The Evolution of National Auto Care
An Inside Look at M&A in F&I
Agenda
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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
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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
Oldest PE Firm in the Southeast U.S.
Founder / Family-Owned Focus
Lower Middle Market Specialists
FL
200 Transactions / $5.0 Billion in Value
Unparalleled Flexibility
Experienced Deal Team
Trivest’s Committed Capital
Key Investors
The following appears as a matter of record only
$415,000,000
Notable
1
10 Trivest
Founders
Invested in
Fund V
Trivest Fund V, L.P.
A partnership formed to invest in
founder/family owned businesses
April 2013
Relationship
Oriented
Investment Criteria
Investment Type
Control Investments
Target (Platforms)
Founder/Family Owned
Geography
United States & Canada
Company Size
Revenues: $20 million and up
EBITDA: $4 million and up
 Business
Sector Focus
Services
 Consumer
 Manufacturing / Distribution
Outsourced RCM Solutions
Houston, TX
Window Treatments
New York, NY
Industrial Component Manufacturer
Schaumburg, IL
16 Portfolio Companies
2,500+ Employees
Scrap Recycler Intermediary
Columbus, MS
$1.2 Billion in Sales
OEM Part Supplier
Waukesha, WI
Quick Service Oil Changes
New Orleans, LA
Automated Retail Kiosks
New York, NY
Litigation Support Services
Irvine, CA
Car Wash Service / Equipment
Des Moines, IA
Electric Fireplaces
Delray Beach, FL
Seafood Distribution
Pompano Beach, FL
Water Purification Products
DeLand, FL
ALL Founder/Family Owned at Investment
F&I Products Administrator
Jacksonville, FL
Auto Air Fresheners
Salt Lake City, UT
Systems Integrator
Atlanta, GA
Freeze Dried Food
Salt Lake City, UT
M&A in F&I
The M&A Process
“Today”
“Pre-LOI Phase”
“Confirmatory Due Diligence”
Signed LOI
15 – 30 Days
“Investment Period”
Transaction Closing
60-75 Days
3 - 5 Years
“Second
Sale”
A Tale of Two Media Companies
Company
TTM Revenue
$1.6 billion
$1.8 Billion
TTM Net Income
$25 Million
$600 Million LOSS
$2 Billion
$18 Billion
Market Cap
Today’s Value Driven By Future Outlook
Public vs. Private
Public Company
Values
Driven Only By Future Growth
Private Company
Values
Driven By Future Growth + Past/Present State
Past/Present
Strong Projections
Maximum Value
Valuation Principles
Valuation Principles
Science
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Precedent transactions
Public comps
Discounted Cash Flow
LBO Model
vs.
Art
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Growth opportunities
Management team
Differentiation
Brand/Reputation
Math
Intangibles
Determine the Range
Where in the Range
Valuation Considerations
Purchase 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”
“Pre-LOI Phase”
“Confirmatory Due Diligence”
Signed LOI
15 – 30 Days
“Investment Period”
Transaction Closing
60-75 Days
3 - 5 Years
“Second
Sale”
Due Diligence Process
KeyKey
Diligence
Areas
Investors
Accounting
Actuarial
• Quality of Earnings and tax review
• Analysis of reserves and loss experience
Legal
• Review of legal documents, licenses, records, etc.
Industry
• Understand market dynamics, opportunities and
threats
Background Checks
• Owners and key managers
Insurance / Benefits
• Review status of insurance in place at the Company
Customers
• Survey/customer calls to ensure the Company is in
good standing with key customers
Diligence Timeline
Start Date
End Date
Holiday
Tasks To Be Completed
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
September
14 21 28
5
October
12 19 26
2
November
9 16 23
30
Trivest Checklist
No "Single Event" Risk……………………………………………………………………………………..
Customers:
Management:
Diverse customer base (no significant concentration)…………………………
Management team filled with A-players…………………………………………………………………..
Strong/longstanding customer relationships……………..…………………………
History of taking market share…………………………………………………………………………….
Strong customer retention / "sticky customers"……………………………………
No concentration of institutional knowledge/customer relationships……………………
Track record of managing through challenges……………………………………………………
Supply chain:
No Founder transition issues………………………………………………………………………….
Diverse supplier/partner base (no significant concentration)………………………
Strong partner relationships / "buying power" w/vendors……………………
Business:
Differentiated products/services…………………………………………………………………………
Sales:
Diverse offering of products/services…………………………………………………………………….
Robust sales/marketing capabilities………………………………………………
Defensible market niche…………...……………………………………………………………………………………………………
Significant market share…………...……………………………………………………………………………………………………
Other:
Compelling value proposition…………...……………………………………………………………………………………………………
No outstanding litigation……………………………………………………………
Attractive cash flow characteristics……………………………………………………………………
Stable competitive environment……………………………………………………
High barriers to entry……………………………………………………………………………………….
Clean from an environmental standpoint…………………………………………
Identifiable areas for continued growth……………………………………………………………..
Reputation in the industry…………………………………………………………
Scalability………………………………………………………………………………………………………………
Strong claims process……………………………………………………………
Solid Loss Experience……………………………………………………………
Financial:
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
Profit Center
Sticky Customers
Scalable
Diverse Customer Base
Fragmented Market
Buyer Interest
F&I: Buyer Beware
Regulatory Environment
Cyclicality
Underwriting Risk
Low Barriers to Entry
Projection-based
Business
High Competition
Severities
Value Drivers in F&I
Diversity
Consistency
Experience
Contracts
Programs
Leadership
Customers
Sales
Loss Ratios
Underwriters
Unique
Knowledgeable
Products
Losses
Cancellations
Dealers
Differentiated
Trustworthy
Geographies
Customers
Severities
Agents
Valuable
Credible
The NAC / FFDS Merger
Opposites Attract
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Long-standing
Stable
Conservative
Exclusively VSC
Westerville, OH
Buckeye Fans
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Newly Established
Innovative
Young & Energetic
Multiple products
Ponte Vedra, FL
Gators & Canes Fans
Strategic Rationale
•Talent
•Expertise
•Complementary
•Full product suite
•Cross-selling
•New customers
Team
Redundancy
•Technology
•Claims
Sales
Operating
Leverage
•Scale
•Pricing model
•Diversity
Key Considerations
People & Culture
Carriers
Systems
Sales Channels
Customers
Products
Admin Services
Integration Plan
Project
Plan
Ownership
Goals
Leadership
Communication
Timeline
Measure
Lessons Learned from M&A in F&I
Lessons Learned
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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&A
Thank you!