Toronto, Ontario — Business-wise, 2019 was one for the books. For one, ride-sharing giants Uber and Lyft made their Wall Street debuts. For another, the Boyd Group will be transitioning from an income trust to a corporation structure.
Catch up on the year’s most relevant automotive business news and trends by taking a look at the best-read Tuesday Tickers of 2019.
Global Repositioning
Romanian engineering may not be well known around the world, but that may soon change. The Eastern European nation’s largest OEM — Dacia — is out-competing many of its rivals in Western Europe.
In the U.K., where overall vehicle sales have plummetted, Dacia has seen a record increase in its own. This June, Britons bought five percent fewer vehicles than June of 2018. The up-and-coming OEM, however, saw its own numbers rise by 46 percent.
Freed from Communism 30 years ago, Romania has seen an increase in the standard of living and infrastructural reforms that may make it the next seat of power in the auto manufacturing world.
With a more educated workforce willing to work for lower wages than in Western Europe, the country has also benefited from membership in the European Union’s free trade and movement of peoples.
This would not be the first time an up-and-coming economy was able to swipe business away from more established hubs of auto manufacturing. In the early 1970s, Americans were initially dubious of the quality of Japanese manufactured vehicles. By the 1990s, it was generally accepted that Japanese OEMs provided better value and quality to North American consumers.
Boyd Buoyed
Investors’ faith in the Boyd Group income fund has remained undaunted despite news last week that the Winnipeg-based company had been attacked by ransomware. The company’s prompt announcement of the attack, and steady assurances to investors appear to have protected the company from serious market repercussions.
Currently trading about $171-per-share, the company’s stock is trading near record levels.
Last year, share prices were around $120. This year, the company has experienced a steep, steady rise in value. Part of this investor confidence may come as a result of the firm’s popularity with investment analysts and columnists.
Bad news at BASF
German chemical giant BASF is cutting 6,000 jobs as part of a cost-saving initiative that aims to save the company $440 million.
The cuts represent approximately five percent of the company’s 122,000-person workforce. Half of the jobs lost will come from Germany, while it remains unclear where the other cuts will fall.
The cuts come as several major German firms announce similar job-cutting strategies. A few hours prior, Deutsche Bank sent more than 18,000 employees home.
Last year, Bayer–one of BASF’s largest competitors–announced job cuts affecting 10 percent of its workforce.
In this week’s Tuesday Ticker, AutoCanada announces a new CFO, AkzoNobel sells off a major asset and a Californian county declares war on smale-scale collision repairers.
Back with Borys
Mike Borys has been named as AutoCanada’s next chief financial officer.
AutoCanada announced that it has appointed Mike Borys as its chief financial officer, effective August 12, 2019. An experienced senior chartered accountant, Borys has served as a CFO for a number of organizations, including PTW Energy Services, an electrical and instrumentation provider, Newalta, an engineered environmental solutions provider, The Brick Group Income Fund, a furniture retailer and Famous Players, a movie theatre operator.
With a strong reputation as a shrewed executive, Borys’s appointment is likely to be welcome news for AutoCanada investors. The group has steadily rebuilt investor trust after a difficult period.
Last year, AutoCanada had a total of three CEOs, with investors pressuring one appointment, Mark Warsaba, departed after just a few months in the position.
Earlier this year, the company began $250-million lawsuit Patrick Priestner, AutoCanada’s founder, over claims Preistner had breached his fiduciary and other duties to AutoCanada.
AkzoNobel Says Adieu to Asset
AkzoNobel has sold off a former paint factory Slough, U.K., netting a cool €75 million.
Until 2016, the site had included the company’s manufacturing unit and research and development facility, both of which were moved to a new facility in Ashington, U.K.
Rather than reinvest the money in the company, or pass it on to investors through dividends, AkzoNobel spent €49.16 million to buy back more than half-a-million of the company’s shares. This latest buy-back initiative is part of a broader buy-back that has, to date, bought up 20,541,000 shares from shareholders. So far, AkzoNobel has spent €1.6 billion on the scheme since the beginning of the year. It intends to invest a further €900 million in the buy-back scheme, which is due to be completed by the end of the year.
Buy-back schemes, in essence, destroy shares, meaning that the percentage of company ownership in previously issued shares increases. They are particularly popular with stocks that are attractive to long-term investors.
Beware of Repairs
Sacramento County, California has passed a bylaw making it illegal for residents to perform auto repairs in their own homes in most conditions. According to the region’s news zoning codes, residents may not perform any repairs if they involve using tools not normally found within the home, if the vehicle is not registered to a resident of the home, if the repairs are performed outside a garage or if the repairs leave vehicles inoperable for more than 24 hours.
While auto repairers might not be too concerned by any laws designed to prevent the propagation of ill-equipped fly-by-night auto repair operations, the wording of the by-law implies that the County Council views all auto repair operations to be a blight on a community. The text of the new by-law says: “The chemicals involved in major automobile repair can pollute our neighborhoods and endanger the health and wellbeing of our residents… this kind of activity increases vehicle traffic and the visual impact can negatively impact property values.”
This isn’t the first case of Not-In-My-Backyardism to target the collision sector in the United States in recent months. In the spring, Detroit auto repairers and recyclers were subjected to new regulations specifically designed to drive down the number of repair operations in the city’s borders. While largely affecting small-scale and unprofessional operations, the bill was criticized for making it difficult for legitimate repairers to do business.
In this week’s Tuesday Ticker: a strong economy keeps interest rates stable despite dealership dreams, Safelite absorbs a major rival and BASF makes some quick cash with a major sell-off.
Loonie Lunacy
While fears of a self-inflicted recession striking the world’s largest economies–the U.S. and China–continue to worry automakers south of the border, in Canada, they may be victims of the country’s economic success.
News Canada’s economy grew by more than 3.7 percent — 0.7 more than the consensus expectation of experts — make it unlikely that Canadians will see an interest rate cut. The Bank of Canada, which exercises a degree of control over the nation’s interest rates, will likely make no moves to reduce levels below the current two percent rate.
While a hot economy will likely be a boon to most sectors, some auto dealers had banked on a cut from the central bank–which would likely have caused an increase in vehicle sales.
Auto repairers, however, can take more comfort from Canada’s exceptional economic output. The cost of the nation’s auto insurance premiums are rising faster than inflation–which indicates that insurance companies are readjusting their business models to accommodate another cost growing faster than inflation–auto repairs.
Safelite absorbs TruRoad
TruRoad, North America’s second-largest automotive glass and claims-management company has been sold to the largest, Safelite.
Until the acquisition, Safelite, a subsidiary of Belron, owned 7,800 glass shops in the U.S.
With the absorption of TruRoad’s network is 5,000 independent auto glass facilities, Safelite branding is set to appear on close to 13,000 locations.
Safelite has yet to confirm if any layoffs or shop closures will result from the buyout.
Teutonic Shift
A Japanese firm, DIC, has bought German chemical firm BASF’s pigment division for 1.15 billion euros (1.7 billion cdn). The news comes a few weeks after BASF’s second-quarter results left shareholders shaken by a 47 percent drop in profits over the same quarter of the previous year.
The pigments unit generates profits of more than $1.5 billion in per-annum sales, and employs more than 2,500 people across the globe.
The German group’s director Markus Kamieth said the company had been looking for “an owner who considers pigments a core strategic business. DIC pursues ambitious growth plans… to further develop the business in the coming years.”
In this week’s Tuesday Ticker: Axalta begins generating interest from potential group buyers, Driven Brands lists assets, and dealerships chase aftermarket facilities in customer satisfaction.
Acquiring Axalta
Three months after the company announced it would explore a sale, Axalta Coating Systems Inc. is generating interest from several private equity and buyout firms.
Buyout firm Clayton, Dubilier, & Rice LLC is potentially partnering with U.S. paint maker PPG Industries Inc. to make an acquisition offer for Axalta Coating Systems Inc., according to sources familiar with the matter.
Other private equity firms are also interested in acquiring Axalta, which has a market capitalization of US$7.3 billion and long-term debt of almost US$4 billion, according to inside sources. Some firms have been looking for bid partners; buyout firm Platinum Equity LLC, for example, has allegedly been discussing a partnership with Koch Industries Inc. on a joint bid for Axalta.
The auction process for Axalta is ongoing and there is no certainty a deal will be reached.
Axalta’s coatings are used in the refinishing of cars, buildings and pipelines. Its corporate peers include Sherwin-Williams Co., Akzo Nobel NV and BASF SE. The company recently announced it is acquiring Capital Paint, a United Arab Emirates-based powder coatings company, which was met with minimal excitement from investors.
Auction or Assets
Bloomberg roused excitement in August when it reported insider news that Driven Brands may be slotted for auction in 2019’s fourth quarter.
The initial price tag for Driven Brands mirrored the company’s estimated annual revenue — US$2 billion.
The brand, owned by private equity firm Roark Capital, recently began its fifth whole business securitization with Kroll Bond Rating Agency (KBRA). When KBRA assigned its preliminary ratings to a note class of Driven Brands Funding, it showed that Driven Brands is expected to issue $275 million of class A note assets to potential investors. The company will not be contributing new collateral in connection with the $275 million transaction.
KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as well as the Ontario Securities Commission for issuers of asset-backed securities.
Driven Brands completed its first whole business securitization, a process in which a company can raise the capital that it needs to remain operational, in July 2015. In 2018, the company issued $250 million of class A note assets — approximately $25 million less than this year’s listed assets.
The company’s standing collateral consists of all existing and future franchise agreements in the United States, royalties from existing and future company-operated locations, product sourcing agreements, existing and future collections and profits from company-operated Take 5 locations, related intellectual property and a license fee from Canadian franchises.
Driven Brands is one of the largest franchisors in the aftermarket automobile services and parts distribution industries. The company franchises, owns, operates and manages locations under the brands of CARSTAR, Maaco, Meineke, 1-800-Radiator & A/C, Take 5 Oil Change and others. The company has a network of approximately 2,700 locations across North America and was bought by Roark Capital for an undisclosed sum in 2015.
Chasing Aftermarket
Dealerships are lagging behind aftermarket repair facilities when it comes to customer satisfaction, according to a recent study conducted by J.D. Power Canada.
The study revealed that, while dealership repair facilities saw the same number of visits per year per customer (1.3 visits), aftermarket facilities saw an increase from 1.5 visits in 2018 to 1.6 visits per year per customer in 2019.
It may not seem like much, but according to Virginia Connell, automotive research and consulting manager at J.D. Power Canada, “any fraction gained in the market-share can translate into millions in potential revenue.”
According to the study, owners begin to favour aftermarket facilities over dealerships when their car is between 4 and 7 years old. As vehicles fall out of their warranty period, it appears customers are more likely to take their cars to an aftermarket repair centre.
Key findings suggest that it does not take much to boost customer satisfaction: dealerships can bridge the gap by assuring they greet customers as soon as they enter the shop, or by returning their vehicle cleaner than when it arrived. The study also cites regulated operating standards and speedy service as key customer service factors.
Lift Gets Lifted
A recently-established Canadian financial group that seeks to offer funds to mid-sized Canadian businesses has given a $15 million investment to Lift Auto Group.
The Canadian Business Growth Fund, established in 2018, handed out its first-ever investment the week of Oct. 1, 2018. The $15 million investment went to Kelowna, British Columbia-based collision repair company Lift Auto Group, which has six shops across British Columbia and Alberta and a plan to expand its footprint across Western Canada in the coming years.
CBGF’s investment has already helped the company close a significant acquisition in Edmonton, Alta, according to the fund.
“Lift is a great fit with our mandate and we are excited to partner with them as they put their growth strategy into action,” said George Rossolatos, CEO of the fund. “They have an ambitious team, solid plans for scaling up and experience to execute on their vision to build a leading collision repair company. They are thinking big, and with this round of investment, they have the capital required to become a leading player in a highly fragmented industry.”
The fund has a total of $545 million to invest in growing mid-sized Canadian companies. It seeks to make investments between $3 million and $20 million to companies with $5 million or more in annual revenue, a demonstrated growth trajectory and a clear vision for accelerated growth.
Founded in June 2018, the Canadian Business Growth fund is a coalition of nine banks (CIBC, RBC, BMO, TD, Scotiabank, Laurentian, HSBC, National and Canadian Western), three insurance companies (SunLife, Great-West Life and Manulife) and the Alberta Treasury Branches, also known as ATB Financial.
Big Boss Boyd
According to a recent report, the Boyd Group Income Fund now controls four percent of the collision repair industry.
The Winnipeg, Manitoba-based Boyd Group Income Fund’s acquisition strategy has led to years of rapid growth for the company. The strategy involves continuously looking and adding new collision repair facilities to the company’s existing networks in Canada and the United States. With shares increasing more than 14,000 percent since 2006, a $10,000 investment in 2006 would be equal to $1.4 million today.
Boyd’s market cap is $3.5 billion, while the Canadian industry at large is worth around $50 billion. With 80 percent of the industry consisting of small business owners is local communities, Boyd has room for additional growth via further acquisitions.
Boyd stock has never had a losing year stocks-wise in its entire operating history. However, after reaching a high of 181.04 in mid-September, its stocks have been steadily dropping since. The company suffered a new low of 171.64 on Oct. 8 and is currently trading for 175.2.
The trend could also mark growing pains for the group as it transitions in a new CEO. Tim O’Day is currently gearing up to replace Brock Bulbuck by 2020, with a succession plan currently in place.
GM’s Longing Letter
General Motors shares saw a slight increase after the automaker’s American division sent a letter to its striking employees last Friday.
As the GM and UAW strike dragged into its 26th day on Friday, the automaker released a letter to its striking employees, encouraging them and the UAW to settle. The letter appeared to spawn a small spike in the company’s shares, with a 1.6 percent increase in premarket action on Friday.
Investors are hoping for a breakthrough between the two parties, as the strike is also costing them. At this point, investor losses are predicted to be in the billions.
On Sept. 13, GM shares closed at 38.86. When the strike began on Sept. 16, shares dropped to 37.21. As of Oct. 10, shares were listed at 34.66.
GM shares have dropped almost 11 percent since the strike began — worse than the 2.6 percent decline of the Dow Jones Industrial Average over the same timespan.
