The ARB Corporation Ltd (ASX: ARB) share price is in focus after announcing a US acquisition.
ARB describes itself as Australia’s largest manufacturer and distributor of 4×4 accessories. It also has a large international presence, with an export network across more than 100 countries. The company has global offices in the US, Europe and the Middle East.
US acquisition
ARB announced its US-based associate, ORW USA Inc has entered into a conditional asset purchase agreement (APA) to acquire the 4 Wheel Parts business from Hoonigan (previously Wheel Pros) for approximately US$30 million.
4 Wheel Parts currently operates 42 retail stores and related e-commerce sites, selling 4×4 accessories across the US.
The asset purchase agreement is subject to court approval, in conjunction with Hoonigan’s court-supervised reorganisation in the US, according to ARB.
If the acquisition goes ahead, ORW USA will pay for the 4WP assets using additional funding provided by its shareholders, which includes ARB. These funding arrangements will result in ARB increasing its shareholding in ORW from 30% to 50%.
ARB also announced that it will separately acquire the Poison Spyder brand from Hoonigan for US$1 million, subject to the same court approval.
What to make of this purchase
In the grand scheme of things, it’s a small deal for a business worth more than $3 billion. I don’t think it’s going to move the needle much in the short-term.
However, I do believe the company is making the right move to increase its exposure to the huge US market. Increasing its ownership of ORW can help increase its ownership of those earnings, and could lead to a strengthening of partnership between ARB and ORW USA.
ARB has a strong brand, and it has delivered a lot of growth over the long-term. Increasing scale could unlock stronger profit margins for the company, unlocking more profit and possibly bigger dividends.
The ARB share price has jumped roughly 20% in the last year, so I wouldn’t say it’s a bargain buy today. But, if it can keep expanding its presence internationally then the outlook could still be promising for the company.
