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LKQ to Acquire Uni-Select for $2.1B to Strengthen Prospects
In a bid to bolster its global automotive vehicle parts distribution business, LKQ (LKQ - Free Report) signed an agreement to acquire Uni-Select Inc. for C$2.8 billion (US$2.1 billion). Uni-Select’s shareholders would receive C$48 per share. The purchase price represents a 19.2% premium to Uni-Select's closing share price on Feb 24. The all-cash deal is expected to close in the second half of 2023.
Uni-Select has a consolidated presence in North America, Canada and USA through its FinishMaster segment, Canadian Automotive Group segment and GSF Car Parts segment, respectively. Uni-Select’s automotive refinish paint and mechanical parts distribution operations go well with LKQ’s existing footprint and would help LKQ distribute a wide variety of products to its customers. The acquisition will solidify LKQ’s pre-existing business operations in Quebec. By the third year, the strategic acquisition is expected to generate annual run-rate cost synergy of $55 million. The transaction is expected to boost revenue growth and improve margins.
Uni Select’s FinishMaster segment will help LKQ improve its scale and product mix with minimal integration risk. Uni-Select’s Canadian Automotive Group segment provides an opportunity for LKQ to scale in the expanding Canadian mechanical parts space.
The acquisition is likely to be accretive to LKQ’s EPS in the first year of its completion itself. LKQ plans to fund the acquisition through a combination of cash on hand and debt. It also wants to maintain its investment grade rating, for which it wants to prioritize deleveraging and needs to remain highly disciplined with additional M&A activity. For the given transaction, Wells Fargo and Bank of America will provide bridge financing.
Uni-Select’s board of directors approved the deal and unanimously recommended Uni-Select shareholders to vote in favour of the transaction.
Zacks Rank & Key Picks
LKQ currently carries a Zacks Rank #3 (Hold).
A few top-ranked players in the auto space include Bayerische Motoren Werke (BAMXF - Free Report) , Wabash National (WNC - Free Report) and Modine Manufacturing (MOD - Free Report) , all sporting a Zacks Rank #1 (Strong Buy).
Bayerische is a multi-brand automobile manufacturer that focuses on the premium segments of the worldwide automobile and motorcycle markets and has three brands: BMW, MINI and Rolls-Royce. The Zacks Consensus Estimate for BAMXF’s 2023 sales implies year-over-year growth of 1.88%.
Wabash is one of the leading manufacturers of semi-trailers in North America. The Zacks Consensus Estimates for WNC’s 2023 sales and earnings imply year-over-year growth of 13.06% and 24%, respectively.
Modine operates primarily in a single industry consisting of the manufacture and sale of heat transfer equipment. The Zacks Consensus Estimates for MOD’s 2023 sales and earnings imply year-over-year growth of 11.43% and 43.09%, respectively.
You can see the complete list of today’s Zacks #1 Rank stocks here.