DJ Halfords Group PLC: Acquisition of National
Halfords Group PLC (HFD) Halfords Group PLC: Acquisition of National 01-Dec-2021 / 16:35 GMT/BST Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.
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THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND IS NOT AN OFFER OF SECURITIES IN ANY JURISDICTION.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF REGULATION (EU) NO 596/2014 AS IT FORMS PART OF UK DOMESTIC LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018
For immediate release
1 December 2021
Halfords Group PLC
("Halfords" or the "Company" and together with its subsidiaries, the "Group")
Acquisition of National
Halfords secures position as the UK's largest vehicle service, maintenance and repair business
Introduction
Halfords, the UK's largest provider of Motoring and Cycling products and services, today announces that it has signed a sale and purchase agreement (the "SPA") to purchase the entire issued share capital of Axle Group Holdings Ltd ("National") (the "Acquisition") on a cash free, debt free basis, for total consideration of GBP62 million (the "Consideration"), subject to adjustment for normalised working capital. The Consideration will be paid in cash on the date of completion, which is expected to be 9 December 2021. A further investment of c.GBP17 million will be made post acquisition on associated capital expenditure and c.GBP2 million on integration costs.
National is a well-established business in the tyre and automotive servicing, maintenance and repair ("SMR") market, operating under the following brands: National Tyres and Autocare ("NTA"), Viking Wholesale Tyres ("Viking") and Tyre Shopper. On completion of the Acquisition, National will be integrated into Halfords' Autocentres business.
The directors of the Company (the "Directors") believe that the Acquisition is both strategically and financially compelling, delivering on Halfords' objective of evolving into a business more heavily weighted towards Motoring Services.
Highlights of the Acquisition include:
-- the Acquisition accelerates Halfords' Motoring Services strategy surpassing its current target of 550garages and 200 consumer vans;
-- post-completion, Halfords will have approximately 604 garages, 234 consumer vans and 190 commercial vans.Including retail stores this will mean a combined total of over 1,400 fixed or mobile Motoring Services locations;
-- the Acquisition means the majority of UK motorists will be within a 20-minute drive of a Halfords garage;
-- supports progress towards Halfords' new target of 800+ garages, 300+ consumer vans and 500+ commercialvans and further enhances the Group's commercial and business-to-business ("B2B") offering;
-- post-Acquisition, Motoring revenue is expected to represent more than 70% of the Group's revenue(calculated on a pro-forma basis), an increase from 67% (in H1 of FY22), and Services revenue is expected torepresent more than 40% of the Group's revenue (calculated on a pro-forma basis), up from 33% (in H1 of FY22)1;
-- the Acquisition presents significant synergy opportunities - expected to deliver incremental EBITDA2 ofc.GBP18 million per annum by year 5, with a third of that expected to be achieved in year 1;
-- the Consideration is expected to be broadly equivalent to the 'per site' cost of an organic roll-outalternative;
-- the Acquisition is financially compelling, and is expected to deliver2,3:? Return on Investment ("ROI") greater than the Company's weighted average cost of capital ("WACC") inthe first full financial year (FY23); - Single digit EPS accretion in the first full financial year (FY23) and double digit EPS accretion inFY24; and - ROI at maturity4 expected to be more than 20% with an expected project internal rate of return("IRR") greater than 30%.
The Company intends to part-fund the Acquisition and maintain balance sheet flexibility for future opportunities by undertaking a non-pre-emptive placing, together with a management subscription and retail offer, to raise up to c.GBP64 million, that will be the subject of separate announcements today.
Graham Stapleton, Chief Executive Officer of Halfords, commented:
"This acquisition helps cement our position as the UK's largest vehicle service, maintenance and repair business. It will also see us deliver on our established strategy of evolving Halfords to become a Motoring Services focused business, with Motoring revenue set to represent more than 70% of our pro-forma revenue following the acquisition.
National has a high quality, UK-wide network of garages and mobile tyre fitting vans, and 1,400 highly skilled colleagues, providing a complementary fit with Halfords' existing operations. Post-acquisition, Halfords will have over 1,400 fixed or mobile Motoring Services locations, servicing a broad range of vehicles and delivering 7.5 million motoring jobs a year. This increased scale will bring the majority of UK-mainland motorists within a 20-minute drive of a Halfords garage, with even more vans available to provide mobile services at their home or work.
Given our recent track record of successfully acquiring and integrating businesses, and the potential we see to further grow our Motoring Services business in other areas of the country, I am very excited about our future growth prospects, and I look forward to welcoming the new teams to the business."
National overview
National is a well-established business in the tyre and automotive SMR market. It employs c.1,400 people and operates under three brands:
-- NTA operates 239 tyre and SMR garages and 60 mobile tyre fitting vans, providing national coverage acrossGreat Britain. Tyres, which are predominantly sourced through Viking, represent over 80% of its sales mix withc.1.3 million tyres fitted per annum. MOT and service represent c.5% of NTA's sales mix. Headquartered inStockport, NTA has approximately 1,200 FTE across its garage estate (equivalent to c.4-5 FTEs per garage) alongwith a database of 1.1 million customers. NTA's central support people costs (across all the National brands) isc.GBP7m per annum.
-- Viking is a wholesaler of tyres and related consumables to B2B customers, including NTA. Headquartered inGlasgow, Viking has 8 warehouses5 strategically located close to the motorway network.
-- Tyre Shopper is a UK based online tyre retailer, where users purchase tyres online and have them fittedat NTA centres or remotely using the mobile fitting service. Currently, 'online' represents just under a third ofNational's sales mix.
National's garage network is structurally similar to Halfords' Autocentres business and adds further complementary capabilities in the tyre market with Viking and Tyre Shopper. National's CEO, Tony Neill will also join the Group post-Acquisition.
In the COVID-19 impacted year to 31 December 2020, National generated GBP157.7 million revenue and delivered GBP3.0 million EBITDA2. The Company estimates that National's base case year 1 EBITDA2, assuming the tyre market returns to normal but margin headwinds and cost inflation are sustained, is c.GBP5.9 million pre-synergies.
Acquisition rationale
The Directors believe that the Acquisition will expedite Halfords' strategic growth plans in Motoring Services:
-- National builds on Halfords' existing capability - Halfords is already the largest vehicle 'Service,Maintenance and Repair' business in the UK, having grown share through a superior operating model and bettercustomer service. This Acquisition will build on an existing position of strength.
-- National helps exceed the target of 550 garages - Halfords previously communicated a medium-term ambitionto grow the garage estate to 550 and the number of consumer facing mobile vans to 200. The Acquisition will seeHalfords comfortably exceed these targets and, given that the market opportunity remains significant, supportsprogress towards Halfords' new target of 800+ garages, 300+ consumer vans and 500+ commercial vans.
-- National can be successfully integrated - Halfords has acquired and integrated three similar businessesin the past two years, McConechy's, Tyres on the Drive and Universal, and is confident that it will be able tosuccessfully integrate National and extract significant synergies.
-- National contributes towards growing the Services business - Halfords' strategy to grow its MotoringServices business is not only focussed on scaling the physical estate. Other key initiatives, such as ProjectFusion, Loyalty and Cross-Shop are important drivers of demand into Autocentres. Additionally, the increase infixed and mobile servicing locations will allow Halfords to offer its customers greater convenience; for consumers,through reducing the distance from their home to a garage and, for B2B customers, offering a more convenient,national network and the ability to partner with just one services provider, rather than many.
-- Add to a more consistent, higher quality revenue stream - The Motoring Services business is moreresilient to economic volatility, has more repeat business and yields higher returns on capital.
Post-completion, Halfords will have approximately 604 garages, 234 consumer vans, 190 commercial van and 8 warehouses.
The Directors believe the Acquisition is financially compelling based on the synergies the Company expects to deliver. Targeted synergy benefits are expected to deliver incremental EBITDA2 of c.GBP18 million per annum by year 5, with a third of that expected to be achieved in year 1. In order to achieve these benefits, the Company expects to invest c.GBP17 million capex and GBP2m operating expenses spread across years 1 and 2. The Company expects that the Acquisition will deliver2,3: a ROI greater than the Company's WACC in the first full financial year (FY23); single digit EPS accretion in the first full financial year (FY23) and double digit EPS accretion in FY24; a ROI at maturity4 that is expected to be greater than 20% and an expected project internal rate of return ("IRR") greater than 30%.
As at 31 December 2020, National had gross assets2 of GBP74.1 million and in the year to 31 December 2020 delivered reported profit before tax2 of GBP0.04 million.
The selling shareholders are Alan Revie, Joan Revie, John Taylor, Julie Taylor and John Caldwell.
The Acquisition constitutes a Class 2 transaction for the purposes of the FCA's Listing Rules.
1 Motoring and Services Revenues are not mutually exclusive. The majority of Services revenues relate to Motoring, whilst less than half of Motoring revenue is from Services. Enlarged group based on Halfords H1 FY22 revenue split and National pro forma revenue.
2 On an IAS 17 basis
3 These metrics and return targets are targets only and not profit forecasts. There can be no assurance that these targets will be met. Accordingly, potential investors should not place any reliance on these targets in deciding whether or not to invest in the Company.
4 Maturity defined as Year 5 following the Acquisition.
5 Comprised of 7 warehouses in the Viking business and 1 warehouse from the Tyre Shopper business.
Enquiries
Investors & Analysts (Halfords)
Loraine Woodhouse, Chief Financial Officer
+44 (0) 7483 457 415
Neil Ferris, Corporate Finance Director
Andy Lynch, Head of Investor Relations
Media (Powerscourt)
+44 (0) 20 7250 1446
Rob Greening halfords@powerscourt-group.com
Nick Hayns
The person responsible for releasing this announcement is Loraine Woodhouse, Chief Financial Officer.
IMPORTANT NOTICES
This announcement does not constitute, and should not be construed as, an offer to purchase or sell or issue securities or otherwise constitute an inducement, invitation, commitment, solicitation or recommendation to any person to purchase, subscribe for, or otherwise acquire securities in the Company. Nothing contained in this announcement is intended to, nor shall it, form the basis of, or be relied on in connection with, any contract or commitment whatsoever and, in particular, must not be used in making any investment decision. Any indication in this announcement of the price at which ordinary shares have been bought or sold in the past cannot be relied upon as a guide to future performance. The price of shares and any income expected from them may go down as well as up and investors may not get back the full amount invested upon disposal of the shares. Past performance is no guide to future performance. The contents of this announcement are not to be construed as legal, business, financial or tax advice. Each investor or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice.
Any securities referred to herein have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "Securities Act"), or with any securities regulatory authority of any State or other jurisdiction of the United States, and may not be offered, sold, pledged, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, in or into the United States absent registration under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or any other jurisdiction of the United States. No public offering of any securities referred to herein will be made in the United States.
Certain statements contained in this announcement constitute "forward-looking statements" with respect to the financial condition, results of operations and businesses and plans of the Company and its subsidiaries (the "Group"). Words such as "believes", "anticipates", "estimates", "expects", "intends", "plans", "aims", "potential", "will", "would", "could", "considered", "likely", "estimate" and variations of these words and similar future or conditional expressions, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. These statements and forecasts involve risk and uncertainty because they relate to events and depend upon future circumstances that have not occurred. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements and forecasts. As a result, the Group's actual financial condition, results of operations and business and plans may differ materially from the plans, goals and expectations expressed or implied by these forward-looking statements. No representation or warranty is made as to the achievement or reasonableness of, and no reliance should be placed on, such forward-looking statements.
No statement in this announcement is intended to be a profit forecast or profit estimate for any period and no statement in this announcement should be interpreted to mean that earnings, earnings per share or income, cash flow from operations or free cash flow for the Company for the current or future financial periods would necessarily match or exceed the historical published earnings, earnings per share or income, cash flow from operations or free cash flow for the Company.
The forward-looking statements contained in this announcement speak only as of the date of this announcement. The Company, its directors, their respective affiliates and any person acting on its or their behalf each expressly disclaim any obligation or undertaking to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, unless required to do so by applicable law or regulation, the FCA or the London Stock Exchange.
This announcement has been issued by and is the sole responsibility of the Company.
Certain data in this announcement, including financial information, has been rounded. As a result of the rounding, the totals of data presented in this announcement may vary slightly from the actual arithmetic totals of such data.
Neither the content of the Company's website (or any other website) nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this announcement.
This announcement has not been approved by the FCA or the London Stock Exchange.
This announcement has been prepared for the purposes of complying with applicable law and regulation in the United Kingdom and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside the United Kingdom.
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ISIN: GB00B012TP20 Category Code: ACQ TIDM: HFD LEI Code: 54930086FKBWWJIOBI79 Sequence No.: 128089 EQS News ID: 1253444 End of Announcement EQS News Service =------------------------------------------------------------------------------------
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(END) Dow Jones Newswires
December 01, 2021 11:35 ET (16:35 GMT)
