Shares of diversified automotive company AMA Group Ltd (ASX: AMA) soared 6% today on news it has entered into an agreement to buy a leading Melbourne panel-beating business. A
MA said it has entered into a contractual agreement with Woods Accident Repair Centres to provide all services for the next six months and has secured an option to acquire the company at the end of the period, for an agreed price.
The purchase price for the network of 14 branches is up-front cash of $2 million, representing between three and four times current year earnings before interest and tax (depending on earn outs over the next two or three years).
Any extra payout for earn outs would be funded from a mixture of AMA shares and/or cash. "We are very excited about this opportunity because we believe that the integration successes we have already experienced with our recent panel business acquisitions can be replicated," AMA Executive Chairman Ray Malone said.
Revenue from AMA's Vehicle Panel Repair business following the Woods acquisition is expected to hit $80 million per annum. To put that into perspective, during its most recent half year through December 2014, the business generated revenue of $16.4 million (up 118% over the prior corresponding period).
Is AMA Group a good buy?
Personally, I like AMA Group and the way it's run. I also like its push into panel beating, as I believe it's a largely unconsolidated industry with plenty of ways it could seek to scale its operations. I'd happily add shares to my portfolio at today's prices. Other automotive businesses which are offering compelling long-term value include AP Eagers Ltd (ASX: APE) and Automotive Group Holdings Ltd (ASX: AHE).
