Q: Can you give your thoughts on the TGH acquisition. Do you like the deal. Did they overpay? Do you like the business, value proposition and would you buy the stock.
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5i Research Answer:
TGH has bought privately held Custom Vacuum Services for $28M. It is a very similar company and broadens TGH's exposure and market share. TGH did not reveal revenue but gross profit of $9.6M looks good compared with the purchase price, and the deal is 'immediately accretive'. The acquired company also has some special purpose permits (dangerous materials) which will expand TGH's offerings. We think it is a decent purchase and price. The stock has been very strong, up 49% this year. At 18X earnings, it has a strong balance sheet (debt will go up with this deal) and it has shown good growth over several years. Its size adds risk, and it is a somewhat cyclical business, but we would be comfortable buying it as part of a small cap allocation.