Not Your Standard Deal
Nothing like kicking off Q1 with a blockbuster merger in the parking space! It looks like the appetite for leveraged deals is coming back again. Minutes before I saw this hit the wire, I was commenting to a colleague that there has been a lot of activity with joint ventures and alliances between many pure-play systems and equipment suppliers.
There is no doubt that the parking arena is relatively fragmented and lacking scale. Most providers are privately-held small regional operators, some of which provide parking as an ancillary service alongside property management or ownership. Below is the estimated market share chart from a 2010 IBISWorld report:
However, one deal we didn’t see coming was Standard Parking merging with Central Parking. The summary of the $350 million transaction is pretty straightforward:
- 6.161 million Standard Parking shares (worth ~$111 million as of Wednesday’s closing price)
- $27 million of cash paid in 3 years and assumption
- $210 million in Central Parking debt, net of cash acquired
Summary deal statistics:
- EV/EBITDA Multiple: 10.1x LTM adjusted EBITDA and 6.4x LTM adjusted EBITDA plus $20 million in synergies
- Pro Forma Leverage: 4.5x LTM adjusted and 3.6x LTM adjusted w/synergies
- Accretive to earnings in 2-3 years
Notice the word “Adjusted” in the EBITDA for the enterprise value number. Oh, the smoke and mirrors the investment bankers will bring out to help the stats (in full disclosure, I was an investment banker for many years…).
Taking a closer look at the details, they added back $21 million in combined add-backs to EBITDA. So the real EBITDA is closer to $55 million, not the $76 million used to run these figures. And you can’t forget about the additional $20 million in run-rate synergies (meaning the elimination of duplicative positions, infrastructure, audits, etc.) that was also added making pro forma ‘adjusted’ EBITDA $95 million. Now run all the numbers again without all the non-recurring items that seem to occur every year or what we like to call recurring non-recurring items.
What’s even more interesting is rewinding back to 2007 when Central Parking was purchased by a consortium of private equity shops (Kohlberg & Company, LLC, Lubert- Adler Partners, L.P., and Chrysalis Capital Partners, L.P.) for approximately $866 million. Yes, that’s right, 2.5 times more than what Standard Parking just offered for Central Parking. Let’s do a side by side comparison to see how Central Parking has evolved since the massive go-private led by private equity trio in 2007.
In Central’s defense, it divested all its materially owned real estate, as well as all of its international parking operations, to focus on its core North American leased and managed business.
Ok, that’s enough numbercrunching for one day.
So how does this impact the parking industry? For Standard/Central, it’s obvious that the combined entity will have a leg up on the majority of other providers through increased cross-sell opportunities, cost synergies, and selection of key executives. Standard buying Central boils down to achieving cost reduction and synergies, but there is huge execution risk associated with this strategy.
This helps the new combined entity, but how does that help the property owners? Not sure it will at first. I agree with John Van Horn of Parking Today’s comment: “Customers will be forced to rethink their requirements (company size, location, and the like) when they go out to bid and that will allow smaller companies an opportunity to bid.” The company will be so focused on integration that there will be opportunity for the other regional players to step up and provide what matters most: superior customer service and tailored support.
This is where being a smaller operator will have its benefits and allows you to take action. You can be quick, nimble and flexible to change. As a relatively newer start-up, we see the power of this first hand by doing something everyone should be doing anyway – listening to clients! When we have a meeting with a client and they have feedback or a suggestion, we work with them to implement the additional features and turn an idea into a solution very quickly. This is a huge advantage over larger players. Making even the smallest change in an organization that large is like turning a cruise ship around…you will eventually get there.
I do believe there is another opportunity here for the smaller regional operators. The answer lies in the adoption of technology. New parking technology is making it easier for providers to achieve scale through the integration and implementation of parking solutions that were once never available. It’s a similar concept to the sister airlines that allow you to earn mileage with each other if they are in the same network of airlines. This is now possible for smaller parking operators!
Technology is easier to integrate than smashing companies together and is agnostic to the actual providers. Recent advancements in technology are making it very affordable and easy for regional providers to be competitive. There is everything from remote management tools, real-time reporting and control solutions to various mobile pay solutions. Determine your needs and embrace the technology available to help you run your operations more efficiently. But be sure you are targeting problems to solve as opposed to adopting tech just to join the crowd.
So the operator with 10 lots Charlotte, NC will benefit from the ability to boost profitability through revenue expansion and cost reductions. He can focus less on the day-to-day overhead on focus more on his customer needs, improving the experience.
The key to all of this is change. There are those that accept change and those that resist it. This merger is going to change the industry so use this as an opportunity to take action because change is inevitable. As Spencer Johnson says in his book Who Moved My Cheese, “If you do not change, you can become extinct!”