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AutoZone has collapsed into the arms of business rescue practitioners, hastening a reckoning with creditors after SA’s biggest automotive spares retailer drowned in debt.

The company voluntarily applied for business rescue — a legal process that keeps creditors at bay to allow business rescue practitioners to work out if a turnaround plan for a financially distressed company could result in better returns — at the start of this month stating that it is in “financial distress”.

AutoZone’s saga began with a private equity transaction in 2014 — a promising move that, in hindsight, shackled the company with burdensome debt.

Despite efforts to enhance performance and negotiate debt relief with lenders, AutoZone failed to achieve positive leverage. The tumultuous decade that followed — marked by economic turbulence and Covid-19 disruptions — worsened its plight.

“Efforts to address the lack of performance were further impeded by the Covid-19 pandemic, civil unrest and a period of stagflation. Throughout this period, AutoZone faced increasingly burdensome debt service obligations, diverting cash from operations to meet these funding needs,” director and CEO Dion De Graaff said. “While liquidity was sufficient to halt the negative leverage, it was not enough to return to positive leverage, effectively keeping the business at break even.”

As June rolled in, AutoZone’s facilities reached maturity and Absa refused to extend debt repayment holidays, leaving the company with no choice but to seek help.

Prospects

De Graaff remains optimistic about the company’s prospects for recovery in business rescue, citing its strong national brand, brand loyalty, and valuable intellectual property assets as key factors that could attract investment interest. However, he has declined to disclose specific details about the company’s outstanding debts or creditors.

AutoZone’s decision to pursue business rescue reflects a broader trend of financial distress in the SA businesses.

From early 2024, the country has seen an increase in business closures. According to Stats SA, more than 240 businesses closed their doors in the first two months of the year, a 1.6% rise compared with 2023.

While the total number of liquidations dropped by 14.8% year on year in February 2024, many businesses have opted for voluntary liquidation, with 124 out of 138 businesses closing voluntarily in February alone.

The sectors most affected by these closures include unclassified businesses, financing, insurance, real estate, business services and trade, catering and accommodation.

goban@businesslive.co.za

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