Halfords secures position as the UK’s largest vehicle service, maintenance and repair business

Halfords, the UK's largest provider of Motoring and Cycling products and services, today announces that it has signed a sale and purchase agreement (the “SPA”) to purchase the entire issued share capital of Axle Group Holdings Ltd (“National”) (the “Acquisition”) on a cash-free, debt-free basis, for total consideration of £62 million (the “Consideration”), subject to adjustment for normalised working capital. The Consideration will be paid in cash on the date of completion, which is expected to be 9 December 2021. A further investment of c.£17 million will be made post-acquisition on associated capital expenditure and c.£2 million on integration costs.

National is a well-established business in the tyre and automotive servicing, maintenance and repair (“SMR”) market, operating under the following brands: National Tyres and Autocare (“NTA”), Viking Wholesale Tyres (“Viking”) and Tyre Shopper. On completion of the Acquisition, National will be integrated into Halfords’ Autocentres business. The directors of the Company (the “Directors”) believe that the Acquisition is both strategically and financially compelling, delivering on Halfords’ objective of evolving into a business more heavily weighted towards Motoring Services.

Highlights of the Acquisition include:

• the Acquisition accelerates Halfords’ Motoring Services strategy surpassing its current target of 550 garages and 200 consumer vans;
• post-completion, Halfords will have approximately 604 garages, 234 consumer vans and 190 commercial vans. Including retail stores this will mean a combined total of over 1,400 fixed or mobile Motoring Services locations;
• the Acquisition means the majority of UK motorists will be within a 20-minute drive of a Halfords garage;
• supports progress towards Halfords’ new target of 800+ garages, 300+ consumer vans and 500+ commercial vans and further enhances the Group’s commercial and business-to-business (“B2B”) offering;
• post-Acquisition, Motoring revenue is expected to represent more than 70% of the Group’s revenue (calculated on a pro-forma basis), an increase from 67% (in H1 of FY22), and Services revenue is expected to represent more than 40% of the Group’s revenue (calculated on a proforma basis), up from 33% (in H1 of FY22)
• the Acquisition presents significant synergy opportunities - expected to deliver incremental EBITDA of c.£18 million per annum by year 5, with a third of that expected to be achieved in year 1;
• the Consideration is expected to be broadly equivalent to the ‘per site’ cost of an organic rollout alternative;
• the Acquisition is financially compelling and is expected to deliver
  o Return on Investment (“ROI”) greater than the Company’s weighted average cost of capital (“WACC”) in the first full financial year (FY23);
  o Single-digit EPS accretion in the first full financial year (FY23) and double-digit EPS accretion in FY24; and
  o ROI at maturity expected to be more than 20% with an expected project internal rate of return (“IRR”) greater than 30%.

The Company intends to part-fund the Acquisition and maintain balance sheet flexibility for future opportunities by undertaking a non-pre-emptive placing, together with a management subscription and retail offer, to raise up to c.£64 million, that will be the subject of separate announcements today.

Graham Stapleton, Chief Executive Officer of Halfords, commented:
“This acquisition helps cement our position as the UK’s largest vehicle service, maintenance and repair business. It will also see us deliver on our established strategy of evolving Halfords to become a Motoring Services focused business, with Motoring revenue set to represent more than 70% of our proforma revenue following the acquisition. National has a high quality, UK-wide network of garages and mobile tyre-fitting vans, and 1,400 highly
skilled colleagues, providing a complementary fit with Halfords’ existing operations. Post-acquisition, Halfords will have over 1,400 fixed or mobile Motoring Services locations, servicing a broad range of vehicles and delivering 7.5 million motoring jobs a year. This increased scale will bring the majority of UK-mainland motorists within a 20-minute drive of a Halfords garage, with even more vans available to provide mobile services at their home or work. Given our recent track record of successfully acquiring and integrating businesses, and the potential we see to further grow our Motoring Services business in other areas of the country, I am very excited about our future growth prospects, and I look forward to welcoming the new teams to the business.”