RPM Automotive Group Ltd (ASX:RPM) has acquired two specialist tyre businesses – Victoria Wide Tyre Service (Vic Wide) and ACT Total Tyres (ACT Tyres).
The move expands RPM’s Repairs and Roadside division and strengthens its distribution platform and footprint on Australia’s east coast.
The two are well-respected businesses with experienced management teams and are expected to generate a combined $14 million of revenue in the 2022 financial year, $2 million of EBITDA, and generate an additional $350,000 in synergies.
This was a highly strategic acquisition of two companies that strengthens RPM’s Network Effect, provides increased vertical integration capability, enables further cost savings and aligns well with the RPM culture.
RPM has acquired both businesses for $7.67 million (cash and equity) on a combined 3.8x multiple versus RPM's forecast FY22 EV/EBITDA of ~6.2x (before acquisitions).
The cash component will be funded from cash flow and existing credit facilities paid over 36 months.
Acquisition details
RPM will pay $6.8 million for Vic Wide, split 65% in cash and 35% in RPM ordinary shares (escrowed for 12 and 24 months from the issue date) at an issue price equivalent to the weighted average share price over the previous 60 days at the date of settlement.
Consideration will be paid 50% on completion and the balance 12 months later.
RPM will pay $0.87 million for ACT Tyres, split 50% in cash and 50% in RPM ordinary shares (escrowed for 12 months from the issue date) at an issue price equivalent to the weighted average share price over the previous 60 days which is $0.280932 per share.
Consideration will be paid 50% on completion, 25% after 12 months and a further 25% after 24 months.
Acquisitions meet RPM’s strict criteria
Commenting on the dual acquisitions, RPM CEO Clive Finkelstein said: “When assessing businesses to acquire, they must meet our strict criteria for best-in-class service, industry knowledge and a strong cultural alignment with the RPM Group. With over 70 years of combined experience between Vic Wide and ACT Tyres management, they will support RPM continuing to provide above industry service standards to our customers. Both businesses are run by experienced, well-respected managers who know the RPM Group well, buy into our strategy, and will fit extremely well with our culture.
“The acquisition of Vic Wide positions RPM as one of the largest commercial tyre businesses in metropolitan Melbourne by volume. Our current operations are very strong in the southern and eastern regions, while Vic Wide is strong in the region north of the Yarra River.”
About Vic Wide
Vic Wide provides commercial and industrial tyre consumers with class-leading service, advice, range and value for money. Vic Wide provides the same value and cost competitiveness as the major retailers but with a personalised service and short turnaround times to reduce operator downtime.
Current management, who have signed on for no less than four years, have done an excellent job of tailoring the services provided by the business to the exact requirements of their customers, building trust and loyalty.
Vic Wide has operated for more than 20 years and is forecast to generate $11 million revenue, $1.7 million EBITDA and $1.45 million NPBT in FY22. The acquisition price of $6.8 million (cash and equity) represents four times EBITDA pre-synergies. This transaction is expected to generate further operational synergies to RPM of over $350,000 per annum across metro retail tyre operations.
About ACT Total Tyres
Established more than 30 years ago, ACT Tyres operates out of Fyshwick and is one of the largest and most respected commercial tyre retail outlets in the ACT. The company delivers high levels of service and tailored business solutions to their customers.
Management has a strong reputation for outstanding service in the ACT region. Strategically this transaction is important as ACT Tyres is the ‘apex tiger’ in the region. However, they also intimately know their customers and completely understand their needs. This epitomises RPM’s philosophy of a national footprint with local “community” focus.
This acquisition will also provide RPM with increased scale and ability to service current customers who have regional depots in the ACT. ACT Tyres generated $2.6 million revenue in FY21, and is expected to generate EBITDA of $300,000. Consideration of $870,000 (cash and equity) represents less than three times EBITDA and is consistent with RPM’s successful growth strategy.