By Jeff Sanford
Hamilton, Ontario -- December 4, 2015 -- The news broke late in the day on Wednesday. Major auto franchise company, Driven Brands, will acquire CARSTAR Canada in a deal that is being hailed as a major success by both parties. Terms of the deal were not disclosed. Negotiations have been ongoing for some time now.
There seem to be real benefits to both companies. CARSTAR Canada joins its sister company in the Driven Brands portfolio (Driven Brands bought up CARSTAR US a month ago). CARSTAR Canada now has a major and deep-pocketed owner that can finance the growth and development of the chain. So no wonder all involved were enthusiastic about the deal. It was only a month ago (October 25) that Driven Brands announced it had bought CARSTAR US. In an interview with Collision Repair magazine, Jose R. Costa, President of the Paint and Collision vertical for Driven Brands, says the talks were already underway with CARSTAR Canada at that time.
“We were talking then,” said Costa. “These things take months. It took a while to come to an agreement. We went back and forth. Finally we got to an agreement that Mr. Mercanti and Mr. Macaluso could sign.” Now that the deal has been signed, Costa is effusive about the Canadian CARSTAR organization. “It's a phenomenal business. On every measure, from store location, profitability, insurance relations, performance of the network ... it's a strong, strong business. We were impressed. From marketing to IT to operations to the way they do redevelopment, everything about the Canadian operation was top-notch. We were also very impressed with the management team. I'm very excited to have CARSTAR Canada join Driven Brand's Paint and Collision business segment.”
Driven Brands set up a new Paint and Collision division when it bought CARSTAR US. Costa went on to say that CARSTAR Canada adds “depth to our already impressive service offering” and further establishes Driven Brands as a company that can provide all automotive services to customers across North America.
Michael Macaluso, the President of CARSTAR Canada, also took some time out to talk to Collision Repair magazine. “From the Canadian perspective, times have changed, and that’s a positive. This is an absolutely incredible opportunity for our franchise and vendor partners to take things to the next level. We’ve done great things over the last 20 years, and I’m looking forward to the great things we’re going to achieve in the future. This isn’t the end of a chapter. It’s the beginning of new opportunities.”
It is generally recognized in the industry that Canada is ahead of the US in terms of consolidation. As consolidation goes ahead south of the border, could there be tighter links between CARSTAR US and CARSTAR Canada now that the two firms are under a single owner? That might be the case.
“Absolutely. That’s part of the reason for our investment. I think there is an opportunity here for both businesses to work closer to together. There are some differences between the two. But there are some things that the Canadians do that could work in the US,” said Costa. “When we were looking at the business, we saw what Sam Mercanti and Michael Macaluso had done in terms of consolidation over the last 20 years. It’s very impressive and was part of our decision to have them join our family.”
As for what CARSTAR Canada gets out of the deal, Macaluso listed many benefits. “The breadth, scope and, frankly, the horsepower of Driven Brands led by Jose and their understanding of the franchising space is unmatched. It’s now one CARSTAR, which provides immediate best practice sharing that can be deployed right away. This means even higher levels of success for our franchise partners in Canada and across North America,” said Macaluso.
Driven Brands was already a powerhouse. The acquisition of CARSTAR Canada solidifies this position. So what’s next?
“Driven Brands is always looking for opportunities to continue to grow. We’re not at liberty to disclose details, but you will see more acquisitions across our four verticals: Collision and Paint, Repair and Maintenance, Distribution and Quick Lube,” said Costa.
Driven Brands is a huge company. It already owns industry banner Maaco Canada and Maaco in the US. In an interview at the time of the US CARSTAR acquisition, Costa suggested the two brands would remain separate. He reiterated that idea on Thursday.
“Maaco fits very well in our overall strategy. Its market is more retail and fleet, and it’s a price-friendly option. CARSTAR is the high-end brand. It’s primarily insurance driven, with relatively little fleet or retail work. Maaco will do north of $500 million in business this year. About $80 million will come from fleet. CARSTAR will do north of $700 million. About 92 to 93 percent of that will come from insurance work. They’re very different models.”
An interesting business line that CARSTAR Canada has developed but is generally absent in the US is CARSTAR Express, a Canadian invention. These are retail locations that do estimates and sometimes very small repairs. They’re linked to a bigger shop that does larger repairs. Basically, a driver comes in for an estimate, then the car is flatbedded over to the big shop for repair. The car is delivered back to the Express for pick-up. It’s a convenience service for customers, and allows the local CARSTAR to provide greater geographic coverage without the expense of a full shop.
“CARSTAR Express is part of our multi-tiered approach. It came about to better serve customers through convenience and our insurance partners through giving better retail coverage. We really want to help our existing franchise partners grown, and CARSTAR Express is part of that,” said Macaluso. Costa seemed to agree: “Bringing the Express model to the US is one of the things we’re evaluating. CARSTAR US hasn’t done this to the extent that CARSTAR Canada has.”
In fact, according to a statement from Driven Brands, the company has already started testing the CARSTAR Express model with some of its iconic brands in the US, and believes there are opportunities to share best practices across the entire Paint and Collision division.
Wrapping up the interview Costa said that, “It’s very exciting. We will continue to grow through market development and acquisition. There are a lot of things coming down the pipeline. It’s the only large MSO model that’s driven by small business owners. This is a competitive advantage. It’s the small business owner who wakes up every day and strives for greatness.”
Macaluso was also quoted as saying, “They are committed with us to continue to grow our network, to reinvest in the community and hire more people. They have been crystal clear that this is all about growth, growing outwards across the country, keeping Hamilton as the national headquarters … We want to grow exponentially across the country ... This is an ideal opportunity to leverage our combined franchise networks and improve operational efficiencies while enhancing the customer experience." He went on to say that the acquisition will bring new resources to CARSTAR, "allowing us to strengthen and grow for the future. This joining of forces demonstrates both of our organization's drive to be humble and hungry."
In a note to employees of CARSTAR, Sam Mercanti, the founder of CARSTAR Automotive Canada, described the deal as an important and exciting time in the company’s history. “Over the last few years, we have been searching for the right strategic partner to help CARSTAR Canada take our amazing organization to the next level. I'm pleased to announce that we have found that right fit with Driven Brands. They share our same values, determination and success, and have extensive expertise in automotive retail franchising around the globe.”
Sam Mercanti will assume the role of chairman of CARSTAR Canada, while Michael Macaluso will continue to lead CARSTAR Canada in his role as President. The family's “commitment to a variety of causes and new developments in the Hamilton community will continue as they enter this exciting new era in their evolution of creating employment and providing care and support for others in Hamilton,” said Mercanti. “For customers and partners of CARSTAR Canada, it will be business as usual as the company continues its legacy of carefully managed growth and continuous service enhancement. Known as a brand that customers associate with quality, CARSTAR's commitment to the highest levels of quality and premiere positioning fits perfectly with Driven Brands and strengthens the company's product offerings and expertise.”