We continue with the next installment of our look at AMA Group's journey and include a timeline of the AMA journey at the end of the article.
AMA/Gemini merger
In September 2015 there’s an AMA/Gemini merger - the two biggest entities in the Australian industry combine with a national and New Zealand footprint of 70 sites. Gemini brought 40 sites to the party and employed 750 staff and became the largest shareholder in AMA. Collectively the company was worth around $300 million.
It was an interesting teaming. Malone came from the prestige side of the business and was all about using the best equipment and people, Hopkins came from the ‘mum & dad’ repairs side of the industry and was all about gross margin and the most cost-efficient ways to do things. Malone was a pocket rocket of energy and enthusiasm relishing investor meetings, giving newspaper interviews and visibly excited by the consolidation opportunities the industry offered and happy to talk about them to anyone who was interested, Hopkins was more reserved, working his magic more in the background, especially with the insurance companies.
In the marketplace - as with so many industries in Australia there was a duopoly in the MSO repair space - Capital SMART and AMA Group - no one else came near them in size. You might imagine that a few executives in insurance land were beginning to shift uncomfortably in their seats as they could be thinking that it was dangerous for a collision repair company to hold such market dominance. However, there were many advantages to working with AMA in terms of uniformity of pricing and reducing the administration costs of working with the entire industry individually.
2016
At the beginning of 2016 when AMA’s share price was around the 80c mark, a Wilson equities research paper called Panel power reported in its growth strategy section: “We assume AMA will almost triple its network to 200 shops by FY24, having already increased from 4 to 70 shops, most notably through the recent $100M acquisition of Gemini. Within its network, we expect AMA will ultimately operate 40 higher volume rapid repair shops (currently 17), which complement AMA’s bolt-on acquisition strategy by enabling more effective allocation of jobs to different shop types in a given geographic catchment.”
While many thought that might have been a big call, in fact AMA was to reach the 200 shop mark - all be it very briefly - by 2019.
2017
It looked like there was no stopping the AMA juggernaut. In February 2017 Paint & Panel published a story called A new industry union? AMA and Capital SMART got into bed together and you’ll be glad to hear why. There was a picture of Jim Vais and Andy Hopkins hugging on the floor of a charity night, the Vinnies CEO Sleep Out - little knowing that the union - if not of Hopkins and Vais wasn’t as far fetched as it sounded.
Meanwhile AMA released a bullish half year financial report with Ray Malone very much the figure head of the organisation - Phil Munday had left the group at the beginning of the year. The company announced six more acquisitions and a purpose-built site and Malone commented they had taken out all the other consolidators in the market and were cashed up to buy more shops. It was a good time to be in the buying market - there were many operators that were looking to leave the industry but had no solid exit plans in place. AMA had made the market an even tougher space and was reaping the rewards from people who didn’t have the will to compete. In some cases they felt it was easier to sell to AMA than either have someone else local do it, or have AMA build a new shop which they feared would put them out of business anyway.
2018 The Blackstone deal
Fast forward a year to 2018 and The Financial Review’s Street Talk - which always seems to be remarkably well informed about AMA - ran a story that AMA was in talks with global buyout giant Blackstone which owns US giant Service King Paint & Body. Many industry pundits had been predicting that the rapid growth of AMA was with the aim to sell it to a venture capital group or similar and this was precisely the time to do it - the group had a footprint of over 100 sites and the balance sheet was looking good. Acquisitions fuelled growth and turnover and profit bloomed.
At this time Malone was to leave the panel business to run the ACAD business and Hopkins was to stay on as CEO of panel. The Financial Review speculated that: 'The deal is likely to value AMA Panels at more than $500 million, while analysts reckon the rest of AMA Group, which will continue to trade as a publicly listed company, would be worth $100 million to $200 million.'
In April AMA announced that it was to demerge its automotive component (the aftermarket companies called ACAD) and enter a $506m transaction with Blackstone for the panel business.
By June the Blackstone deal had fallen through after AMA had shelled out around $2.8m in due diligence fees. The reason given for the failure of the buyout was that the Australian Tax Office had refused AMA’s request for a demerger of the ACAD business - which meant the deal wouldn’t receive de-merger tax relief.
A month later Street Talk reveals that Suncorp has hired an adviser to review and test buyer interest in Capital SMART. SMART had reported $290m revenue in the 2017 financial year with operating profit at $20.4m, a net profit of $14.1m and assets worth $61.6m. Suncorp also stated that the SMART network performed the repairs on 45% of its claims book.
Shortly afterwards, in September AMA Group posted its full year results announcing a 33% increase in revenue to $506m and 26 new acquisitions plus four new greenfield sites. As well as purchasing the six Bear’s Auto Hospital group in New South Wales there was the acquisition of the prestige Wells group of five shops in Queensland and Tasmania owned by Mark Wells and the four Sydney shops of the Mt Druitt Group.
It’s at this point that AMA begins to recruit senior team members from the insurance industry with the announcement that Anthony Day (pictured below right) was to join the board as an independent non-executive director. Day had recently been CEO of Suncorp Group’s Insurance Operations. A strategic move given the announcement that Suncorp’s 95% stake in SMART could be up for grabs. Around this time AMA announces a placement of 10 million shares at 95.2c per share and AustralianSuper, Myer Family Investments and Coliton Capital Partners (Simon Moore) become major shareholders and Moore joins the board.
The subsequent board reshuffle saw Hopkins being appointed group CEO and Malone staying on as Chairman - this was a significant step change for AMA. Malone remarked at the time: “The business has now reached a size that it requires a more traditional governance structure and the addition of new talent to the executive management team and board of directors to ensure that the next six years are equally as successful. Mr Hopkins has been my partner in growing the panel repair business over the last three years and he is the ideally suited to succeed me as group chief executive officer.”
2019 AMA buys Capital SMART
Meanwhile in April of 2019 Suncorp get serious about selling SMART and says it is looking for around $300m. The contenders step into the ring - founder Jim Vais (pictured right) who had sold his five percent back to Suncorp so they could complete the sale. He was backed by buyout firm Quadrant Private Equity - the company currently behind the relatively new multi site operator Motorone. AMA Group watched closely and Fix Auto was also rumoured to be interested as well as other private equity bidders.
At the same time something very significant for AMA Group is happening which would make acquiring SMART all the more vital, IAG was trialling a drop and go service it called repair hub using an NRMA MotorServe site (NRMA the roadside assist company is not linked to IAG). The joint venture with RACV and two repair partners SmashTec and SRS is declared a great success and in November 2019 IAG buys NRMA’s MotorServe network of mechanical servicing outlets - 23 sites across NSW and ACT. It’s clear that IAG is going to repair its own insured cars just as Suncorp decided to stop repairing its own insured cars. The departure of Mark Milner from Suncorp, who had been instrumental in the development of SMART and his arrival at IAG in 2016 cannot be ignored.
AMA powers on with its acquisitions moving into the heavy vehicle repair section and even hail repair. It also snaps up SmashCare which had eight sites and Wales Truck Repairs and installs Darren Wales to head up the heavy vehicle repair unit.
In July AMA installs Steve Bubulj, another high profile name from the insurance industry who was the highly regarded head of supply chain at IAG after which he went to QBE. Bubulj became the CEO of the panel division. At this point AMA shares were trading at healthy $1.46.
Steve BubuljWhen I talked to Hopkins recently he said: “My strategy has always been to deliver what the customer - the insurer - wants. They want cost, quality and service and AMA now is all about adding governance and controls to the business which will add cost to the business which must be passed onto the insurers. That’s not fair to pass that cost on - the model has always been about saving the insurers money.”
It could be argued that adding governance - which one would imagine an ASX listed company needs, began in earnest when Bubulj was employed.
When Bubulj joins AMA, Director of Operations Joe Walsh, who had been with the company since its inception, is sacked. In August Ray Malone retires as chair of the board and executive director.
In October 2019 the industry is put out of its speculation misery when Suncorp announced it had sold 90% of SMART and all of ACM Parts to AMA Group for a staggering $420m - the $20m was for ACM. The original sale price mentioned was around the $300m mark and the actual sale price represented a multiple of 20x - at the time the estimated multiple for Google was only 17x. AMA itself generally paid a multiple of 2.5-5 for its shop acquisitions.
I asked Hopkins in the most recent interview whether he regretted buying Capital SMART as the group’s finances seemed to have suffered since the acquisition. Hopkins said that the reason for this was that the board wrote off $50m of goodwill from Capital SMART (a definition for goodwill is: excess purchase price of another company. Goodwill is calculated by taking the purchase price of a company and subtracting the difference between the fair market value of the assets and liabilities).
“The due diligence on buying Capital SMART was done by Simon Moore and Colinton Capital which charged a large fee which it’s no secret the investors were unhappy about. Then they wrote $50m off the goodwill of Capital SMART which the investors have lost and I would imagine they will write off potentially more this year and that’s why its losing money because it is writing off Capital SMART so aggressively.
“SMART is a great business and Suncorp is a great partner and the opportunity to buy a business with a 25 year supply contract was gold. The two businesses worked hand in glove, harmoniously but they are completely different models and they need to be kept completely separate.
“One of the reasons we had to buy Capital SMART was because of IAG building Repairhubs and they have accelerated the opening of stores. After we bought Capital SMART IAG was still 40% of our business - so AMA will lose a lot of business to Repairhub over the next 12-18 months I would think.”
Directly after the acquisition I interviewed Hopkins about his plans for Capital SMART. He emphasised a ‘value creation’ of $17m annual cost savings through the AMA procurement chain. He was also talking about taking SMART overseas: “I think it can be a leading global brand, the best collision repair business on a global stage.” At that interview he remarked that the 25 year guaranteed Suncorp contract that SMART came with was worth $11billion.
After the acquisition announcement the share price hovered around $1.35. The main task ahead for AMA was to integrate SMART into the business.
In November AMA employs Darrel Maloney as acquisitions director. Maloney had been the CEO of Strategic Collision Repair Group, a company that had recently failed to woo investors at a $120million-odd sharemarket float pitched at fund managers. Smashcare was initially to be part of the Strategic group but sold instead to AMA Group. Interestingly the company backing the new venture was Strategic Equity Alliance which was described as the firm behind Greencross vets - so there was someone in the company who had been involved in AUSARC back in the early 2000s.
Just before Christmas AMA saw its share price drop from 110c to 88c as it released a revised earnings forecast of around $30m less than predicted. In early October the EBITDA forecast for the 2020 financial year was $100m. The update said the company was expecting EBITDA to fall between $73m and $77. The drought and lower car sales were cited as the cause. "Prolonged drier weather conditions in the first half and the ACAD (Automotive Components and Accessories Divisions) Division has been impacted by a pronounced year-on-year decline in new car sales impacting the industry as a whole.” The group also announced the acquisition of SmashCare and a number of truck companies.
The release also stated: "Due to the significant strategic acquisition of Capital Smart and ACM Parts, the level of “business as usual” acquisitions understandably slowed in the first half. The acquisition pace is on track to return to historical levels in the second half of this financial year.’
On its banking facility update the company said: "To facilitate the acquisition of Capital Smart and ACM Parts and help enable the continued growth of the Group, a new $375M banking facility was implemented with ANZ and NAB in October this year.
We will pick up next week at the begining of 2020 when Royans begins to take on AMA in the heavy vehicle market and current CEO Carl Bizon joins the group. You can download the timeline for easier reading AMA timeline to 2019
