We’ve written before on the growth ideas of Perth-based Automotive Holdings Group (AHE) which this week again proved that it’s not just resources and Wesfarmers that dominate business thinking in the West.
AHE has rapidly emerged as the consolidator in the Australasian car retailing industry: with this week’s deal it will have more than trebled its size, revenues and earnings in the space of a year.
That’s rapid growth and yesterday the market woke up to this story and chased the shares 40c higher to an all time high of $3.35.
That 12 per cent rise was the biggest one day move for the company and it came at the end of a steady appreciation.
Since July last year the shares have more than doubled form $1.60 as the company has ignored the impact of rising petrol prices on the sales of larger cars to expand the dealerships of local producers such as Ford, Holden, Toyota and Mitsubishi, as well as riding the rising demand for smaller vehicles produced by the likes of Toyota, Subaru, Volkswagen and the aggressive Korean producers such as Kia.
But this week brought its biggest deal: the $117 million acquisition of Australia’s biggest privately-owned auto retailer, the Zupps Group of Brisbane.
Zupps is not only the country’s largest privately-owned automotive retailer with 32 franchises operating from 18 locations, it sits in the second fastest growing state in the country after WA, but has a bigger population and domestic economy. And more car buyers each year.
More importantly AHE said Zupps is expected to generate $670 million in revenue in the 2007 financial year.
AHG chief executive Bronte Howson said the Zupps acquisition would push the company’s turnover to more than $3 billion, “a new scale of operation, and we believe we will see strong benefits flow through in FY08 (fiscal year 2008) and beyond”.
This is AHG’s first foray into Queensland and is the automotive retailers third East Coast acquisition since acquiring the McGrath Lander Group in New South Wales for $67 million in December and then Lansvale Holden in the same area of Sydney (around the Southwest) in February for an undisclosed amount).
AHE said the Zupps purchase will be funded through the issue of cash and shares and is expected to be settled by May 1.
This will add to the existing car business in Perth and Sydney and in New Zealand, motorbikes and autoparts in Australia, transport logistics and cold stores on the East Coast and trucks in Melbourne.
The estimated $117 million purchase and associated transaction costs will be funded through a $90.4 million placement and a $30 million issue of AHG shares to the Zupp family. Shares issued to the Zupp family will be subject to escrow, with 25 per cent escrowed for three months and the remaining shares being escrowed for 12 months.
AHE will launch a Share Purchase Plan (SPP) to allow existing shareholders the opportunity to subscribe for shares in AHG up to the maximum legal value of A$5,000 at the same price as the institutional placement.
The SPP is not conditional on the Zupps transaction proceeding and the proceeds will be used for working capital.
AHE said the Zupps deal highlights were:
· Zupps Group is Queensland’s largest privately-owned automotive retailer, with FY07 revenue expected to be approximately $670 million.
· Founded in 1948 by Percy Zupp, father of the current owner John Zupp.
· 18 dealership locations in South East Queensland, 32 franchises – including 3 truck centres 13 vehicle brands – including 4 of the 10 best selling passenger brands in Australia
· Parts distribution business, representing Holden and Mitsubishi.
· Modern, state-of-the-art facilities.
· Mega sites at Aspley, Mount Gravatt and Southport.
· Newly completed Subaru, Peugeot and HSV dealerships at Mount Gravatt.
· Post-acquisition, AHE will operate 86 franchises across Australia and New Zealand, representing 9 of top 10 selling automotive brands.
In the 6 months to December 2006, AHG earned a net profit of $11.9 million on group revenue of $936.5 million.