The Carsales.Com Ltd (ASX: CAR) share price won’t be going anywhere on Wednesday.
This morning the auto listings company requested a trading halt so that it could undertake an equity raising.
Why is Carsales raising funds?
According to the release, Carsales has entered into a Securities Purchase Agreement to acquire a 49% stake in United States-based business Trader Interactive for approximately US$624 million (A$800 million).
This values Trader Interactive on a 100% enterprise value (EV) basis at US$1,625 million or approximately A$2,074 million, which represents a calendar year 2020 EV/adjusted EBITDA acquisition multiple of 26.5x.
Management notes that the acquisition represents a strategically compelling opportunity to further build out its international scale and industry diversification with exposure to attractive verticals in the United States. It is expected to be earnings per share positive on a pro-forma basis, with mid-single digit earnings per share accretion from year one.
The company also has a call option to acquire the remaining interest in Trader Interactive on specified (but unreleased) terms.
To fund the acquisition, Carsales is looking to raise $600 million via a pro rata accelerated renounceable entitlement offer with retail rights trading. The entitlement offer will be conducted at $17.00 per new share, which represents a 12.9% discount to its last closing price of $19.51.
The balance will be funded by the upsize of its existing debt facility from existing lenders.
What is Trader Interactive?
The release explains that Trader Interactive is a leading platform of branded marketplaces in the US.
It provides digital marketing solutions and services across commercial truck, recreational vehicle (RV), powersports, and equipment industries.
The business generated adjusted revenue of US$123 million and adjusted EBITDA of US$61 million in 2020.
Management notes that it has a strong track record of delivering earnings growth, with an EBITDA compound annual growth rate of 13% over the last five years.
“An important milestone”
Carsales’ Managing Director and CEO, Cameron McIntyre, said: “Having held Australian market leading positions in bikes, boats, caravans (RVs) and truck marketplaces since 2005, the company has developed strong intellectual property and product & technology capabilities that can be leveraged into global markets.”
“We have demonstrated an ability to build valuable international partnerships over many years in our automotive business and see this acquisition as an important milestone in carsales’ international and vertical marketplace expansion. It also represents a significant investment to support our long-term growth.”
“This acquisition is expected to accelerate our international growth strategy by providing us with exposure to a significant market in the United States across attractive non-automotive verticals. We are excited by the opportunity this investment provides carsales and look forward to working closely with Trader Interactive in helping them achieve their objectives and delivering shareholder value,” he concluded.
Carsales also provided a brief trading update with the acquisition announcement.
On the top line, Carsales is expecting to deliver a 3% to 4% increase in revenue in FY 2021 to $433 million to $437 million.
And thanks to margin improvements, adjusted net profit is expected to grow 8% to 11% to the range of $149 million to $153 million.
When will the Carsales share price return to trade?
The Carsales share price could be out of action until the start of next week. It has requested that the trading halt remains in place until the earlier of an announcement being made about the completion of the institutional component of the entitlement offer or the commencement of trading on Monday 17 May 2021.