Tough trading conditions brought upon by drought, bushfires and a pandemic has prompted a major industry merger with Tyres 4U (T4U) and National Tyre & Wheel (ASX: NTD) set to become the largest independent multi branded tyre wholesaler across the Tasman.
The merger will see NTD acquire all business assets of T4U in Australia and New Zealand which includes 66 retail stores and 15 wholesale distribution locations.
“The purchase of T4U is testament to the power of belief and persistence. When we first met, we were struck by the fact that, despite each being tyre wholesalers for more than 25 years, we did not bump into each other in the marketplace,” said NTD CEO, Peter Ludemann.
“Different business models, different products and different routes to market made it immediately obvious that everyone could benefit from getting together, without disturbing our core businesses or values.”
Acquiring T4U, NTD will be able to access key industry segments it does not currently supply to, specifically truck and bus tyres, as well as industrial and agricultural tyres. On the other side, T4U will have cross selling opportunities in the 4WD market where NTD has dominated market share.
Highlighting the size of T4U, the business sold more than 2.5 million tyres in FY20 with revenues of $450m.
Once the merger is complete on 31 July 2020, the combined entity will operate 30 distribution centres across Australia, New Zealand and South Africa which will serve more than 4,000 retail customers and employ more than 500 staff.
As consideration for the acquisition, NTD will purchase all business assets for $43.6m cash and $5.2m in NTD shares. Funding for the cash proponent is yet to be finalised but the Company anticipates being able to fund the $43.6m from existing cash reserves and debt facilities.
Despite revenue of $450m though FY20, T4U’s performance was adversely affected by lower consumer demand, drought in key customer regions, bushfires, and then COVID-19 which will see NTD absorb their net loss for FY20. Although NTD also fared poorly due to the same circumstances, the Company expects to deliver around $11m EBITDA.
“Changes in the industry since then have only made the case for getting together more compelling and we are extremely excited to join forces with NTD,” said T4U CEO, Les De Celis who will join the NTD Board of Directors.
Alfred Chan is a Business Reporter at The Sentiment specialising in ASX-listed small cap companies, a bloodstock enthusiast and former equities analyst.
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