REG-Halfords Group PLC Halfords Group PLC: Acquisition of National

HalfordsAnnouncement

01/12/2021 16:40

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   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 £62  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.£17 million will  be made  post
   acquisition  on  associated  capital  expenditure  and  c.£2  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 550 garages 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+  commercial vans  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 to
       represent 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 of c.£18  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-out alternative;
     • 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") 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; 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.£64 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 across  Great Britain.  Tyres, which  are
       predominantly sourced through Viking, represent over 80% of its  sales
       mix with  c.1.3  million  tyres  fitted per  annum.  MOT  and  service
       represent c.5% of NTA's sales mix. Headquartered in Stockport, NTA has
       approximately 1,200 FTE across its garage estate (equivalent to  c.4-5
       FTEs per garage) along with a database of 1.1 million customers. NTA's
       central support people costs (across all the National brands) is c.£7m
       per annum.
     • Viking is  a  wholesaler  of  tyres and  related  consumables  to  B2B
       customers, including  NTA.  Headquartered  in Glasgow,  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 fitted at NTA centres or remotely using the
       mobile fitting service.  Currently, 'online' represents  just under  a
       third of National'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
   £157.7 million revenue  and delivered  £3.0 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.£5.9 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  better
       customer 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 ambition to  grow the garage estate to  550
       and the number of consumer facing mobile vans to 200. The  Acquisition
       will see Halfords comfortably exceed these targets and, given that the
       market opportunity  remains  significant,  supports  progress  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  businesses   in  the   past  two   years,
       McConechy's, Tyres on the Drive  and Universal, and is confident  that
       it will  be  able  to  successfully  integrate  National  and  extract
       significant synergies.
     • National contributes towards growing the Services business - Halfords'
       strategy to grow its Motoring  Services business is not only  focussed
       on scaling the physical estate. Other key initiatives, such as Project
       Fusion, Loyalty and  Cross-Shop are important  drivers of demand  into
       Autocentres. Additionally, the increase in fixed 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 more resilient  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.£18 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.£17  million
   capex and £2m 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 £74.1 million and in
   the year to  31 December  2020 delivered  reported profit  before tax2  of
   £0.04 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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