Halfords Group plc Acquisition of Lodge Tyre

Halfords is now the market leading, commercial tyre provider in the UK.

Halfords Group plc, the UK’s largest provider of Motoring and Cycling products and services has announced the acquisition of LTC Trading Holdings Limited and its subsidiary Lodge Tyre Company for total consideration of £37.2 million with £33.2 million paid on completion and £4 million paid in FY25 subject to performance.

Lodge Tyre is a well-established business in the UK commercial tyre market, providing automotive services to business-to-business (“B2B”) customers from 50 garages and 248 mobile vans.

The Acquisition takes the Halfords garage services business to 656 garages, 253 consumer vans, 440 commercial vans and 9 warehouses.

The directors of the Group (the “Directors”) believe that the Acquisition is both strategically and financially compelling, delivering on Halfords’ objective of further evolving into a business more heavily weighted towards motoring services, which provide more resilient, needs-based revenue streams.

Post completion, on an annualised basis, Services revenue will account for c.48% of Group revenues, up from 26% in FY20.

Halfords is already the UK’s market leading Motoring Service provider to consumers, and on completion will also be the UK’s largest B2B commercial tyre provider by revenue and national coverage.

Lodge Tyre generated pro forma EBITDA of £4.7 million on a pre-IFRS 16 basis (1) in the year ending 31 March 2021. The Group expects to deliver incremental synergies worth £3.8 million (EBITDA) by year 5.

The deal will be EPS accretive in the first year of ownership and will deliver an IRR that exceeds the Group weighted average cost of capital.

Graham Stapleton, Chief Executive Officer of Halfords, commented:

“The acquisition of Lodge Tyre is yet another example of Halfords’ strategic aim of becoming a Motoring Services- focused business, and will mean that Motoring accounts for over three quarters of our total revenue. The current trading environment reinforces the rationale for building ever-more resilient, needs-based revenue streams, which is exactly what the Motoring category offers. Within that, the nature of the commercial tyre market means that it is non-discretionary and therefore extremely well insulated against macroeconomic uncertainty.

Lodge is an outstanding operation that perfectly complements our existing commercial tyre businesses of McConechy’s and Universal Tyres, and gives us a much greater reach across the UK. We were already the UK’s market-leading Motoring Service provider to consumers, and this acquisition will also make us the UK’s largest commercial tyre provider. We look forward to welcoming the Lodge team to the Halfords family.”

Lodge Tyre overview

Lodge Tyre is a highly respected business in the tyre and vehicle maintenance market, with a rich heritage dating back to 1935.

Employing over 400 highly skilled colleagues, it operates from 50 garages, 248 mobile tyre fitting vans, and a Warehouse in Birmingham, providing on-demand and emergency coverage across the Midlands, East Anglia, North Wales and the North-West. The business headquarters are in Stafford.

These locations are highly complementary to Halfords’ existing commercial tyres businesses of McConechy’s Tyres (located in Scotland and Northern England) and Universal Tyres (located in London and the South-East of England) therefore providing much greater nationwide coverage of Halfords’ Commercial Fleet Service business.

Over 90% of Lodge Tyre’s sales are to B2B customers operating commercial vehicles.

Strategic benefits

The Directors believe that the Acquisition is strategically compelling, delivering on Halfords’ strategic growth plans in Motoring, Services and B2B markets and unlocking significant synergies.

Halfords is the UK’s largest vehicle service, maintenance and repair business. This Acquisition further consolidates this position. The addition of Lodge Tyre takes Halfords a significant step closer to its target of 500 Commercial vans and 800 garages.

The Acquisition further enhances the proportion of needs-based revenue across the Group. On an annualised basis:

Motoring revenues will account for c.77% of Group revenues, up from 65% in FY20.

Services revenues will account for c.48% of Group revenues, up from 26% in FY20.

B2B revenues will account for c.22% of Group revenues, up from 15% in FY20.

Lodge Tyre infills areas of the UK where Halfords’ Commercial business has had less representation. When coupled with the Group’s existing commercial businesses of McConechy’s and Universal, Halfords will have a scaled national network helping to win larger, national commercial contracts and unlocking significant synergies.

The scale of Halfords’ B2B business will enable it to further test and develop its Avayler platform for commercial businesses, increasing the opportunity of its SaaS business.

The increased scale will create an opportunity to further leverage Viking, Halfords’ wholesale, tyre distribution business.

Acquisition Summary

Halfords has signed a share purchase agreement to purchase the entire issued share capital of Lodge Tyre on a cash free, debt free basis, for total consideration of £37.2 million, subject to an adjustment for normalised working capital.

£33.2 million of the Consideration will be paid in cash on completion, with the remaining £4 million paid in FY25 subject to successfully achieving set profit performance criteria.

A further investment of up to c.£6 million of capex will be made in the three years post the Acquisition to integrate and optimise the business.

In the year ending 31 March 2021 the Company had gross assets of £27.4 million, delivered turnover of £68.2 million, EBITDA of £4.7 million and profit before tax of £2.9 million on a pre-IFRS 16 basis (1). Targeted synergy benefits are expected to deliver incremental EBITDA of £3.8 million per annum by year 5. The Consideration reflects a 4x multiple of year 5 EBITDA (post synergies).

Lodge Tyres’ existing shareholders Andrew Martin Christmas, Martyn Joseph Lodge and Simon Peter Christmas will remain in the business on employment contracts as members of the Lodge senior management team.

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