Ituran Location and Control Ltd. (Nasdaq:ITRN); TASE:ITRN) has announced the acquisition of a controlling stake in Latin American telematics company Road Track Holding S.L.
Ituran's share price rose 7.5% on Nasdaq yesterday to $33.05, giving a market cap of $693 million. Previously the company's share price had risen 10% over the past year.
Ituran will buy an 81.3% stake in Road Track for $91.7 million at a company valuation of $113 million. $75.7 million will be paid in cash, through a debt facility provided by Ituran's lending bank and $12 million will be paid in Ituran shares. The remaining $4 million will be paid out of the company's equity as a bonus over the coming three years to the senior management of Road Track Holding S.L
The final purchase price may be reduced, depending on the 2018 performance of the Road Track business. Following three years of joint operations, Ituran will purchase the remainder of Road Track's shares at a price based on a valuation that will be made at that time. Subject to various approvals and customary closing conditions, the closing is expected during the third quarter of 2018.
Road Track is a fast growing and one of the largest OEM telematics provider in Latin America. Road Track is one of the leading providers in its markets that has successfully launched a factory installed, aftermarket and commercial fleet telematics solutions under an OEM brand for global car manufacturers. Road Track provides its connected car platform to the automotive market with products and services designed for a broad set of customers. For the past five years, it has operated an equally-owned joint venture with Ituran in Brazil and Argentina, called Ituran Road Track, providing telematics services under an OEM agreement with a major global car manufacturer. The company also has operations in Colombia, Ecuador and Mexico.
Road Track's major customers include two global automotive manufacturers as well as car dealers, insurance companies, car financing companies and fleet operators. As of year-end 2017, Road Track had 550,000 subscribers.
In terms of Road Track's full year 2017 financial highlights (as reported under a non-GAAP IFRS basis), revenues were $96 million, EBITDA was $21 million and net income was $8.5 million. On a consolidated 2017 pro-forma non-GAAP basis, Ituran including Road Track would have had $366 millionin revenue, $98 million in EBITDA and $51 million in net profit and total subscribers at year-end 2017 would have totaled 1.7 million.
Ituran CEO Eyal Sheratzky said, "Part of Ituran's strategy has always been to acquire a synergistic business with our own to enable us to accelerate our long-term growth and reach. We have considered many acquisitions over the past few years and it has taken a long time to find the right partner. Having worked closely with Road Track for five years in Braziland Argentina, and following a long due diligence process, we believe that Road Track is the right acquisition for us which will unlock substantial value in a combined company.
He added, Significantly, it will enable us to further penetrate major car manufacturers, will provide Ituran a significant scale in the telematics industry and allow us to provide a broader service offering into new countries. Our expectations are that following the closing, the combined business will have around 1.8 million subscribers with revenues run-rate of close to $400 million, making it a game changer for our Company. We are excited to welcome the management and employees of Road Track to Ituran, and we look forward to accelerating our growth, enhancing shareholder value together."
Road Track CEO Pablo Gomez said, "We have worked closely with Ituran in Brazil and Argentina for the past few years and we are very impressed with the professionalism and drive we have found. Over the years of cooperation, we have seen strong joint potential for significant value creation by joining forces which has underpinned the acquisition talks. Furthermore, our already existing ties will ease the process of integration. On behalf of the management and employees of Road Track, we remain highly committed to the success of the joint company, and we are excited to join the Ituran family and together unleash new potential and value in this journey."