The Bapcor Ltd (ASX: BAP) share price received a boost following an update on the acquisition of New Zealand's Hellaby Holdings Limited.
Bapcor share price
In recent times Bapcor shares have been on a great run as the aftermarket car parts business has grown organically and by acquisition. Already the owner of Burson, Bapcor has added to its stable of quality outlets with the acquisition of Autobarn and more recently New Zealand's Hellaby Holdings. Hellaby was acquired in January.
This morning, Bapcor updated the market on its digestion of the business. It said the process of divesting Hellaby's non-core businesses is ongoing.
However, Bapcor said it expects to generate "optimisation" benefits of between $8 million and $11 million over the next three years.
In addition, it expects to "transition" the Hellaby head office and reduce costs from between $6 million and $7 million to around $1 million by year-end. Therefore, in three years, Bapcor believes it is reasonable that Hellaby's will bring an additional $7 million to $10 million of operating profits.
"The work that has been undertaken by our business unit managers in identifying the opportunities within the Bapcor group has been exceptional," Bapcor CEO, Darryl Abotomey, said. "The estimated optimisation benefits are in addition to the forecast benefits of the Hellaby acquisition that were announced at the time of the Hellaby acquisition, which will result in further value enhancement for Bapcor shareholders."
Over the past year, the Hellaby takeover has been a little bit of a headache for Bapcor, with its board playing 'hard to get' and the tiff between the two boardrooms becoming public. However, the ~NZ$350 million deal eventually got over the line and it seems management is happy with their decision (would you expect them to say anything else?).
Foolish Takeaway
Bapcor is the Kellogg's of aftermarket auto parts and retail — serially acquiring smaller competitors for breakfast. So far the strategy has proven to be highly rewarding for its shareholders.
However, I worry that there may come a time when either: a) its acquisition of a business turns bad, or b) the range of acceptable investments makes that growth avenue no longer viable.
I don't know when or if that would happen, but it may be a smart move to hold off buying in until you have a better understanding of its addressable market.
