Halfords Group PLC (HFD) Halfords Group PLC: Acquisition of National 01-Dec-2021 / 16:35 GMT/BST Dissemination of a Regulatory Announcement that contains inside information according to REGULATION (EU) No 596/2014 (MAR), transmitted by EQS Group. The issuer is solely responsible for the content of this announcement.




For immediate release

1 December 2021

Halfords Group PLC

("Halfords" or the "Company" and together with its subsidiaries, the "Group")

Acquisition of National

Halfords secures position as the UK's largest vehicle service, maintenance and repair business


Halfords, the UK's largest provider of Motoring and Cycling products and services, today announces that it has signed a sale and purchase agreement (the "SPA") to purchase the entire issued share capital of Axle Group Holdings Ltd ("National") (the "Acquisition") on a cash free, debt free basis, for total consideration of GBP62 million (the "Consideration"), subject to adjustment for normalised working capital. The Consideration will be paid in cash on the date of completion, which is expected to be 9 December 2021. A further investment of c.GBP17 million will be made post acquisition on associated capital expenditure and c.GBP2 million on integration costs.

National is a well-established business in the tyre and automotive servicing, maintenance and repair ("SMR") market, operating under the following brands: National Tyres and Autocare ("NTA"), Viking Wholesale Tyres ("Viking") and Tyre Shopper. On completion of the Acquisition, National will be integrated into Halfords' Autocentres business.

The directors of the Company (the "Directors") believe that the Acquisition is both strategically and financially compelling, delivering on Halfords' objective of evolving into a business more heavily weighted towards Motoring Services.

Highlights of the Acquisition include:

-- the Acquisition accelerates Halfords' Motoring Services strategy surpassing its current target of 550garages and 200 consumer vans;

-- post-completion, Halfords will have approximately 604 garages, 234 consumer vans and 190 commercial vans.Including retail stores this will mean a combined total of over 1,400 fixed or mobile Motoring Services locations;

-- the Acquisition means the majority of UK motorists will be within a 20-minute drive of a Halfords garage;

-- supports progress towards Halfords' new target of 800+ garages, 300+ consumer vans and 500+ commercialvans and further enhances the Group's commercial and business-to-business ("B2B") offering;

-- post-Acquisition, Motoring revenue is expected to represent more than 70% of the Group's revenue(calculated on a pro-forma basis), an increase from 67% (in H1 of FY22), and Services revenue is expected torepresent more than 40% of the Group's revenue (calculated on a pro-forma basis), up from 33% (in H1 of FY22)1;

-- the Acquisition presents significant synergy opportunities - expected to deliver incremental EBITDA2 ofc.GBP18 million per annum by year 5, with a third of that expected to be achieved in year 1;

-- the Consideration is expected to be broadly equivalent to the 'per site' cost of an organic roll-outalternative;

-- the Acquisition is financially compelling, and is expected to deliver2,3:? Return on Investment ("ROI") greater than the Company's weighted average cost of capital ("WACC") inthe first full financial year (FY23); ? Single digit EPS accretion in the first full financial year (FY23) and double digit EPS accretion inFY24; and ? ROI at maturity4 expected to be more than 20% with an expected project internal rate of return("IRR") greater than 30%.

The Company intends to part-fund the Acquisition and maintain balance sheet flexibility for future opportunities by undertaking a non-pre-emptive placing, together with a management subscription and retail offer, to raise up to c.GBP64 million, that will be the subject of separate announcements today.

Graham Stapleton, Chief Executive Officer of Halfords, commented:

"This acquisition helps cement our position as the UK's largest vehicle service, maintenance and repair business. It will also see us deliver on our established strategy of evolving Halfords to become a Motoring Services focused business, with Motoring revenue set to represent more than 70% of our pro-forma revenue following the acquisition.

National has a high quality, UK-wide network of garages and mobile tyre fitting vans, and 1,400 highly skilled colleagues, providing a complementary fit with Halfords' existing operations. Post-acquisition, Halfords will have over 1,400 fixed or mobile Motoring Services locations, servicing a broad range of vehicles and delivering 7.5 million motoring jobs a year. This increased scale will bring the majority of UK-mainland motorists within a 20-minute drive of a Halfords garage, with even more vans available to provide mobile services at their home or work.

Given our recent track record of successfully acquiring and integrating businesses, and the potential we see to further grow our Motoring Services business in other areas of the country, I am very excited about our future growth prospects, and I look forward to welcoming the new teams to the business."

National overview

National is a well-established business in the tyre and automotive SMR market. It employs c.1,400 people and operates under three brands:

-- NTA operates 239 tyre and SMR garages and 60 mobile tyre fitting vans, providing national coverage acrossGreat Britain. Tyres, which are predominantly sourced through Viking, represent over 80% of its sales mix withc.1.3 million tyres fitted per annum. MOT and service represent c.5% of NTA's sales mix. Headquartered inStockport, NTA has approximately 1,200 FTE across its garage estate (equivalent to c.4-5 FTEs per garage) alongwith a database of 1.1 million customers. NTA's central support people costs (across all the National brands) isc.GBP7m per annum.

-- Viking is a wholesaler of tyres and related consumables to B2B customers, including NTA. Headquartered inGlasgow, Viking has 8 warehouses5 strategically located close to the motorway network.

-- Tyre Shopper is a UK based online tyre retailer, where users purchase tyres online and have them fittedat NTA centres or remotely using the mobile fitting service. Currently, 'online' represents just under a third ofNational's sales mix.

National's garage network is structurally similar to Halfords' Autocentres business and adds further complementary capabilities in the tyre market with Viking and Tyre Shopper. National's CEO, Tony Neill will also join the Group post-Acquisition.

In the COVID-19 impacted year to 31 December 2020, National generated GBP157.7 million revenue and delivered GBP3.0 million EBITDA2. The Company estimates that National's base case year 1 EBITDA2, assuming the tyre market returns to normal but margin headwinds and cost inflation are sustained, is c.GBP5.9 million pre-synergies.

Acquisition rationale

The Directors believe that the Acquisition will expedite Halfords' strategic growth plans in Motoring Services:

-- National builds on Halfords' existing capability - Halfords is already the largest vehicle 'Service,Maintenance and Repair' business in the UK, having grown share through a superior operating model and bettercustomer service. This Acquisition will build on an existing position of strength.

-- National helps exceed the target of 550 garages - Halfords previously communicated a medium-term ambitionto grow the garage estate to 550 and the number of consumer facing mobile vans to 200. The Acquisition will seeHalfords comfortably exceed these targets and, given that the market opportunity remains significant, supportsprogress towards Halfords' new target of 800+ garages, 300+ consumer vans and 500+ commercial vans.

-- National can be successfully integrated - Halfords has acquired and integrated three similar businessesin the past two years, McConechy's, Tyres on the Drive and Universal, and is confident that it will be able tosuccessfully integrate National and extract significant synergies.

-- National contributes towards growing the Services business - Halfords' strategy to grow its MotoringServices business is not only focussed on scaling the physical estate. Other key initiatives, such as ProjectFusion, Loyalty and Cross-Shop are important drivers of demand into Autocentres. Additionally, the increase infixed and mobile servicing locations will allow Halfords to offer its customers greater convenience; for consumers,through reducing the distance from their home to a garage and, for B2B customers, offering a more convenient,national network and the ability to partner with just one services provider, rather than many.

-- Add to a more consistent, higher quality revenue stream - The Motoring Services business is moreresilient to economic volatility, has more repeat business and yields higher returns on capital.

Post-completion, Halfords will have approximately 604 garages, 234 consumer vans, 190 commercial van and 8 warehouses.

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