MENU

AMA Group Ltd surges to record high on takeover bid as M&A fever heats up

Shares in AMA Group Ltd (ASX: AMA) surged 5.7% to a record high of $1.20 in early trade after the panel beating and auto accessories group told the market that it has received a bid for part of its business from Blackstone Private Equity.

The private equity group is offering to buy AMA’s panel business for $530 million on a cash-free, debt-free basis but the proposal is non-binding and subject to numerous conditions that include the satisfactory completion of due diligence by the bidder, internal approvals by Blackstone and “agreed transaction structure and documentation”.

What this essentially means is that Blackstone can walk away at any point for any reason and that AMA has to bare its soul to the potential buyer.

You’d be foolish to think this is close to a done deal but the market excitement in the stock is understandable. The indicative price for AMA is close to the market capitalisation for the whole group as AMA was trading at $1.14 yesterday, which values the company at around $590 million.

The panel division generates around 86% of FY17 revenue but if you thought this transaction (assuming it goes thorough) leaves AMA with no future, you’d be mistaken.

I would view the sales of the panel business as a positive for the group as this is actually the key part of the business I am not keen about for the longer term as the impending arrival of self-driving cars (and the fact that many new cars have collision avoidance systems and self-parking features) means we will see far fewer “fender benders”.

Minor accidents account for the vast majority of a panel beaters business, and while this business won’t disappear, it is on a longer-term structural decline.

The sale of AMA’s panel business will also reinforce the value proposition of its recent acquisition of four-wheel drive accessories and services group, Automotive Solutions Group (ASX: 4WD).

AMA bought Automotive Solutions at a bargain price, in my view, by offering 35 cents a share compared to the target’s IPO price of a dollar.

Automotive Solutions issued a number of profit downgrades and its last guidance before being acquired by AMA was for the group to generate an earnings before interest and tax (EBIT) of $1.4-1.5 million.

I have little doubt that AMA’s CEO, Ray Malone, will do a far better job in growing Automotive Solutions given his track record.

Even without the panel business, AMA will have a reasonably dominant position in a few niche markets that can be used as a platform to drive future growth.

The potential transaction is the first notable one this year but we can expect more merger and acquisition activity as conditions are ripe for takeovers.

Looking for other companies that are well placed to dominate their industries? The experts at the Motley Fool have uncovered three “disruptors” that they think will outperform in 2018 and beyond.

Click on the link below to get your free report on what these stocks are.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Cochlear or REA Group.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…

Including:

The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!