Dis-Chem Takes 50% Stake in OneSpark Amid Valuation Concerns

Dis-Chem, a leading South African pharmacy chain, announced a steep investment in the insurance sector by acquiring a 50% shareholding in OneSpark, a life insurance company. The transaction is valued at R155,940,228, translating into a considerable R311,880,456 valuation for OneSpark.

OneSpark is known for its innovative approach toward insurance, utilizing digital technologies and artificial intelligence to streamline the insurance process. Despite its advancements in the insurance market, OneSpark's financial performance indicates a loss before tax of R25,330,780 for the year ending 30 April 2024, along with a minimal total equity of R1,289,502.

Investor feedback points to concerns regarding the provided financials by Dis-Chem regarding OneSpark, which are limited and lack comprehensive details to warrant independent evaluations. While PWC has been brought in as an independent professional expert and has deemed the deal fair to Dis-Chem shareholders, the absence of specific financial data has left investors wanting.

Market analyses suggest OneSpark's valuation is significantly greater per share of total equity compared to Dis-Chem's valuation, raising questions over the fairness of the acquisition price. The investment also juxtaposes the earnings before tax yields between the two firms, with Dis-Chem accepting OneSpark's sizeable pre-tax loss against its investment. These comparisons have led to the assumption that OneSpark may be overvalued.

Furthermore, the involvement of Dis-Chem's former CEO Ivan Saltzman and his son Saul Saltzman, who are indirect OneSpark shareholders, has sparked speculation about a potential conflict of interest. Despite reassurances from Dis-Chem executives that no beneficial arrangements for the Saltzmans are in place or discussed, their significant holdings in OneSpark are now indirectly endorsed by Dis-Chem's acquisition, bearing implications for any future transactions.

Dis-Chem's foray into the insurance domain through OneSpark is a bold move, emphasizing an integration of health and insurance services. Still, stakeholders are left to ponder whether the investment's high valuation will deliver the desired synergies and returns.