By Jeff Sanford
Toronto, Ontario — May 29, 2018 — In this week’s Tuesday Ticker: Mitchell’s ownership shuffle, Chinese demand driving crude, GM stock to $130 and much, much more.
Mitchell
A recent transaction involves the ownership of well-known industry provider, Mitchell International. The tech provider to the P&C claims and collision repair industries is owned by various private equity funds. Two of those, KKR and Elliott Management, announced recently that they have sold their stakes in Mitchell to another private equity firm, Stone Point Capital. The companies executed a definitive agreement under which funds managed by Stone Point will make an investment in Mitchell, while also acquiring the equity position held by KKR and Elliott Management. In a press release, Alex Sun, president and CEO of Mitchell, was quoted as saying, “We have built our leadership position in the Property and Casualty and collision repair industries by investing in our people, products and services, and focusing on the value we deliver to our clients. Stone Point shares our vision for being a growth-oriented, customer-driven company built on strong values. We are extremely appreciative of the role KKR played in our growth over the years, and we are very excited about our partnership with Stone Point as we focus on Mitchell’s next phase of development. With Stone Point’s investment and experience, I look forward to maintaining our current strategic direction, continuing to grow across all our business segments and finding new ways to provide valuable, innovative solutions to our clients.”
Stone Point Capital is a financial services-focused private equity firm based in Greenwich, CT. The firm has raised and managed seven private equity funds – the Trident Funds – which have $19 billion under management. Stone Point focuses on the global financial services industry and has investments in banks, asset management firms, insurance and reinsurance companies, insurance distribution, specialty lending, mortgage services companies and employee benefits and healthcare companies.
Typically a private equity fund will tap industry experts to help improve the internal workings of the company. The fund tunes up and, after a couple years, sells it for much more than it bought. Private equity types are a bit more sophisticated than investment managers at funds that only invest in shares. A typical investment manager takes a hands-off approach with respect to their ownership stake, allowing management to do what it wants. They only buy into and sell out of the shares of a company if they don’t like where the company is going. But private equity investors get into the company and get involved in the actual functioning. PE investors will update machinery, shift production and shake up management – whatever it takes to tune up a company. The Ontario Teachers Pension Plan revamp of Shoppers Drug Mart several years back is a good example of what PE funds do. Supporters of these funds say the revamp and turnover of moribund American companies in the late 1970s and early 1980s ensured that the American economy was revived and renovated. Others criticize these funds for breaking up companies. Sometimes the investments are held as passive ones, and so it’s impossible to say what might happen in the Mitchell case, perhaps nothing.
Nick Zerbib, senior principal, Stone Point, was quoted as saying, “Mitchell is a well-established market leader in helping to ease the complexities of navigating the Property and Casualty insurance and collision repair ecosystems. We share Mitchell’s vision of using the power of technology, expertise and connectivity to improve the efficiency and effectiveness of its clients. In partnership with Mitchell’s leadership team, we look forward to supporting Mitchell’s future growth plans as it continues to invest in its market-leading solutions and its customers.”
Herald Chen, head of KKR’s technology, media and telecom investment team, was quoted as saying, “We are proud of the partnership we had with Mitchell’s leadership team and the growth we have been a part of since our initial investment in 2013. Together, we expanded Mitchell’s market focus through organic investment in, and acquisition capital for, cloud estimatics, parts, diagnostics, specialty bill review, utilization review, pharmacy and other areas of focus for our key customers. Under the leadership of Alex Sun and the management team, Mitchell has successfully enhanced and expanded its products and services offerings through a strong commitment to deliver better outcomes to the claims and repair process.”
General Motors
Major U.S. financial services company Citigroup released an interesting stock report last week. According to analysts working the stock price of General Motors is set to rise in the years to come. The company seems to be taking a lead in the AV race. As a result, according to Citigroup, the case for shares in GM in the months ahead is a “raging bull.” One of the bank’s analysts believes shares in the OEM could double to USD $70 over the year ahead, possibly to $134 over the long term as the AV sector emerges. According to the report, “Establishing large autonomous vehicle subscriptions, even as a substitute to traditional leasing, could become a major profit enhancer for low-margin segments like cars and even crossovers.” Shares in the automaker are currently trading around $38 a share.
Crude Oil
Doug Ford may be promising ten cents off the price of gasoline, but if certain trends in global market for crude oil continue, the price of gasoline could continue to rise along with the price of a barrel of crude oil. Last year China overtook the U.S. as the world’s largest oil importer. It’s now on course to import even more crude oil this year. This spring imports are at record levels. According to a Reuters report, China’s crude oil imports in the first quarter increased by 7 percent on the year to around 9.1 million barrels per day (bpd), an increase of almost 595,000 bpd compared to the same quarter last year. At the same time, China’s domestic crude oil production remains around 3.76 million bpd, flat compared to recent months.
