The Suncorp (ASX: SUN) share price will be on watch today after announcing an agreement to sell its smash repair business to AMA Group Ltd (ASX: AMA).
What did Suncorp announce?
This morning Suncorp revealed that the two parties have signed a binding agreement for the sale of the Capital S.M.A.R.T business to AMA for an enterprise value of $420 million.
According to the release, the sale consideration will be in the form of upfront cash proceeds and includes the retention of a 10% interest in the business. Suncorp will also have a seat on the Capital S.M.A.R.T entity board.
The transaction price of $420 million represents a FY 2019 EBITDA multiple of 20x. The after-tax profit on sale is expected to be in the range of $275 million to $295 million, in addition to the value of the retained 10% interest in the business.
Under the terms of the agreement, Suncorp customers will continue to have access to Capital S.M.A.R.T under a 15-year Motor Repair Services Agreement (MRSA) with two options by Suncorp to extend for a further five years. The MRSA preserves the cost advantages that Capital S.M.A.R.T has delivered to Suncorp over the past eight years and provides protection to ensure that defined service levels are maintained.
Suncorp's CEO, Steve Johnston, believes the deal is in the best interests of customers, shareholders, and the business.
He said: "The increasing complexity of repairs is driving significant change in the smash repair and parts procurement industry, and the divestment means Suncorp can focus on its core Insurance and Banking operations. Importantly, the agreement maintains Suncorp's competitive advantage and we look forward to working closely with AMA as an ongoing partner."
AMA Group's CEO, Andrew Hopkins, appeared to be pleased with the deal. He said: "We are excited to combine Capital S.M.A.R.T's best-in-class capabilities in low to medium severity panel repairs with AMA's industry leading platform across the smash repair market. The acquisition further strengthens our long-standing close relationship with Suncorp who, in addition to committing to a long-term service agreement with Capital S.M.A.R.T, are joining us as a partner in the business."
