The National Tyre & Wheel Ltd (ASX: NTD) share price is gaining momentum on Tuesday morning. This enthusiasm has sprung to action following the tyre and wheel retailer announcing an acquisition.
In early trade, shares in the company are being exchanged for $1.24 apiece, up 8.3%. However, the intraday high was set at $1.30 soon after the market opened.
Let's take a look at the details of the deal.
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What's moving the National Tyre share price today?
Investors are bidding up the price of National Tyre and Wheels shares with ferocity after the company revealed a new acquisition this morning.
According to the release, a share sale and purchase deed was signed yesterday for the acquisition of Black Rubber. The company being acquired operates under two entities, both Black Rubber Pty Ltd and Black Rubber Sydney Pty Limited. National Tyre is set to acquire Black Rubber in its entirety for a total consideration of up to $26.3 million.
Moreover, several facets of Black Rubber have appealed to National Tyre in the making of this deal. Firstly, it expands upon the company's current offering of commercial tyres for trucks and buses.
In addition, value-add services such as pricing based on cents per kilometre solutions, tyre performance monitoring, fitting at customer depots, and retreading capabilities are all offered by Black Rubber.
Despite being established in 2013, the company to be acquired has expanded operations across three states. These are Western Australia (Perth and Port Hedland), Queensland (Brisbane), and New South Wales (Sydney).
Its revenue from these sites are predominantly from selling truck, bus, and agricultural tyres to commercial fleets and other business to business customers — at 60% of revenue.
National Tyre plans to put Black Rubber's relationship with Michelin to good use. The target company operates three of the four retread factories in Australia, with authorisation to use Michelin materials and techniques. As such, Black Rubber retreads are planned to be sold through National Tyre's distribution network.
Looking at the numbers
Bolstering the company's earnings, Black Rubber is expected to achieve $5.5 million in earnings before interest, tax, depreciation, and amortisation (EBITDA) in FY22. This would be on an anticipated ~$40 million worth of revenue during the period.
Based on this information, National Tyre will be paying 4.7 times Black Rubber's FY22 forecast EBITDA for the acquisition. However, $5.2 million of the total consideration will be dependent on earnings over the next two financial years.
The National Tyre & Wheel share price is now up nearly 64% in the past year.
