Dec 29, 2015
An Inside Look at M&A in F&I
The Evolution of National Auto Care
Agenda
• Introduction to Trivest• M&A in F&I• The NAC / FFDS Merger• Lessons Learned from M&A in F&I• Questions & Answers
Introduction to Trivest
Introduction
Jorge A. Gross, Jr.Principal• 10 years at Trivest• Responsible for originating, executing and monitoring investments• Involved in over 20 transactions totaling more than $600 million in value• Current Board member of National Auto Care, GetixHealth and Northfield• Previously with Credit Suisse First Boston• B.A., Columbia University• M.B.A, The Wharton School of the University of Pennsylvania
Est. 1981
FL
Unparalleled Flexibility
Est. 1981
Oldest PE Firm in the Southeast U.S.
Founder / Family-Owned Focus
Lower Middle Market Specialists
200 Transactions / $5.0 Billion in Value
Experienced Deal Team
Key InvestorsKey InvestorsKey Investors
$415,000,000
The following appears as a matter of record only
A partnership formed to invest infounder/family owned businesses
April 2013
Trivest Fund V, L.P.
1
10 Trivest Founders
Invested in Fund V
Relationship Oriented
NotableNotable
Trivest’s Committed Capital
Investment Criteria
Investment Type
Target (Platforms)
Geography
Company Size
Sector Focus
Founder/Family Owned
Control Investments
United States & Canada
Revenues: $20 million and upEBITDA: $4 million and up
¨ Business Services¨ Consumer ¨ Manufacturing / Distribution
Electric FireplacesDelray Beach, FL
Window TreatmentsNew York, NY
Outsourced RCM SolutionsHouston, TX
Quick Service Oil ChangesNew Orleans, LA
F&I Products AdministratorJacksonville, FL
Systems IntegratorAtlanta, GA
Car Wash Service / EquipmentDes Moines, IA
Industrial Component ManufacturerSchaumburg, IL
Freeze Dried FoodSalt Lake City, UT
Auto Air FreshenersSalt Lake City, UT
Water Purification ProductsDeLand, FL
OEM Part SupplierWaukesha, WI
Seafood DistributionPompano Beach, FL
Scrap Recycler IntermediaryColumbus, MS
Litigation Support ServicesIrvine, CA
Automated Retail KiosksNew York, NY
16 Portfolio Companies
2,500+ Employees
$1.2 Billion in Sales
ALL Founder/Family Owned at Investment
M&A in F&I
The M&A Process
“Today” “Second Sale”
Signed LOI
“Pre-LOI Phase”
15 – 30 Days
“Confirmatory Due Diligence”
60-75 Days
Transaction Closing
3 - 5 Years
“Investment Period”
Company
TTM Net Income $25 Million
Market Cap
$600 Million LOSS
$2 Billion $18 Billion
Today’s Value Driven By Future Outlook
TTM Revenue $1.6 billion $1.8 Billion
A Tale of Two Media Companies
Public vs. Private
Driven By Future Growth + Past/Present State
Driven Only By Future Growth
Private Company Values
Public Company Values
Past/Present Strong Projections
Maximum Value
Valuation Principles
Valuation Principles
ArtScience vs.• Precedent transactions• Public comps• Discounted Cash Flow• LBO Model
• Growth opportunities• Management team• Differentiation• Brand/Reputation
Determine the Range
Math
Where in the Range
Intangibles
Valuation ConsiderationsPurchase Price Considerations
Past Performance
Customer Concentration Cyclicality
Growth Prospects
Industry Dynamics
Competitive Landscape
Depth of Management
Needed Investments in Company
Cash Generation
The M&A Process
“Today” “Second Sale”
Signed LOI
“Pre-LOI Phase”
15 – 30 Days
“Confirmatory Due Diligence”
60-75 Days
Transaction Closing
3 - 5 Years
“Investment Period”
Due Diligence ProcessKey InvestorsKey Diligence AreasKey Diligence Areas
• Quality of Earnings and tax reviewAccounting
• Analysis of reserves and loss experienceActuarial
• Review of legal documents, licenses, records, etc.Legal
• Understand market dynamics, opportunities and threatsIndustry
• Owners and key managersBackground Checks
• Review status of insurance in place at the CompanyInsurance / Benefits
• Survey/customer calls to ensure the Company is in good standing with key customersCustomers
Diligence Timeline
S M T W T F S S M T W T F S S M T W T F S
1 2 3 4 5 1 2 3 1 2 3 4 5 6 7
6 7 8 9 10 11 12 4 5 6 7 8 9 10 8 9 10 11 12 13 14
13 14 15 16 17 18 19 11 12 13 14 15 16 17 15 16 17 18 19 20 21
20 21 22 23 24 25 26 18 19 20 21 22 23 24 22 23 24 25 26 27 28
27 28 29 30 25 26 27 28 29 30 31 29 30
Start Date
End Date
Holiday
September October NovemberTasks To Be Completed 14 21 28 5 12 19 26 2 9 16 23 30
Sign Letter of Intent
Diligence Kick-Off Meetings
Compilation of Due Diligence Request Items
Business Due Diligence (Including On-Site Visits)
Background Checks
Quality of Earnings & Tax Analysis (Including 2-3 Days On-Site)
Third Party Market Study
Actuarial Study
Insurance & Benefits Review
Operations Review
Legal Due Diligence Review
Distribute Draft Purchase Agreement
Finalize Purchase Agreement
Closing & Funding
Trivest ChecklistNo "Single Event" Risk……………………………………………………………………………………..
Management: Customers:
Management team filled with A-players…………………………………………………………………..Diverse customer base (no significant concentration)…………………………History of taking market share…………………………………………………………………………….Strong/longstanding customer relationships……………..……………………………….No concentration of institutional knowledge/customer relationships…………………… Strong customer retention / "sticky customers"……………………………………..Track record of managing through challenges……………………………………………………No Founder transition issues………………………………………………………………………….Supply chain:
Diverse supplier/partner base (no significant concentration)………………………………..Business: Strong partner relationships / "buying power" w/vendors……………………Differentiated products/services…………………………………………………………………………Diverse offering of products/services…………………………………………………………………….Sales:
Defensible market niche…………...……………………………………………………………………………………………………Robust sales/marketing capabilities………………………………………………………..Significant market share…………...……………………………………………………………………………………………………Compelling value proposition…………...……………………………………………………………………………………………………Other:
Attractive cash flow characteristics……………………………………………………………………No outstanding litigation…………………………………………………………………………..High barriers to entry……………………………………………………………………………………….Stable competitive environment……………………………………………………………Identifiable areas for continued growth……………………………………………………………..Clean from an environmental standpoint………………………………………………………..Scalability………………………………………………………………………………………………………………Reputation in the industry…………………………………………………………………………….
Strong claims process………………………………………………………………………………………….Financial: Solid Loss Experience………………………………………………………………………………………….Historical sales growth…………………………………………………………………………………….Historical EBITDA growth…………………………………………………………………………………..Consistent margins (increasing not declining)………………………………………………………Strong financial reporting…………………………………………………………………………………….Robust/accurate budgeting/forecasting capabilities………………………………………High free cash flow (ability to pay down debt)…………………………………………………….
F&I: A Lot to Like
Strong Cash Flow Sticky Customers Diverse Customer Base
Profit Center Scalable Fragmented Market Buyer Interest
F&I: Buyer Beware
Regulatory Environment Underwriting Risk Projection-based Business
Cyclicality Low Barriers to Entry High Competition Severities
Value Drivers in F&I
Diversity
Customers
Products
Geographies
Consistency
Sales
Losses
Customers
Experience
Loss Ratios
Cancellations
Severities
Contracts
Underwriters
Dealers
Agents
Programs
Unique
Differentiated
Valuable
Leadership
Knowledgeable
Trustworthy
Credible
The NAC / FFDS Merger
Opposites Attract
• Long-standing• Stable• Conservative• Exclusively VSC• Westerville, OH• Buckeye Fans
• Newly Established• Innovative• Young & Energetic• Multiple products• Ponte Vedra, FL• Gators & Canes Fans
Strategic Rationale
• Scale • Pricing model• Diversity
• Technology• Claims
• Full product suite• Cross-selling• New customers
• Talent• Expertise• Complementary
Team Sales
OperatingLeverage
Redundancy
Key ConsiderationsPeople & Culture
Carriers
Systems
Sales Channels
Customers
Products
Admin Services
Project Plan Ownership Goals Timeline Measure
Integration Plan
Leadership
Communication
Lessons Learned from M&A in F&I
Lessons Learned
• Information is power• Not all TPAs are created equal• Mix matters• Compliance above all else• Growth is hard• Earnings curves don’t tell the whole story
Q&AThank you!