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Here’s why the ARB (ASX:ARB) share price rose 3%

The ARB Corporation Limited (ASX: ARB) share price grew by more than 3% today after announcing an acquisition to the market.

What’s the big deal?

ARB has gone shopping for a deal in the UK market, where there’s currently a lot of disruption to the economy due to COVID-19.

The company has bought Auto Styling Truckman, which trades as Truckman. This business is a manufacturer and distributor of utility accessories in the UK, mainly focused on rear of vehicle products such as canopies (hard tops), bed liners and general utility vehicle products. ARB said it’s the recognised leader in the UK.

The headquarters of the business is in Birmingham, the second biggest city in the UK. There, it has a central distribution hub and head office. It has been operating since 2002 and currently has approximately 80 staff.

The acquisition adds scale to ARB’s global business and provides a base for the group in Europe’s largest utility vehicle market. ARB’s board said that it welcomes the employees and management of Truckman to the ARB Group and looks forward to working with them to grow the business.

The upfront cost is £10 million, with £4 million of deferred payments and a further amount of up to £7.9 million subject to performance hurdles over the next three years. That means the maximum cost could be £21.9 million. Not only is ARB acquiring the business, but it’s also buying the property from where the business operates.

How is ARB going to fund this?

Management said that the purchase is being funded from ARB’s existing cash resources and the business is expected to operate profitably from the commencement of ARB ownership, effective 2 March 2021.

Summary thoughts

This seems like a smart deal by ARB. The UK market is currently going through a really tough time because of COVID-19, so it could be an opportunistic time to buy a business like this. We’ve seen that ARB and other auto part businesses like Bapcor Ltd (ASX: BAP) are experiencing strong levels of growth after the worst of the COVID-19 disruption.

The ARB share price has rocketed higher over the last year, so I’m not sure that now is the best time to buy. But it’s a high quality business and this acquisition expands its growth runway quite nicely.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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