I’m back from a whirlwind event last week. Seven presentations, two happy hours, and a sunset cruise through the harbor left me exhausted! But the event was great, and I spent a lot of time with hundreds of successful business owners discussing growth through acquisitions, growing in preparation for a sale, private equity in collision repair, and general business strategy.
In fact, we discussed private equity in collision repair at length. I was so caught up in the meetings last week, I almost missed the flurry of big private equity announcements. After a relatively quiet 2016 where few equity transactions were announced, 2017 is off to a rapid start. Just weeks ago I predicted exactly this – that we would see additional consolidation at the highest levels, additional investors (i.e. private equity) doing major deals, and a focus on large deals in 2017. Here are three large deals for private equity in collision repair this week.
CCC Information Services
Bloomberg recently reported that TPG and Leonard Green & Partners are considering a sale of CCC Information Services. Leonard Green acquired CCC in November 2012 for $550 million from Investcorp SA, a fund based in Bahrain. Investcorp took CCC private in 2006 $496 million. A few months after Leonard Green acquired CCC in 2012 it sold half its stake to another private equity firm, TPG Capital. TPG has invested in a number of technology companies, and has strong ties in China, where CCC is currently expanding. It is estimated that CCC Information Services has a $3 billion valuation.
Days ago Bloomberg also reported that Blackstone and Carlye are considering a sale of Service King for $2 billion (contact me directly if you are interested in specific valuation metrics). The Carlyle Group initially acquired Service King in 2012. At the time, Service King only operated 49 locations in one state, Texas. In 2014 Carlyle sold a majority stake in Service King to The Blackstone Group for $650 million, only a few weeks after finalizing the acquisition of 62 Sterling Collision Center locations. At present, Service King operates over 312 locations in 23 states.
In a very quiet transaction, Caliber Collision recently took on a minority private equity partner – Leonard Green & Partners – the same Leonard Green that is selling CCC Information Services. Leonard Green owns a number of other automotive companies, including Mister Car Wash, Motorsport Aftermarket Group, and Tire Rack. Caliber has a long history of private equity investment. In 2008, as part of a management led buy-out, ONCAP Private Equity out of Toronto initially invested $58 million. At the time Caliber only operated 66 locations in California and Texas. In 2013 OMERS Private Equity, also in Toronto, acquired the ONCAP’s stake for $425 million and continues to own a majority position in the company. At present Caliber operates 476 locations.
What does it all mean?
For many of these companies, they are simply coming to the end of their holding period. Most private equity investments have a shelf life between three and seven years, with a five-year median lifespan. Each company listed above has increased significantly in value over the past five years, and in order for the fund to realize an actual return and in order to return profits in the form of cash to the limited partners of the fund, portfolio companies must be sold.
There is an additional lesson for private business owners considering an M&A transaction – upside. Each of the companies above has increased in value substantially over the past five years. But there is also additional room for growth. CCC is expanding into China, a market with massive potential. Service King and Caliber each have well less than 10% market share in the US. There is plenty of room for both companies to continue to grow, domestically and internationally.
Furthermore, in addition to upside, each of the three companies above has built a platform. It is one thing to have upside, but quite another to have a platform in which to leverage additional growth. Companies that command premium prices have developed a platform in which to leverage future growth.