By Jeff Sanford
Cleveland, Ohio — June 6, 2016 — OEConnection has announced a deal that sees Providence Equity Partners acquiring a majority equity stake in the company.
According to terms of the deal, Providence Equity will take a 50 percent stake in OEConnection; two of the founding investors, Ford and GM, will reduce their stakes to 15 percent each. The dollar cost of the deal for the privately-owned company was not released.
“We’re not sharing what the value of the deal is,” said Geo Money, Manager of Branding and Culture at OEConnection in an interview with Collision Repair magazine. “But I can say that the whole intent here is to bring in an investor that is very focused on the auto industry and technology as way to help us accelerate our growth. We needed someone that could bring in that technical side.”
Providence Equity is a leading global private equity firm with $45 billion in assets under management and 250 employees. The company began in Rhode Island, far from Manhattan, where many private equity firms are based. Through the 1990s and the early 2000s the fund emerged as a major player in this unique and rarified area of modern capital markets.
Private equity firms are considered the most sophisticated of investment funds. Whereas a pension or mutual fund typically buys up passive stakes in publicly traded stock of a company to generate returns, private equity funds are much more active. Private equity funds use borrowed money to take majority stakes in a company. The private equity fund then attempts to rejig the business of the company to make it more profitable. The private equity fund might bring in management expertise, or work on strategy. They can shake up management, move manufacturing to a more profitable region, or bring in new technology, ideas and capital. After a period of time—a typical private equity investment is held for five years—the reformatted and more valuable company is sold back into the market, hopefully for a profit.
Early reports on the Providence-OEConnection deal suggest no immediate management changes are in the works. According to Money, management at OEConnection is looking forward to opportunities Providence can provide.
“They have a large global footprint. What that is going to allow us to do is to ride on their coattails and expand nationally, and even internationally. They’ve been involved with major companies like Cox Enterprises. They’ll help us break into those markets from a technical standpoint,” says Money.
Some have speculated that the reduction in the stakes held by Ford and GM will see OEConnection approach other OEMs and bring those companies into the OEConnection fold. Providence has a stake in autotrader.com, but it is the technology firms affiliated with Providence that are key to the deal, said Money.
“They can partner us with other companies and they can introduce is to technologies that we may not be aware of,” he said. “GM and Ford are not leaving. They’ll both retain 15 percent. What this does is that it maintains our strength. We’ve created a really strong foundation for growing and expanding the business over the years ahead.”
The deal comes at an interesting time in the collision repair industry. There are many who have speculated about the possible introduction of more OEM certification programs into the market. The most recent Guild 21 conference featured John Eck, Manager, Wholesale Dealer Channel for General Motors Customer Care & Aftersales. On the call he speculated about the possible introduction of a GM certification program. Eck noted that GM is currently looking at what technological solutions might be available to help make such a program viable, and said GM had looked at the kind of technologies used in the car leasing industry to provide a way for OEMs to confirm repairs have been done properly on vehicles in a certification program. Such a major shift in the basic underlying business would require serious technical upgrades throughout the industry. This is just the kind of shift and change that private equity firms thrive on.
An article on Providence Equity that appeared in the New York Times, noted the remarkable growth of the company through the early 2000s. The fund emerged from Rhode Island and “rose to prominence on the strength of its telecom and media holdings.” The fund grew rapidly, growing from just $3.6 billion under management in 2000, to $21 billion in private equity assets under management by 2007. It now has $45 billion under management.
Today, private equity firms are benefiting from the current era of oddly low interest rates. Pension funds, desperate to generate returns, are investing in private equity funds as an alternative to investing in bonds with ultra-low returns.
Providence Equity has invested in more than 140 companies globally since its inception in 1989. Some of Providence’s other investments include VoiceStream (now T-Mobile US), Warner Music Group and Hulu. There is also a March 2013 agreement between Providence and the National Football League that saw the creation of a global partnership to invest in sports and entertainment related media assets. Now it’s in the collision repair space.
“Providence has a thorough understanding of OEC’s business model and market opportunities as well as a proven track record of successful partnerships and investments in similar companies,” said Chuck Rotuno, President & CEO, OEConnection in a statement. “We look forward to leveraging their resources and expertise to expand our global client base, and make it easier for our customers everywhere to grow their parts and service business.”
The deal is subject to regulatory approval. It is expected to close by the end of the second quarter 2016.
“General Motors views this change as a great opportunity to expand the product and service offerings to our GM dealers through the investments of Providence in OEC. Through this new partnership arrangement GM will continue to have an active role in OEC,” said Tim Turvey, Global Vice President, Customer Care and Aftersales for GM.
Providence is headquartered in Providence, Rhode Island and has offices in New York, London, Hong Kong, Singapore and New Delhi.
