Thor Industries (THO) Acquires Jayco For $576 Million Cash

Thor Industries Inc. (NYSE:THO) has acquired Jayco Corp for around $576 million in an all-cash transaction. The acquisition is expected to help Thor Industries expand in the segments wherein Jayco specializes, including recreational vehicles (RVs), traveling and camping trailers, high-end diesel Class A and large Class C motorhomes. Jayco is now Thor Industries’ fully owned subsidiary and will operate independently under the current senior management team.

Thor Industries funded this acquisition with its cash balance along with a $360 million borrowing from an asset-based revolving line of credit. The debt is expected to be paid off within three years of completing the acquisition though Thor Industries’ internally generated cash flow. The company, on the other hand, acquired Jayco’s $115 million worth tangible net assets.

With its subsidiaries, Jayco, Starcraft RV, Highland Ridge and Entegra Coach, Jayco runs 31 facilities including 17 production lines with 2.2 million square feet of manufacturing space, and has over 850 dealers in North America. Thor Industries will not be assuming any additional long-term debt.

Jayco promises to be a strategic fit to Thor Industries’ values. A well-received and long-term industry player, it generated sales of $1.5 billion and income before tax of $70 million in 2015. However, Jayco’s 9.5% gross margin for 2015, compared to Thor Industries’ 13.9% in fiscal 2015, is expected to modestly dilute consolidated margins. Nonetheless, the company’s growth profile is similar to that of Thor Industries’ other subsidiaries and it is expected to perform well and grow fast in the future.

Following Thor Industries’ policy of letting its subsidiaries operate independently, Jayco will run under its current management and long-term owners. Thor Industries will provide the company with the necessary financial help and resources to continue providing the industry with innovative products.

Jayco, in return, will provide Thor Industries a larger presence in camping trailers and Jay Flight, the best travel trailer for over a decade. Over time, the acquisition is expected to help Thor Industries lower its overall cost and improve earnings.

Thor Industries expects to add one month of Jayco’s revenue to its fourth-quarter fiscal 2016 results. However, the company will be incurring certain legal and consultation expenses related to the deal in the quarter. Thor Industries is optimistic about the future of the RV industry and its expanding market.

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Shares of Thor Industries rose roughly 9.5% in the trading session last Friday, before slightly retracing to end the day at $69.18.

In the third quarter of fiscal 2016 (ended Apr 30), Thor Industries reported earnings of $1.51 per share, beating the Zacks Consensus Estimate of $1.45. Revenues of $1.28 billion in the quarter were in line with the Zacks Consensus Estimate. The company saw year-over-year benefits due to higher sales of RVs as well as synergies from the acquisition of Postle Aluminum Co. At the end of the reported quarter, it had cash and cash equivalents of $247.3 million. In fourth-quarter fiscal 2016, management expects strength in the RV market and high single-digit year-over-year revenue growth.

Thor Industries currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the auto space include Commercial Vehicle Group Inc. (NASDAQ:CVGI) , Spartan Motors Inc. (NASDAQ:SPAR) and Visteon Corporation (NYSE:VC) , all sporting a Zacks Rank #1 (Strong Buy).