Is Carlyle Group creating a collision conglomerate?

Carlyle Group logo

By Jeff Sanford

Toronto, Ontario — September 2, 2015 — Consolidation in the collision repair sector continues apace. The latest news comes from private equity firm Carlyle Group, which has tendered an offer to buy UK-based claims management software maker Innovation Group.

Carlyle already owns a minority stake in US chain Service King and is a majority owner of coatings company Axalta. Now the company hopes to extend its reach in the repair space with the acquisition of Innovation Group, a publicly traded UK company that produces auto claims management software for insurers.

News of the deal emerged on Friday. Carlyle is offering $764 million for Innovation Group. The deal is being done through Carlyle subsidiary Axios Bidco, which is operated through the Carlyle Europe Partners IV Fund.

Innovation Partners has been described as an “international collision repair and insurance service” provider. The company claims its products can decrease claims expenses at insurance companies by 5 percent. In its most recent earnings release the company claimed revenue growth over the first six months of this year of 14 percent. So the company is doing well. No wonder the Carlyle bid is so generous.

The price to earnings ratio on the deal is a massive 22.9. The respected UK business paper the Financial Times called the deal “historic.” The deal is being done in UK currency, but North American media reporting terms of the deal calculated that the offer works out to 61 cents a share. On Tuesday Innovation shares were trading at 54 cents a share. That is, the bid represents a solid 13.5 percent premium on the current value of the company. Better yet, taking the average price of the shares over the last six months, 43 cents, the deal represents a 42.1 percent gain for long-term shareholders.

Bidco says it has locked up 28.3 percent of the Innovation Group’s shares as of Friday. The Innovation board has voted unanimously to recommend shareholders take Carlyle’s offer.

“The group has achieved much and created significant value since the management team, led by Andy Roberts, took over the leadership of the business in 2009,” Innovation Chairman David Thorpe was quoted as saying. “Carlyle’s offer represents a compelling opportunity for Innovation’s shareholders to immediately and fully realise the value from their investment, in cash and at a premium. We also believe that Carlyle brings a commitment and vision to the ongoing investment requirements of the business, providing Innovation with enhanced financial and operational flexibility as the group seeks to execute its strategy in the longer-term. We believe this also makes the transaction compelling for our non-investor stakeholders as well.”

The directors of Innovation were said to have believed that, “while shares could continue to grow, investors should still cash out now and allow Innovation to realize the benefits of Carlyle.” According to the directors Carlyle’s “global presence, relevant industry network” would be beneficial to the company going forward.

At least one analyst suggested a counter-offer from another company could yet emerge. But most analysts seem to think the deal will go through. Could there be a global collision chain and claims management conglomerate in the making? Along with the stakes in Service King and Axalta, Carlyle, in April, paid $64.02 million for a chain of body shops known as Nationwide Accident Repair Services. Whatever the plans for these jobs, Carlyle has now added claims management software to the mix.

The Carlyle Group is a global asset manager with $193 billion of assets under management. Those assets are distributed across 128 different funds. The company was founded in 1987 in Washington, DC.


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