Finding Synergy in Acquisitions

Feb. 18, 2016
Inside Driven Brands’ approach to adding businesses

Talk with any of the major collision repair MSOs and you’ll hear that the wave of consolidation isn’t slowing anytime soon. For its part, Driven Brands expects recently acquired CARSTAR Canada and CARSTAR U.S. to double in size by 2020, says Jose Costa, group president of paint and collision for Driven Brands.

Costa says growth potential is a key factor in any business acquisition.

“Every time we look at a brand when we’re considering an acquisition, we want to make that brand better, and we look for companies where the brand is bigger than the business,” he says. “So if the brand has a healthy brand awareness and the business is not to the size of the brand, that’s what we like because we can build the business up to the size of the brand, and even bigger.”

Costa explains that there are six “horizontal synergies” Driven Brands looks for in making acquisition decisions.

“When we look at businesses, those are the main areas we try to focus on. … It made sense to buy CARSTAR and there will be more acquisitions that you’ll hear soon,” Costa says.

as told to Jake Weyer

1. Procurement. So when we looked at CARSTAR, we wanted to combine the purchasing power of Maaco. ... Roughly, it went from about $45 million to north of $95 million in a matter of four to six weeks. We’re in the middle of a lot of good conversations with our partners and there will be a lot of exciting news coming for procurement for everyone under the paint and collision vertical.

2. Fleet. Maaco will do about $100 million of fleet work in 2016. We finished 2015 at $80 million and we’re growing that business at 35 percent year over year for the last three years. So they do have a lot of structure, processes and relationships with North American and even global fleet management companies, car rental companies, insurance companies, and just building those relationships across the verticals.

3. Marketing. As you know, Meineke and Maaco are mainly retail-driven brands. They have really big ad funds for the industry, combined ad funds north of $60 million. That means we’re present in front of the consumer a lot. And CARSTAR has not played too much in that arena being a B-to-B brand, so there are a lot of good practices and benchmarking that [CARSTAR president Dan Young] and his team are doing.

4. Operations and owner optimization. All that means is we look at our system by quartiles, we rank our system, we’re very KPI driven. So we know what behaviors the top quartile, what they do to be so successful, and then we replicate and coach the bottom quartiles to bring them up. It’s a very rigorous, good scorecard process that we use that we’ll start sharing with the new acquisitions.

5. License, development and sales. Under license, sales and development, what truly defines Driven Brands is the intersection of automotive aftermarket and franchising. If you find those two variables, that’s where we’d like to play because we came from the franchising arena and we know franchising really, really well. So a big part of growth for Driven Brands, about 80 percent of our growth will come through acquisitions. The other remaining 20 percent has to come from organic growth and organic growth is a combination of top-line sales and unit count. So our license, sales and development team—you’ll see an announcement coming out Friday as well—we restructured that team and are creating a chief development officer position, and many of the retail-heavy businesses have a position like that. It’s a position that looks like real estate and license sales. And that’s one area where I think Scott Robertson (CARSTAR vice president of development) who works for Dan Young will benefit because historically they’ve seen CARSTAR as a conversion franchise. But there are opportunities for investors, sophisticated investors who want to get into the industry, to have the opportunity to work with our development team.

6. Back office services. This is legal, accounting, IT, HR—anything to do with finance. We have a very good, growing team in [at Driven Brands headquarters in] Charlotte where we have our headquarters, so you saw a lot of restructuring in the Kansas City office. Kansas City will continue to be our home for CARSTAR. We’re not going to go anywhere, we’re just shifting some of those back-office resources to Charlotte because we have a huge infrastructure there.

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