Toronto, Ontario — September 23, 2019 — In this week’s Tuesday Ticker: Axalta begins generating interest from potential group buyers, Driven Brands lists assets, and dealerships chase aftermarket facilities in customer satisfaction.
Acquiring Axalta
Three months after the company announced it would explore a sale, Axalta Coating Systems Inc. is generating interest from several private equity and buyout firms.
Buyout firm Clayton, Dubilier, & Rice LLC is potentially partnering with U.S. paint maker PPG Industries Inc. to make an acquisition offer for Axalta Coating Systems Inc., according to sources familiar with the matter.
Other private equity firms are also interested in acquiring Axalta, which has a market capitalization of US$7.3 billion and long-term debt of almost US$4 billion, according to inside sources. Some firms have been looking for bid partners; buyout firm Platinum Equity LLC, for example, has allegedly been discussing a partnership with Koch Industries Inc. on a joint bid for Axalta.
The auction process for Axalta is ongoing and there is no certainty a deal will be reached.
Axalta’s coatings are used in the refinishing of cars, buildings and pipelines. Its corporate peers include Sherwin-Williams Co., Akzo Nobel NV and BASF SE. The company recently announced it is acquiring Capital Paint, a United Arab Emirates-based powder coatings company, which was met with minimal excitement from investors.
Auction or Assets
Bloomberg roused excitement in August when it reported insider news that Driven Brands may be slotted for auction in 2019’s fourth quarter.
The initial price tag for Driven Brands mirrored the company’s estimated annual revenue — US$2 billion.
The brand, owned by private equity firm Roark Capital, recently began its fifth whole business securitization with Kroll Bond Rating Agency (KBRA). When KBRA assigned its preliminary ratings to a note class of Driven Brands Funding, it showed that Driven Brands is expected to issue $275 million of class A note assets to potential investors. The company will not be contributing new collateral in connection with the $275 million transaction.
KBRA is a full-service credit rating agency registered with the U.S. Securities and Exchange Commission as well as the Ontario Securities Commission for issuers of asset-backed securities.
Driven Brands completed its first whole business securitization, a process in which a company can raise the capital that it needs to remain operational, in July 2015. In 2018, the company issued $250 million of class A note assets — approximately $25 million less than this year’s listed assets.
The company’s standing collateral consists of all existing and future franchise agreements in the United States, royalties from existing and future company-operated locations, product sourcing agreements, existing and future collections and profits from company-operated Take 5 locations, related intellectual property and a license fee from Canadian franchises.
Driven Brands is one of the largest franchisors in the aftermarket automobile services and parts distribution industries. The company franchises, owns, operates and manages locations under the brands of CARSTAR, Maaco, Meineke, 1-800-Radiator & A/C, Take 5 Oil Change and others. The company has a network of approximately 2,700 locations across North America and was bought by Roark Capital for an undisclosed sum in 2015.
Chasing Aftermarket
Dealerships are lagging behind aftermarket repair facilities when it comes to customer satisfaction, according to a recent study conducted by J.D. Power Canada.
The study revealed that, while dealership repair facilities saw the same number of visits per year per customer (1.3 visits), aftermarket facilities saw an increase from 1.5 visits in 2018 to 1.6 visits per year per customer in 2019.
It may not seem like much, but according to Virginia Connell, automotive research and consulting manager at J.D. Power Canada, “any fraction gained in the market-share can translate into millions in potential revenue.”
According to the study, owners begin to favour aftermarket facilities over dealerships when their car is between 4 and 7 years old. As vehicles fall out of their warranty period, it appears customers are more likely to take their cars to an aftermarket repair centre.
Key findings suggest that it does not take much to boost customer satisfaction: dealerships can bridge the gap by assuring they greet customers as soon as they enter the shop, or by returning their vehicle cleaner than when it arrived. The study also cites regulated operating standards and speedy service as key customer service factors.
