AFRICA – Pharmacy group Dis-Chem has entered into a conditional arrangement to buy Baby City from its founder shareholders, the Aronoff family, for R430 million (US$23.35m).
The pharmacy group has entered into inter-conditional agreements in terms of which it will acquire 100% of the issued share capital of Fairy Tales Boutiques, and Somerset Baby Hyper, which make up Baby City.
In an update to shareholders, Dis-Chem said that Michel Aronoff would continue to serve as managing director of Baby City and current staff would be retained if the deal is given the greenlight by competition authorities and certain other conditions relating to employment contracts and leases are fulfilled.
“The acquisition is a great cultural fit and has been a target of ours for many years. The brands and businesses were built with similar philosophies, ensuring management team alignment as we take steps to unlock the value we see in the Baby City brand,” said Ivan Saltzman, Dis-Chem’s CEO, in a statement.
Dis-Chem said if the transaction is approved, it would include Dis-Chem branded clinics at Baby City stores, offering ante and post-natal clinic services aimed at babies and toddlers. It has also identified another 30 possible sites for new stores.
The pharmacy chain said that Baby City had “continued to trade well relative to the Covid-19 lockdown environment,” which demonstrated “both the resilient nature of the industry and the inherent brand equity of the retailer”.
“Dis-Chem recognises that the characteristics of the baby product sector align with the those of the pharmacy sector. Both sectors are extremely resilient with perpetual new entrants – the baby sector sees approximately 900,000 new babies annually. Dis-Chem’s
current offering is very focused on the FMCG and basic essentials categories which are extremely sensitive to price and promotion.
“To deliver both a destination baby experience to the first time parent and allow growth into the more specialised baby categories such as baby gear (prams, car seats, swings, bouncers and other nursery equipment), clothing, developmental toys, amongst other categories, Dis-Chem required a standalone baby destination store network whose brand positioning aligned with its own brand,” it said by way of rationale for the purchase.
The Baby City retail stores will be integrated into Dis-Chem’s current supply chain and serviced by CJ Distribution.
Baby City is a specialist destination baby retailer who operates a network of 33 stores across South Africa. For the 12 months to February 2020, it generated revenue of R855 million (US$46.44m).
The pharmacy group said that as part of the due diligence, a white space exercise was concluded based on the relationship between geographic baby density and baby retail store density. It identified the potential for approximately 30 additional sites for well traded Baby City outlets.