Australian automotive aftermarket sector player RPM Automotive Group Ltd (ASX:RPM) will add scale to its Wholesale Tyre Division distributor network in the Victoria metro region by acquiring Chapel Corner Tyres.
RPM has entered into a binding agreement to acquire the automotive parts wholesaler and retailer, which is headquartered in the Southern Melbourne metro area.
Adding scale
Once the strategically aligned acquisition is completed on or around September 1, 2023, it will add to the Wholesale Tyre Division (Wheels and Tyres) through the acquisition’s strong passenger and 4x4 wheel and tyre offer and minimal customer overlap.
It will also add warehousing capability for the southern Vic metro region and provide cross-sell opportunities of the broader RPM product range to an expanded customer base.
Chapel Corner Tyres generated $18.5 million in revenue and $900,000 in EBITDA in FY23 and is forecast to initially provide an annual EBITDA contribution of $1.15 million.
To “strengthen position”
RPM CEO Clive Finkelstein said, “This is a great acquisition for RPM that meets our strict criteria for best-in-class service, industry knowledge and a strong cultural alignment with the RPM Group.
"Chapel Corner Tyres has a great reputation for customer service honed over nearly half a century, which we can leverage across our national network.
"We look forward to welcoming the high-calibre team along with their resources and warehousing capability which will strengthen our wholesale platform initially in Victoria, and then nationally. In addition, our aligned strategic ambitions will strengthen our competitive position.”
Investors have welcomed news of the acquisition with RPM shares 15.38% higher intraday at $0.105.
Aligns with growth strategy
Since being established in 1976 with a wholesale division added in 2000, Chapel Corner Tyres has expanded through a series of exclusive distribution agreements, creating a diverse range of tyre, wheel and accessories brands and building a reputation for exceptional customer service and innovation in distribution.
This acquisition aligns with RPM’s focused growth strategy, which includes adding scale to the Wholesale Tyre Division operations in Vic Metro.
The business has extensive warehousing facilities servicing the Southern Melbourne metro region and provides a strong passenger and 4x4 wheel and tyre offering with minimal customer overlap.
This provides significant cross-sell opportunity for the broader RPM product range to an expanded customer base.
Cost synergies
Potential cost synergies of up to $500,000 have been identified through the consolidation of metro Victoria distribution, shared services (occupancy, HR and logistics), access to new customers and greater coverage of Victoria through more effective use of resources.
The two businesses are culturally and operationally aligned, with the Chapel Corner Tyres’ management to be retained.
Chapel Corner’s Stephen Nash said, “We are excited to join RPM’s growing network as it will enable Chapel Corner Tyres to benefit from RPM’s national infrastructure to access a wider range of customers for our quality range of wheel and tyre products.
"The entrepreneurial spirit across both our businesses is aligned with a strategic vision to continue scaling our wholesale operations, whilst continuing my family’s legacy in the industry."
Acquisition details
The acquisition is an asset purchase agreement, with a total purchase price of $3.3 million, which includes $2 million in inventory, implying an acquisition multiple of
Consideration will be paid 50% upon completion and 50% in 12 months (plus 60 days) and will comprise 50% cash and 50% in equity.
Initial payment upon completion is therefore $1.65 million, paid 50% in cash and 50% in equity, based on the completion date 30-day VWAP.