The shares of automotive aftermarket parts retailer Bapcor Ltd (ASX: BAP) have surged higher for a second time this week and at lunch are up 6.5% to $5.35.
On Monday, Bapcor's shares received a boost after the company announced that it had raised its takeover offer for New Zealand's Hellaby Holdings Ltd to NZ$3.60 per share.
As Hellaby's independent expert values the company between NZ$3.60 and NZ$4.12 per share, Bapcor's offer falls just within the fair value range.
The Hellaby board have responded to the latest negotiation with a counteroffer. According to a company release its independent directors believe the revised terms should allow for the payment of a dividend on top of the cash offer.
This will allow its shareholders to benefit from both the earnings Hellaby's has generated so far in the first half of the year and the capital gain on the sale of its equipment business earlier this year.
Whether or not Bapcor agrees to this we'll have to wait and see. But in the meantime UBS analysts believe that Bapcor's latest offer will allow it to acquire at least a majority ownership in Hellaby's with or without the endorsement of the independent directors.
In light of this UBS has already factored the transaction into Bapcor's forecasts and upgraded its shares to a buy rating with a $6.85 price target.
I would have to agree with UBS on this one. The deal looks inevitable now and I expect we could see an agreement in the very near future. Hellaby will be a great addition to Bapcor's burgeoning brands and should prove to be earnings accretive even at the higher price.
Bapcor may appear expensive on paper at 27x full year earnings, but I believe its strong growth potential justifies this premium. As a result I would happily choose to invest in it ahead of the likes of ARB Corporation Limited (ASX: ARB) and Super Retail Group Ltd (ASX: SUL).
