RPM Automotive Group Limited (ASX:RPM) has executed a purchase agreement to buy major tyre distributor Citic Autoparts Pty Ltd for $3.2 million, subject to working capital adjustments.
The company has also announced an exclusive deal to distribute Jinyu TBR (Truck & Bus/Commercial Tyres) and plans to offer this highly sought-after range exclusively through the newly acquired Citic Autoparts distribution platform.
Citic Autoparts will change its name to RPM Autoparts Pty Ltd, following the acquisition, which will take effect from October 31, 2020.
“Expanding national footprint”
RPM chief executive officer Clive Finkelstein said: “The group is expanding its national footprint and this deal not only achieves that, it broadens our range of product as well as our customer-base, while complementing our existing operations.
“This purchase reinforces RPM’s commitment to its growth and expansion strategy in this sector.”
The purchase price of $3.2 million is subject to working capital adjustments and will be paid via a hybrid of equity, debt and vendor finance.
Citic Autoparts had unaudited net assets of $3.6 million as of August 21, 2020.
RPM Automotive said despite COVID-19’s impact following the restrictive trading legislation, Citic Autoparts' 2020 financial year saw turnover of $16.5 million with a gross profit margin, which was independently reviewed as part of the due diligence, of around 23%.
After adjusting for the COVID-19 impact, FY21 turnover is expected to be $14.5 million with a similar gross profit, yielding a contribution to RPM's Wheels and Tyres Division of about $750,000 for the eight months from November 1, 2020.
The company added that the forecast for the 2022 financial year had been conservatively prepared and was projected to be in excess of $16.5 million, yielding a contribution of a little over $1.35 million.
Sharing of overheads, infrastructure and resources will be a natural next step, with immediate operational benefits and savings anticipated.
Additional benefits from this acquisition include the ability to leverage brands and products in both stables across both distribution platforms and customer-bases, which is expected to further improve the already impressive organic growth of the division.
Citic Autoparts operates in a very similar space to Spider GT, one of RPM Automotive’s subsidiaries in its Wheels and Tyres Division as an importer, wholesaler and distributor of tyres.
It started its tyre trading business in late 1994 and is now considered to be a major distributor in the Australian tyre industry.
With distribution facilities, complete with salesforce and administration teams in Campbellfield, Victoria, and Sherwood, Queensland, as well as distributors in New South Wales and Western Australia, City Autoparts has built a name for quality service and supply of both passenger and commercial tyres.
It pioneered the 'value-for-money' passenger tyre segment in Australia.
The tyre distributor has also attracted and maintained supply relationships with blue-chip customers like Yokohama and Tyrepower, among others.
With 70% of the business dedicated to passenger tyres and product specifically targeted at the 4X4, SUV and LDV markets, and with their budget product range, the new business is extremely well-positioned to take advantage of the massive shift in the recent buying trend in the automotive industry.