Automotive aftermarket parts business Bapcor Limited, formerly known as Burson Group Ltd (ASX: BAP), has a history of making strategic acquisitions, and that trend continued after the market closed on Wednesday.
Led by CEO Darryl Abotomey, Bapcor said it had entered into binding agreements to acquire two specialist wholesale businesses: Baxter Auto Electrical and Roadsafe Automotive Products.
Baxter represents Bapcor's first step into the auto electrical category, which is a category Bapcor expects to grow into "significantly". The company distributes rotating electrical, electrical accessories and lighting to workshops and fleets. This includes items such as alternators and starter motors, battery products and cables, as well as globes and auxiliary lights.
Meanwhile Roadsafe Automotive Products is a specialist distributor of steering and suspension products, together with 4×4 spare parts and accessories. The acquisition will likely complement Bapcor's existing specialist categories of suspension and 4-wheel-drive, such as the Opposite Lock business it acquired in 2015.
Combined, the two businesses generated $45 million in sales and $4 million in annual EBITDA (earnings before interest, tax, depreciation and amortisation) in the 12 months to June 2016. Bapcor will pay a minimum of $22 million for the businesses based on earnings for FY16, although that could change depending on earn-out provisions over the next three years.
At 5.5x trailing EBITDA, $22 million seems a reasonable price to pay. What's more, the company should be able to reduce costs and improve their overall performance as it integrates the businesses into the broader group.
Earnings from the businesses are expected to be included for 11 months of the 2017 financial year with the acquisitions expected to be completed by the end of July. They will also be earnings per share (EPS) positive, and will exceed Bapcor's cost of capital.
Darryl Abotomey commented on the acquisitions, saying: "These two strategic acquisitions continue the exciting growth in the development of the Bapcor Group, and is consistent with our strategy to grow our specialist wholesale business where we will be number 1 or 2 in the category segment in which our businesses operate. Baxters auto electrical and Roadsafe Automotive Products expand the breadth of our offering to our customers and are complementary to our existing operations."
Indeed, Bapcor has generated enormous returns for shareholders over the years through acquisitions as well as organic growth. At $5.60, its shares aren't necessarily cheap, but are still worth a closer look for long-term investors who are happy to pay up for quality.
