In the past I have discussed the importance of developing a strategy and the implications consolidation has on your business. A big part of strategy, whether it is stand pat, buy or sell to understand what your competitors are up to. For this reason I am also often asked to present to industry groups about the goings on of other large players in the industry.
I’ll be in Minneapolis next week April 13th and 14th presenting at AASP’s leadership conference. If you are in the area let’s meet up! Use my contact page to schedule a time to meet, or sign up to attend the event.
Acquisitions, who acquired whom and the price paid for such acquisitions is always a topic of much interest. When acquisitions are completed by a public company, or semi-public company perhaps planning to go public, a lot of information is available in public filings.
For me, following public companies is an important part of what I do to help my clients run a more profitable and valuable business. Competitive analysis, or keeping track of the goings on of your competitors, is the foundation of building an attractive valuable business. Keeping track of public companies allows me to gain insight into business models, profitability, and consolidation trends. (If you’re looking for a way to do apply these insights directly to your company be sure to check out the Simple Financial Dashboard I developed).
The public companies in the automotive aftermarket that I look at on a regular basis include:
- The Boyd Group (TSE: BYD.UN) Collision Repair
- LKQ Corporation (NASDAQ: LKQ) Parts and Paint Distribution
- Uni-Select Inc (TSE: UNS) Parts and Paint Distribution
- Fenix Auto Parts (NASDAQ: FENX) Parts Distribution
- AMA Group (ASX: AMA) Collision Repair
Following these companies often provide substantial insight into the drivers of profitability. By following Uni-Select I am able to gather insight into the business model at FinishMaster. Based upon the most recent annual report, FinishMaster will continue to seek out acquisitions in the Paint Distribution and Jobber space and has an eye on adjusting their customer mix in order to improve their profitability. My take away: keep an eye out for possible price increases and more consolidation in the jobber industry.
Reading Boyd’s annual report I am able to see that they will continue to pursue acquisitions, but only acquisition that make sense to them financially. The Boyd Group has been very consistent in their proclamations that they will only pursue acquisitions that are accretive. In the most recent annual report, CEO Brock Bulbuck reaffirmed that he expects Boyd to continue to grow as it has it the past, projecting the company to double in size in the next 5 years. My take away: Boyd will continue to remain disciplined when doing acquisitions. Be sure your financials clearly identify the revenue and cost synergies necessary to justify your maximum valuation.
The Boyd Group: Annual Highlights
The Boyd Group, one of the largest collision repair companies in the world publishes reports every quarter outlining business results in incredible detail. Boyd runs a very effective collision repair and glass business and has a current market cap of $1.35 billion on the Toronto Stock Exchange (Editor’s Note: All amounts in reference to The Boyd Group are in Canadian dollars and are as of 3/31/2016 unless otherwise specified). Because they are a publically traded company they are required to disclose anything “material”, or substantially important in other words. As a result, we can learn a lot from the state of the collision repair industry from what they tell us. But it is important to understand how to read these disclosures.
For the next few weeks I am going to spend some time analyzing The Boyd Group’s 2015 year end financials and will share insights that will help you maximize the value of your business. We will look at the income statement (often referred to as a P&L or Profit and Loss Statement), the balance sheet, and the statement of cash flows. Using the information provided therein, we will talk about the metrics you can use to analyze operations and how you can compare that information to your own business.
But before I get into the details, I want to highlight some unique financial aspects of The Boyd Group. One item that stands out in particular is that the company consistently reports a negative net profit – $22 million in losses in 2015 and over $15 million is losses in 2014. In other words, according to public record, the company is operating at a massive loss.
Yet while this company operates at a loss of millions of dollars a year shares (technically called units) of Boyd increase nearly 50% from $46 to $66 a share (unit) in 2015, and recently jumped to $74 a share (unit) on March 31st. The Boyd Group also:
- has an enterprise value of $1.4 billion, a 40% increase over 2014;
- regularly pays millions of dollars out in dividends – over $8 million in 2015;
- has $400 million in “dry powder” for further acquisitions;
- completed over $38 million in acquisitions in 2015; and
- increased its line of credit to $150 million, with an option to increase it to $250 million.
These facts do not sound like a company that is “unprofitable”. Because The Boyd Group operates at a net loss, many people assume that this must be a poorly managed company or that some fancy Wall Street firm is somehow pulling a fast one on the investing public. However, the opposite is true – The Boyd Group actually is very disciplined, incredibly well managed, and very profitable. They truly understand how to use finance to drive systematic growth.
Next week we will dive into each one of the three key financial statements The Boyd Group discloses every quarter. We will also look at some of the hidden diamonds in the rough that can provide additional operational and strategic insight into what one of the largest collision repair companies on the planet is doing. While I recognize some of these topics can be intimidating and at times dry, I will keep the discussion at a high level. The purpose of these upcoming articles will be to generate insight into how you can better manage your business while also understanding how one of the largest collision repair operators in the world does business.
I’m eager to hear from you. Shoot me an email via my contact page to discuss further as we explore The Boyd Group together. I find the transformation in the industry truly fascinating and all communication is kept strictly confidential.
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