Tourism Holdings will pay US$65.3 million for US campervan rental and sales business El Monte Rents to expand its operations in the world's largest recreational vehicle market.
The acquisition, for an enterprise value of $93.5m including transaction costs, will be funded through $82.2m of debt from its existing lenders and through the issue of 3.4 million Tourism Holdings shares, the Auckland-based company said in a statement. Tourism Holdings will also invest US$6m in North American road travel app Roadtrippers USA, which will acquire its existing Geozone travel app business, and expand its online Mighway rental platform in the US in the first quarter of calendar 2017.
For Tourism Holdings, the acquisition of El Monte will elevate it to the second-largest RV rental operator in North America behind rival Cruise America without increasing overall fleet numbers which could dent prices. El Monte allows Tourism Holdings to develop a broad-based RV rental and sales business in the US, similar to its New Zealand business, and its mix of international and domestic customers and older fleet is complementary to Tourism Holdings' smaller and more premium Road Bear operation in the US.
"We are looking forward to combining fleet procurement, operating different rental brands and maximising RV sales through both our traditional wholesale channels and the El Monte retail sites; a model we know," said Tourism Holdings chief executive Grant Webster. "This is a much lower risk strategy than trying to grow to an equivalent market share from the Road Bear platform."
Tourism Holdings estimates it will have a 28 per cent share of the RV rental fleet market after the purchase, compared with Cruise America's 52 per cent. El Monte founder Ken Schork will retire after 46 years of leading the business, and two of the vendors will remain with the business for up to 12 months to assist with the transition.
The purchase will increase Tourism Holdings' reach in the US as the El Monte business operates in 11 locations, and has franchise operations in 15, compared with Road Bear's seven locations. The company expects "significant" synergies in fleet and operations will be realised over the coming three years, it said.
Tourism Holdings said the purchase of El Monte means it is well positioned as the global leader in RV rentals, as it reorientates further towards the northern hemisphere.
"We are making the right steps to be truly global in our platform," Tourism Holdings chair Rob Campbell said. "We still see opportunities in other operating markets, such as Europe, at the right time."
The purchase of El Monte is due to settle on January 6, and Tourism Holdings said the business will post a loss during the first six months, primarily due to the low season.
Tourism Holdings will release its first-half earnings in late February, and expects net profit to rise to $11.1m from $8.2m in the year earlier period, ahead of its October forecast for $9.5m.
For the full year, Tourism Holdings expects to post a profit of $27m, down from its earlier forecast for profit of $27.5m to $28.5m, which reflects the impact of the transactions. It has set a goal for annual profit to reach $50m in 2020.
Tourism Holding shares rose 1.2 per cent to $3.45 and have jumped 56 per cent this year, outperforming a 7.4 per cent gain on the S&P/NZX 50 benchmark index. The new shares will be issued at $3.19 apiece, the volume weighted average price three months prior to the negotiation of the purchase price, and will represent 2.8 per cent of the company's ordinary shares on issue.