AutoCanada launches surprising $115-million deal

Share

You won't hear the name AutoCanada Inc. much on Bay Street.

For starters, it's got geography working against it. You don't need to be in a major urban centre to get coverage from a banker, but being based in Edmonton certainly isn't an advantage.

Then there's the sector. AutoCanada operates franchised auto dealerships, which probably fall under the 'diversified' coverage umbrella. There haven't been many deals in this space since the financial crisis.

Finally, AutoCanada isn't very active in public markets. Judging by a SEDAR search, the last time the company raised equity was way back during its initial public offering in 2006.

Yet on Monday AutoCanada launched a bought deal, and this morning it was actually up-sized to $115-million.

The company timed the market perfectly. Before the deal was announced, its shares were up a whopping 115 per cent in the past year. Some of this rebound certainly stems from renewed investor confidence in equities, but AutoCanada itself has put out solid profits.

Just last week the company reported results that were up 66 per cent over the same period a year prior and management once again raised the dividend.

It's also got a solid growth story. The auto sector is rebounding nicely, and a lot of car dealerships are independently owned by people who are looking to retire, giving the company ample acquisition opportunities.

In fact, $40-million of the new deal will flow to AutoCanada and the company will put it toward buying the assets of Courtesy Chrysler Dodge in Calgary.

The remaining $75-million is being sold as a secondary offering, meaning the shares are coming out of existing private investors' hands. AutoCanada chief executive officer Pat Priestner is the largest of these, considering that he owns 80 per cent of Canada One Auto Group Ltd. (CAG), the company's largest shareholder. Quite the payday.

(Tim Kiladze is a Globe and Mail Reporter.)

Return to Streetwise home page.