Last week was a busy week for acquisitions in the aftermarket. The Boyd Group acquired the largest collision repairer in Canada, Uni-Select (parent company of FinishMaster) expanded into the UK with the acquisition of The Parts Alliance, and Carl Icahn announced the acquisition of Precision Auto, adding 250 service, lube and carwash locations to his growing automotive empire. All of these deals mark significant investments by the acquiring firms, and in some cases, mark a significant a departure from the previous growth strategy of the firm. This week I’ll review Boyd’s acquisition of Assured, one of the largest independent collision repair chains in North America.
Boyd Acquires Assured, the largest non-franchised collision repair operator in Canada.
At the beginning of the year I accurately predicted that 2017 would be a year of mega deals and consolidator on consolidator consolidation. Boyd’s management for some months has consistently reiterated that is the company has been well positioned to take advantage of large acquisition opportunities. On Monday last week, The Boyd Group, parent company of Gerber, announced it had entered into an agreement to acquire Assured Automotive Inc., the largest independent non-franchised collision repairer in Canada, and one of the largest in North America by revenues after adjusting for currency translations.
What makes the Boyd – Assured deal interesting?
Purchase Price & Valuation– at Can$193.6 million, this is one of the largest pure play strategic acquisitions in North America. From a valuation perspective for a major platform acquisition, the deal appears to be fairly valued at 1.3x sales and 10.6x adjusted EBITDA TTM through March 2017.
On a forward-looking basis, however, Boyd’s management team projects the deal to produce an additional Can$2 million in synergies, substantially lowering the adjusted EBITDA multiple to only 9.6x. As the deal is structured as an asset transaction rather than a stock transaction, Boyd will benefit from an additional Can$25.5 million of tax savings (net present value) due to the stepped up cost basis as a result of the acquisition structure, lowering the multiple further to only 8.3x, with Can$3.1 million in tax savings year projected in the first year alone (subscribers – hit REPLY and email me for details on the differences between a stock and asset deal, and the potential tax implications of both).
Management Team – Both Desmond D’Silva, CEO and Tony Canade, President agreed to stay on board, signing long term employment contracts, and taking substantial equity as part of the deal (more on that below). Historically Assured has grown aggressively through acquisitions as well as same store sales with a unique dealer intake business model. Additionally, the management team has delivered EBITDA margins significantly higher than Boyd’s traditional margins (12.1% vs 9.0%). Boyd will continue to operate the Assured brand, ostensibly with the intent to leverage Assured’s previous growth, enhanced margins, and unique business model.
Debt Capacity – Boyd’s management continues to re-iterate it is well positioned to pursue additional acquisitions. Boyd continues to have a strong balance sheet and recently increased its revolving credit facility to Can$300 million, with an option to increase the line to Can$450 million to fund the cash component of the Assured acquisition. Looking forward, Boyd’s total debt to adjusted EBITDA ratio will be a very conservative 1.5x. By comparison, in August of 2016 when Service King completed a US$75 million add-on to its existing notes, the company’s reported leverage ratio was about 8.0x.
Equity Consideration – One of the more interesting components of the deal is the substantial amount of equity consideration present in the deal. Of the Can$193.6 million of total consideration provided, Can$47.5 million, or 24.5% is in the form of Boyd Group Income Fund Units. Historically Boyd has not been a heavy user of equity in its acquisitions (although historically the company has raised both convertible debt and equity to manage the capital structure of the firm). However, given the size of the transaction, as well as the importance in aligning incentives and retaining Assured’s existing management team, the use of equity appears prudent and rational.
Boyd’s acquisition of Assured is a major deal, and one with many moving parts. These are just a few of the highlights that caught my attention on this deal. But this deal also demonstrates the importance of developing a deal structure that can create value for both buyer and seller.
I want to help you make great acquisitions. If you are considering acquisitions to grow your business, or you are already in acquisition mode, let’s talk about how we can work together. And if you think now may be a good time to exit and take advantage of attractive valuations, let’s talk about that too.
Until next week!