Suncorp sells smash repair unit to AMA for $420m

Suncorp has sold its repairs business Capital SMART while retaining a 10pc stake, in a deal valuing the unit at $420m.

Suncorp CEO of insurance Gary Dransfield. Picture: Hollie Adams

Suncorp’s insurance chief Gary Dransfield believes the group has secured the “best of both worlds” by selling repairs business Capital SMART and retaining a minority stake, in a deal valuing the unit at $420m.

The banking and insurance group will continue to hold 10 per cent of Capital SMART after a sale to ASX-listed AMA Group, and expects to book an after-tax profit on the sale of between $275m and $295m.

Mr Dransfield said retaining a stake gave Suncorp continual insight into damages caused by car crashes and into how cars were built. “It is a good sign to AMA that this is a genuine partnership,” he added.

The deal includes a 15-year partnership between the seller and buyer, with two options to extend by five years at a time for Suncorp.

The transaction follows Suncorp’s completion its life insurance divestment which spurred plans for a $506m capital return.

Mr Dransfield wouldn’t be drawn into whether the latest divestment would add to those plans but noted: “We have always said we return capital that is excess to our needs”.

He noted that shareholders could get an update on Suncorp’s plans around capital at an investor day later this year. Suncorp said the Capital SMART deal value represented a multiple of 20 times fiscal 2019 earnings before interest, tax, depreciation and amortisation multiple. AMA’s statement cited a pro-forma enterprise value over EBITDA multiple of 11 times in 2020.

Capital SMART focuses on low to medium severity repairs in metropolitan areas of Australia and New Zealand. It has 50 sites across Australia and serviced more than 179,000 vehicles in fiscal 2019.

AMA kicked off a $216m equity raising to help fund Tuesday’s deal, priced at $1.15 per share, or a 5.3 per cent discount to where the shares last traded on Friday. New debt facilities will also be used for the transaction.

AMA’s chief executive Andy Hopkins labelled the Capital SMART acquisition “strategically compelling” and attractive for shareholders and customers.

“The acquisition further strengthens our longstanding close relationship with Suncorp,” he said.

AMA expects the transaction to deliver it a combined market share of the metropolitan repair market of about 10 per cent.

Suncorp’s group chief executive Steve Johnston said the sale agreement followed a strategic review of the Capital SMART business and an evaluation of the outlook for the smash repair industry.

“The increasing complexity of repairs is driving significant change in the smash repair and parts procurement industry, and the divestment means Suncorp can focus on its core insurance and banking operations,” he added.

The sale includes the separate divestment by Suncorp of ACM Parts to AMA for $20m in cash, “broadly in line with book value”, according to Suncorp’s statement.

AMA said the combined transactions would deliver double digit earnings-per-share accretion in fiscal 2021, the first full year of ownership. That includes annual synergies — excluding deal and integration costs — of $17m. One off synergy implementation costs are expected to be $15m.

Suncorp gets a seat on the Capital SMART board as part of the transaction, reflecting its residual stake.

Mr Dransfield said the company was yet to decide who would take-up that board position.

Suncorp’s statement said the services agreement preserved “cost advantages” that Capital Smart had delivered over the past eight years, providing protection around any blow outs in repair prices.

AMA’s stock was halted from trading while the raising occurred. It last traded at $1.22 and has gained 40.5 per cent so far this year. Suncorp’s shares rallied 0.95 per cent to close at $13.78 on Tuesday.