Snap-on Pays Silicon Valley-Like Premiums for Acquisitions
Automotive repair tool manufacturer routinely pays acquisition premiums double the 30-year average but generates ROIC better than peers.
April 23, 2021
Snap-on (SNA), a manufacturer of tools, diagnostic, and storage equipment primarily for the automotive sector, is a serial acquirer that routinely pays a premium significantly above the average acquisition premium. In its Q1 2021 10-Q, Snap-on disclosed it paid $200 million for its most recent acquisition, the fair value of which is $4.8 million. The $195 million premium to net asset value (NAV)— or 87.6% of the acquisition price— prompted us to look at the goodwill ratio in Snap-on’s prior acquisitions.
Our analysis— which includes the company’s last 10 acquisitions stretching back to 2016— reveals Snap-on has paid an acquisition premium of more than 80% for six of the ten previous acquisitions. In one case, goodwill accounted for 100% of the purchase price, meaning the acquisition had no NAV.
Over the last 30 years, the acquisition premium across industries has averaged 30.6%. Snap-on pays, on average, a 72.85% premium, more than double the average. No doubt Snap-on would argue the premiums are justified as the company has a track record of acquiring relatively small assets it can leverage across its entire portfolio.
Investors may find it difficult to argue the company is overpaying for acquisitions though. Our analysis indicates Snap-on’s 13% ROIC is significantly higher than its peers. Over the last five years, Snap-on has returned 7.6% above its cost of capital. Investors interested in tracking the impact of Snap-on’s most recent acquisitions might monitor for any changes in that margin.
Snap-on’s Last 10 Acquisition Premiums:
In February 2021, Snap-on acquired Dealer-FX for $200 million, $195.2 more than the value of the assets acquired (87.6% goodwill)
In September 2020, Snap-on acquired AutoCrub for $35.4 million, $18.3 million more than the value of the assets acquired (51.6% goodwill)
In January 2020, Snap-on acquired TreadReader for $5.9 million, $5.6 million more than the vale of the assets acquired (94.9% goodwill)
In August 2019, Snap-on acquired Cognitran for $30.6 million, $14.5 million more than the vale of the assets acquired (47.3% goodwill)
In April 2019, Snap-on acquired Power Hawk for $7.9 million, $6.4 million more than the vale of the assets acquired (81% goodwill)
In January 2019 Snap-on acquired TMB Geomarketing for $1.3 million, $1.3 million more than the vale of the assets acquired (100% goodwill)
In January 2018, Snap-On acquired George A. Sturdevant, Inc. for $3 million, $2.6 million million more than the vale of the assets acquired (86.6% goodwill)
In April 2017, Snap-on acquired BTC Global for $9.2 million, $8.6 million more than the vale of the assets acquired (93.4% goodwill)
In November 2016, Snap-on acquired Ryeson Corporation for $12.6 million, $5 million more than the vale of the assets acquired (39.6% goodwill)
In October 2016, Snap-on acquired Car-O-Liner for $148.1 million, $69 million more than the vale of the assets acquired (46.5% goodwill)
In all, goodwill accounts for 17.4% of Snap-on’s total assets.
Related: SWK, HD, L, TTC
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