Corporate M&A Due Diligence Bundle

Your role

M&A Associate

Scenario

THE DEAL Buyer: Boxer Superstores (Pty) Ltd (a subsidiary of Pick n Pay Stores Ltd, JSE: PIK). Target: Fresh Choice Foods (Pty) Ltd (Reg 2002/041228/07). 14 stores across eThekwini, uMlazi, Pinetown, Chatsworth and Verulam. FY2025 turnover R2.14bn, EBITDA R118m. 1,240 employees (720 permanent, 520 casual). Structure: Share purchase — 62% of issued shares from founder family (Naidoo Family Trust IT9214/2001) at R780m, cash + 3-yr escrow of R80m. Signing target: 24 July 2026. Long-stop: 30 November 2026. Conditions precedent include Competition Commission approval (large merger under Competition Act 89/1998), Absa consent to change of control, and FIC/POPIA compliance. RED FLAGS ALREADY IDENTIFIED IN THE VDR (partial list) 1. Property: 6 of 14 store leases held via a related-party landlord company (Naidoo Properties CC) at 20–30% above market. Two leases expire within 12 months and are on month-to-month. 2. Employment: 520 casual workers reclassified — Boxers HR team believes 380 meet the s198A LRA deeming test (>3 months = permanent). Estimated back-pay exposure R42m. 3. BEE: Targets FY2025 verified BEE certificate is Level 4 but rating agency (EmpowerLogic) issued a conditional note re fronting concerns about a 26% black women shareholding held via a trust with a white male attorney as sole trustee. 4. Litigation: 3 pending matters — (i) R11m claim by supplier Frozen Farms (Pty) Ltd, alleged unpaid invoices; (ii) an Equality Court complaint by a former head-office employee (racial discrimination); (iii) CIPC investigation into related-party loans to the Naidoo Family Trust totaling R38m, potentially reckless trading under Companies Act s22. 5. Regulatory: 2 stores operate without valid Certificates of Acceptability under the Foodstuffs, Cosmetics & Disinfectants Act 54/1972 (Chatsworth, Verulam). 6. Tax: SARS query outstanding on VAT input claims of R14.6m relating to 2023-2024. No provision raised. APPLICABLE LAW Companies Act 71/2008 ss 22 (reckless trading), 45 (loans to related parties), 112–115 (fundamental transactions); Competition Act 89/1998 ss 12A, 13A (large mergers); LRA ss 197 (transfer of business), 198A (temporary employment); B-BBEE Act 53/2003 and Amended Codes 2013 (fronting = s13O offence); Foodstuffs Act 54/1972; Tax Administration Act 28/2011; Trust Property Control Act 57/1988.