The AMA Group announced earlier this month that it had agreed to sell Service King parent company Blackstone its collision repair business — Australia’s largest chain — for $386.39 million.
The deal locks down an acquisition proposal which had leaked to the press in January; at that time, Blackstone had valued the company at $428.87 million ($530 million in Australian dollars). Australian Financial Review “Street Talk” column reported in January that Bell Potter industrials analyst Chris Savage called that offer “reasonable” but “not necessarily a knock-out bid,” which is ironic now given the ultimate $508 million AUD purchase price.
The AMA Group told shareholders Blackstone will pay 10.7 times projected earnings before interest, taxes, depreciation and amortization for the 12 months ending June 30. It’s unclear if the EBITDA multiplier applies to just the AMA Group’s collision repair business or the combined company.
The AMA Group will keep its “Automotive Component, Accessory and Procurement Business,” which distributes paint, parts and materials to collision repairers and has interests in automotive remanufacturing, performance products, electrical accessories and protection products as well.
“Today is an important point in the development of AMA Group,” AMA Executive Chairman Ray Malone said in a statement. “The Board has decided to address the challenge of funding two growing but distinct businesses by separating the ACAD Business in to a new ASX listed company; with each business having its own management team, growth plans and funding strategy. This separation will ensure that neither business has its prospects limited by the competing demands of the other business for board and management attention and financial resources. Each business will be able to realise its full potential with significant benefits to customers, employees and shareholders.
“I am especially excited about the prospects of the new Procurement Business. AMA Group is truly a global leader in sourcing consumables for the vehicle panel repair industry. This is reinforced by our well advanced discussions with a number of large international vehicle panel repair industry consolidators about servicing their consumables and parts needs. Based on the significant potential cost savings for international vehicle panel repair operators, we expect to rapidly grow this new business.”
Blackstone will be locked into a 10-year distribution deal with the companies retained by the AMA Group for at least $1 million AUD a year. The deal also guarantees $12 million AUD of product sourcing fees over three years will come from Blackstone’s new AMA collision business or any other company in its portfolio.
Technically, this could mean Service King, though it’s difficult to see a scenario where products geared to the Australian automotive and collision market made technological or logistical sense for the North American fleet. Then again, as Malone indicated, the AMA Group thinks it might have a shot at “global opportunities.”
“Importantly, as part of the Demerger process, the consumables and parts procurement function (‘Procurement Business’) of the panel repair business will become part of the ACAD Business, reflecting the true nature of the operation,” the AMA Group wrote. “This procurement capability has delivered significant cost savings for the Panel Business’s major customers, the auto insurance companies, and has in turn, driven the rapid growth of the Panel Business. AMA considers that the potential to expand future revenue streams for the ACAD Business are promising and it is well positioned to benefit from global opportunities.”
The AMA Group Board unanimously plans to vote in favor of the deal and recommends shareholders do so as well. Shareholders will make 65.39 cents a share cash or a mix of cash and unlisted shares in the collision repair business under Blackstone. They’ll also retain an equivalent number of shares in the “ACAD” business staying with the AMA Group.
“The Blackstone Proposal recognises that AMA Group shareholders may wish to have an ongoing indirect interest in the Panel Business in varying degrees,” the AMA Group wrote.
The deal is expected to close in September.
The news comes a little more than a year after Bloomberg reported Blackstone and Carlyle were interested in selling Service King for as much as $2 billion.
AMA Group, April 13, 2018
AMA Group, April 13, 2018
Featured image: The AMA Group logo is shown. (Provided by the AMA Group)