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Here’s why GUD (ASX:GUD) is acquiring this AMA (ASX:AMA) business for $70m

M&A Letters

The AMA Group Ltd (ASX: AMA) share price is pushing higher on Thursday after announcing the divestment of its ACAD business to GUD Holdings Limited (ASX: GUD).

At the time of writing, the AMA share price is up 2% to 84 cents, whereas the GUD share price is in a trading halt.

What was announced?

This morning the two companies revealed that they have entered into a $70 million agreement for AMA’s ACAD business, excluding the ACM Auto Parts and Fluiddrive businesses. This figure remains subject to customary purchase price adjustments and capex adjustments.

AMA revealed that its board has been reviewing its strategic objectives to determine its optimal focus.

And while it notes that the ACAD business is a strong well performing business, it was determined that a focus on the Panel Repairs sector would provide greater opportunities for investment and growth for shareholders.

AMA’s management advised that the proceeds of the sale will be used to retire debt and set it up for continued growth in its core Panel Repairs operations.

For GUD, it notes that the acquisition is in line with its growth strategy. This is particularly the case in respect to securing new customers and categories through disciplined acquisitions.

After funding costs, the acquired businesses are expected to make a positive contribution to GUD’s earnings. Management is forecasting the acquisition to be mid-single-digit pro forma FY 2021 earnings per share accretive, pre-synergies.

GUD’s Managing Director and Chief Executive Officer, Graeme Whickman, commented: “The acquisition of these businesses is highly complementary to GUD’s automotive business and provides strategic diversification across products and customer channels, along with increased exposure to fast growing pick-up truck and SUV vehicle segments.”

“We are excited by the opportunity to bring GUD’s strong customer focus and sales ethos to what are well managed and established businesses with impressive product development and manufacturing capabilities,” he added.

Equity raising.

In order to fund the deal, GUD has launched an equity raising which aims to raise a total of $70 million. This comprises a fully underwritten $55 million institutional placement and a non-underwritten $15 million share purchase plan.

The institutional placement has an underwritten floor price of $10.75 per share, with the final price to be determined via a bookbuild. This floor price represents a 9.1% discount to its last close price.

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Motley Fool contributor James Mickleboro 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 Scott Phillips.

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