Burson Automotive drives into IPO queue

Another company expected to be sold off by private equity

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published October 22, 2013 10:49 am AEDT

The traffic jam of initial public offerings (IPOs) just added another company to its list. Burson Automotive, an auto parts and accessories business is expected to list on the ASX later this year.

Burson is a 41 year old company, currently majority owned by private equity firm, Qaudrant, which bought the business from founder Garry Johnson two years ago for an estimated $150 million.

Originally started in 1971, Mr Johnson and former partner Ron Burgoine started selling automotive chemicals such as brake fluid and engine coolant from the back of their station wagons. That grew to selling auto accessories to car repairers, garages and petrol stations. From 25 stores in 1996, growth has accelerated, with the 100 store opened in 2012. Burson now has 112 stores or trade centres and sales of more than $280 million, backed up by a fleet of more than 400 delivery vehicles and a massive distribution centre in Melbourne.

Sales next year are reported to reach $350 million, with earnings before interest, tax, depreciation and amortisation (EBITDA) coming in at more than $40 million. Quadrant is reportedly planning to sell its 90% stake, through an IPO, which is expected to value the company at around $450 million.

Competitors include Repco, Supercheap Auto – owned by Super Retail Group (ASX: SUL), Autobarn – 71% owned by Metcash (ASX: MTS) and ARB Corp (ASX: ARP). Repco is Australia's largest reseller and supplier in the automotive parts and accessories market, with more than 400 stores across Australia and New Zealand. Originally listed on the ASX in 2003, Repco was taken private by CCMP (now known as Unitas Capital) just four years later. Given the popularity of IPOs, it wouldn't surprise to see Repco also join the IPO queue.

Just last week, Western Australia's John Hughes Group, a car retail group, announced plans to list on the ASX.

Foolish takeaway

The major concern for investors will be analysing why Quadrant is planning to sell Burson now. Investors should remember Warren Buffett's words, "It's almost a mathematical impossibility to imagine that, out of the thousands of things for sale on a given day, the most attractively priced is the one being sold by a knowledgeable seller (company insiders) to a less-knowledgeable buyer (investors)."

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.

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