By Jeff Sanford
Toronto, Ontario -- October 25, 2015 -- News of the acquisition of CARSTAR US is ricocheting around the industry, and no wonder. This a big deal.
Auto industry conglomerate Driven Brands will acquire Kansas-based CARSTAR Auto Body Repair Experts. Driven Brands will create a new division, Paint & Collision, to house CARSTAR and the other collision chain the company owns, MAACO. This new division will be led by the current president of Maaco Franchising, Jose R. Costa.
Costa took some time out to chat with Collision Repair magazine recently. Calling from Mexico, he apologized for missing an earlier call from a reporter. It turns out he was on a company-wide conference call during what is turning out to be a very busy week.
“The timing isn’t great,” says Costa with a chuckle. “We’ve been working on this deal for four to six months and it just happens that it wrapped up in time to land on the day of our big MAACO convention. So we’re handing over the reins at MAACO to Jason Ryan at the same time as this deal came through.”
Jason Ryan is the former Chief of Operations for MAACO. He’ll take over as CEO, while Costa moves up to take over as head the new collision division at Driven Brands. Costa says this deal is the start of both a corporate restructuring at Driven Brands, but also the start of some more serious mergers and acquisition activity on the part of Driven Brands in the collision space.
“It’s very important for Driven Brands. We’re shifting our business to verticals. The opening of the new Paint & Collision division is the first one,” says Costa. Verticals in repair and distribution have also recently been set up. But keep an eye on the Paint & Collision division. The company likes the opportunities in the collision sector.
“We see the paint and collision space as ripe for consolidation and roll-ups. We see some real opportunities here. You’ll hear a lot more from Driven Brands in the collision space in time ahead. You’ll be hearing a lot more from us,” says Costa. “From a financial and an operating perspective this space makes sense for us.”
In terms of the CARSTAR acquisition, the deal only applies to the US properties. “The Canadian business is a great business, but this deal only involves the American company,” Costa said. To get value out of the deal Driven Brands will make some investments in CARSTAR US. “One of our investment theses was this … put more time and money into training and ensuring consistency. With CARSTAR we’re also going to put more people on the insurance team,” he says.
The CARSTAR business is fundamentally different than MAACO, says Costa. Whereas MAACO is a business that markets direct to the consumer and depends on available disposable income at the retail level, CARSTAR is a company that deals largely with insurance companies. According to Costa only two percent of the MAACO business is done through DRPs.
“Turn around and look at CARSTAR US. Among the some 240 locations, 95 percent is DRP. So these are completely different companies. And we’ll continue to operate them that way,” says Costa. Would Driven Brands ever consider merging the two companies? “No, never,” he says, definitively.
Driven Brands manages a family of automotive companies including MAACO, Meineke Car Care Centers, 1-800 Radiator, Merlin 200,000 Mile Shops, Pro Oil Change, Econo Lube & Tune, AutoQual, Aero-Colour and Drive N Style. Incorporating CARSTAR into the Driven Brands portfolio, the brands will now generate annual system revenues of approximately $1 billion through 2,000 locations.
CARSTAR US enjoyed a record year in 2014, with growth in same stores sales of 8.3 percent. This outpaced the overall collision repair industry average by more than four percent. Over the first half of 2015 system-wide sales hit $386 million. This number is on track to outpace its performance in 2014. In addition CARSTAR U.S. is expanding its insurance relationships by securing MSO programs with several top insurance carriers. CARSTAR represents the 11th acquisition for Driven Brands since 2013. The company has expanded the brands' footprint to more than 2,000 franchise locations in the U.S.
Adding CARSTAR to the Driven Brands portfolio is part of the company's overall strategy to grow through acquisition. Driven Brands is headquartered in Charlotte, NC. Combined, all businesses generate more than $1 billion in system sales. Driven Brands is itself owned by Roark Capital.