Patrick Industries, Inc. PATK recently announced the closing of an acquisition deal with Arran Isle, Inc. and subsidiaries, including LaSalle Bristol.
The transaction, which is valued at roughly $54 million, including working capital of approximately $34 million, was met under Patrick’s credit facility. Also, LaSalle Bristol will continue to be operated by Patrick on a stand-alone basis.
Following the news, shares of Patrick rose 3.4% on Dec 3. However, the company’s shares have declined 36.9% in the past year, underperforming the industry’s decline of 21.8%.
Synergies to Be Realized
LaSalle Bristol's trailing 12-month revenue through October 2018 amounted to around 230 million, with roughly 58% and 39% of the revenues attributable to the manufactured housing (MH) and recreational vehicle (RV) markets, respectively. LaSalle Bristol also derives a chunk of its revenues from distribution activities.
Meanwhile Patrick, being the major server in the MH, RV and other industrial markets across United States, British Columbia, China and Netherlands, should benefit from the buyout of LaSalle Bristol. The acquisition is likely to further leverage the company’s distribution capabilities. The merger will not only increase content per unit within the MH and RV markets but also boost net income per share.
Even though the acquisition is likely to hurt Patrick’s operating margins by approximately 50 basis points, there is scope for operating synergies of roughly $4 million to be realized within 12 to 18 months post-transaction.
Rationale Behind the Acquisition
The acquisition, in line with Patrick’s capital allocation strategies, will fortify the company’s presence in the MH industry. Given strong consumer confidence, rising wage and jobs growth, and the lack of affordable single-family housing options, MH industry has solid growth potential. Such attractive demographics will also increase demand in the RV market.
Patrick will also advantage from LaSalle Bristol's enhanced footprint and supply chain expertise, enabling it to meet customer demand and just-in-time delivery. Additionally, the company looks to drive marginal growth as a key component supplier through high-quality product solutions.
Meanwhile, Patrick has acquired 55 companies in core markets since 2010. The latest acquisition marks the eighth one for the company in 2018. In fact, the eight acquisitions contributed approximately $82 million to revenues in the third quarter and $162 million in the nine months of 2018. Hence, we expect revenues to further grow in the long run with the company’s string of acquisition deals.
Zacks Rank & Stocks to Consider
Patrick currently carries a Zacks Rank #4 (Sell).
Some better-ranked stocks in the Construction sector are Great Lakes Dredge & Dock Corp. GLDD, KBR, Inc. KBR and EMCOR Group, Inc. EME. While Great Lakes sports a Zacks Rank #1 (Strong Buy), KBR and EMCOR carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Great Lakes’ 2018 earnings are expected to increase 111.1%.
KBR has an expected earnings growth rate of 1.3% for the current year.
EMCOR has a projected earnings growth rate of 20% for the current year.
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