the aftermath of COVID-19
become clearer, certain strategic growth initiatives in TCRS and TC Global Finance6 provide
unprecedented opportunities to accelerate capital deployment for attractive risk-adjusted returns
and capital appreciation. To this end, Transaction Capital is in the process of increasing its available
holding company facilities by R680 million, to underpin these accelerated organic growth
opportunities once the transaction with WeBuyCars has been completed. In a future
announcement, the group will be requesting shareholder approval to provide authority for
Transaction Capital to issue up to 5% of its share capital to potentially raise cash proceeds for
organic growth opportunities if required.
5. Conditions precedent
The proposed transaction is subject to fulfilment or waiver (where appropriate) of, inter alia, the
following conditions precedent on or before 30 September 2020:
5.1 the conclusion and implementation (to the extent applicable) of agreements to give effect to the
proposed transaction (Transaction Documents) as well as a shareholders agreement in relation to
WeBuyCars and those agreements becoming unconditional in accordance with their terms;
5.2 confirmation from WeBuyCars that its shareholding structure is that specified in the subscription
agreement;
5.3 the delivery by WeBuyCars of a share certificate confirming the Subscriber as the holder of the
49.9% of the shares in WeBuyCars, which share certificate will be held by the attorneys of
WeBuyCars until implementation;
5.4 the delivery of directors and shareholders resolutions authorising the conclusion and
implementation of the proposed transaction;
5.5 Transaction Capital delivers to WeBuyCars a capacity and authority opinion from Transaction
Capital’s attorney's relating to its capacity and authority to enter into the Transaction Documents;
5.6 each of the Parties to the Transaction Documents (other than Transaction Capital) delivers to
Transaction Capital a capacity and authority opinion from WeBuyCars' attorneys reflecting each of
their capacity and authority to enter into the Transaction Documents; and
5.7 the parties obtaining the approvals or waiver, as the case may be, required for implementation of
the proposed transaction from the Takeover Regulation Panel established in terms of section 196
of the Companies Act, 2008.
6. Warranties and Indemnities
The subscription agreement contains negotiated warranties and indemnities in favour of Transaction
Capital from the existing shareholders of WeBuyCars, including from the founders of WeBuyCars.
7. Employment and Restraints of Trade
Transaction Capital has negotiated that the founders of WeBuyCars will sign new service, restraint and
confidentiality agreements with WeBuyCars.
8. General
8.1 The value of the tangible net assets of WeBuyCars as at 31 March 2020 was approximately R700
million.
8.2 WeBuyCars’ profit after tax for their financial year ended 31 March 2020 attributable to its net
assets was R357 million.
8.3 The value of the net assets and the profits attributable to the net assets have been extracted from
WeBuyCars’ audited unsigned financial statements for year ended 31 March 2020. These results
were prepared in accordance with the framework concepts and the measurement and recognition
requirements of International Financial Reporting Standards (IFRS). Transaction Capital is satisfied
with the quality of the financial statements from which these results have been obtained.
9. Effective date
Transaction Capital and WeBuyCars have agreed that the Effective Date is the date on which the last of
the conditions precedent are fulfilled or waived.
The risk and benefit attaching to the shares will pass to Transaction Capital or its nominee on the
Effective Date.
10. Categorisation
The proposed transaction is a Category 2 transaction as contemplated in the Listings Requirements of
the JSE Limited.
11. Further announcement
Shareholders will be notified once the last of the conditions precedent has been fulfilled or waived.
PROSPECTS
SA Taxi and TCRS are strategically positioned to deliver good commercial returns and meaningful social
impact in variable economic conditions. Both have demonstrated resilience in their responses to
COVID-19, with their respective market sectors displaying their defensive character, and operational
activity in most instances nearing pre-lockdown levels. It has become clear that their business models
will be more relevant in a post COVID-19 environment.
COVID-19 has proven that the minibus taxi industry is indispensable to South Africa’s economic
productivity. The industry has recovered quickly and transitioned smoothly to near-normalised
operations as lockdown restrictions have been eased and the economy re-opens. SA Taxi’s strong
market position, its track record as a pioneer in the industry and its vertically integrated business model
positions it well to serve clients along the full minibus taxi value chain; as South Africans go back to
work, and the country seeks stronger and more inclusive growth.
TCRS supports its clients’ ability to continue extending credit to their customers, by freeing up their
operational infrastructure and balance sheet capacity, and rehabilitating indebted consumers. This
facilitates the effective functioning of consumer credit markets, which will be critical to South Africa’s
economic recovery and growth aspirations. As the credit health of consumers deteriorates, and more
customers roll into default, TCRS’s capital flexibility, extensive collections infrastructure and new work-
from-home capabilities position it well to win new agency collection mandates, and accelerate capital
deployment in acquiring non-performing consumer loan portfolios to be collected as principal (NPL
Portfolios).
Transaction Capital’s financial position is robust. The measures taken to strengthen our capital structure
and ensure adequate liquidity, and the long-term nature of our assets, provide ample financial capacity
to fund our organic growth initiatives even as recessionary conditions intensify. Stakeholders will be
aware of the actions taken to enhance the group’s financial flexibility and strategic agility, most recently
the R560 million of new capital raised via an accelerated bookbuild in June 2020 (detailed in our SENS
announcement of 17 June 2020). The organic growth initiatives set out at the time, specifically to
acquire NPL Portfolios in South Africa and in Europe, remain valid and will be pursued.
As reported in the group’s interim results, we adopted a conservative approach regarding the
anticipated impact of COVID-19 on future cashflows and expect Transaction Capital to deliver subdued
operational performance for the 2020 financial year due to the effects of COVID-19. However, with our
operational activity in most instances nearing pre-lockdown levels (mentioned above), and SA Taxi and
TCRS well placed to build on their long-term track record of growth, we see a return to the group’s
trend of strong organic growth (above 2019 pre COVID-19 levels) for the 2021 financial year and
beyond. We are confident and excited about the prospect of investing in WeBuyCars, which will support
an even higher growth as WeBuyCars fully realises its medium-term growth potential.
Shareholders are advised that the information contained in this announcement has not been reviewed
or reported on by the group’s auditors.
1 SA Taxi Holdings Proprietary Limited, 73.9% owned by the group
2 Transaction Capital Risk Services Holdings Proprietary Limited, 100% owned by the group
3 Lightstone - vehicle parc consists of passenger & light commercial vehicles
4 Moneyweb|https://www.moneyweb.co.za/news-fast-news/new-car-sales-to-drop-to-17-year-low-on-pandemic/
5 Naamsa reported new light commercial and passenger vehicle sales in South Africa at approximately 491 000 in 2019;
Company estimates, applying historical Naamsa results, estimates new vehicle sales at approximately 450 000 for 2021
6 TC Global Finance Limited, 50% owned by the group
Hyde Park
8 September 2020
Transaction Capital Limited
Investor Relations – Phillipe Welthagen +27 (0) 84 512 5393
Sponsor
Rand Merchant Bank (A division of FirstRand Bank Limited)
Legal Counsel to the Company
ENSafrica
Tax advisors to the Company
Werksmans Attorneys
Date: 08-09-2020 05:00:00
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