New Mergers and Acquisitions Change the Quick Lube Landscape
While there probably won’t be “under new management” or even “under new ownership” signs popping up at some quick lube shops around the country, the industry has seen a few noticeable mergers in recent months. In December 2016, Driven Brands, a portfolio company of the Roark Capital Group, announced it had acquired Texas-based Express Lube, a regional chain founded in 1990 and was operating 31 locations in the Lone Star state.
That purchase by Driven Brands followed its acquisition of Ohio-based Lube Stop in September of last year. Moreover, Express Lube represented the seventh major acquisition for Driven Brands since Roark had acquired the business. With this expansion, Driven Brands currently operates more than 2,000 locations across North America.
“Including the acquisition of Express Lube, we’ve now expanded the Quick Lube Division at Driven Brands by more than 80 percent,” said Quick Lube Group president Marc Graham in a statement released last December. “This expansion is a direct result of Driven Brands’ world-class technology, synergistic approach to building business, purchasing power and operational support. The addition of this market-leading quick oil change business in San Antonio further solidifies our presence in Texas.”
Driven Brands hasn’t been the only operator that has sought to grow its footprint through mergers and acquisitions during the past year.
In early January, Valvoline signed a definitive agreement to acquire Time-It Lube, which would allow Valvoline to expand its presence in east Texas, while marking its entry into Louisiana. At press time, the acquisition was expected to be completed by the end of the second quarter of fiscal year 2017. This was also one of several notable acquisitions made by Valvoline.
“In fiscal year 2016, Valvoline Instant Oil Change added 126 stores, growing to 1,068 service centers,” Tony Puckett, president of Valvoline Quick Lubes, told National Oil & Lube News. “That includes the February (2016) acquisition of Oil Can Henry’s 89 stores. We also added 19 stores to the Valvoline Express Care platform, bringing the total number of stores in that network to 347.”
Regional opportunities have also played a key part in Valvoline’s expansion, as noted by the Oil Can Henry’s acquisition, which allowed the company to increase its presence in the Pacific Northwest. Yet, Puckett noted the other acquisitions were spread across the country, from small towns to large urban areas.
“One of our key strategic priorities is to expand our quick lube presence by growing Valvoline Instant Oil Change and Valvoline Express Care locations, both organically and through acquisitions,” he added.
The company has said it will continue to seek out locations that make sense.
“Texas is a market we’re interested in, and this is why we sought to acquire Time-It, which has been a strong player in the region,” explained Greg Bickett, vice president of Corporate Development and Financial Planning & Analysis at Valvoline Quick Lubes. “There is no region we’re more focused on than others, but it helps us when there are multiple stores in a region. It is more challenging to go to one or two operators, which is why one of Time-It’s benefits was also its size. In that case, it was more important to us than just its location.”
Industry Buying Mode?
These recent acquisitions by Driven Brands and Valvoline may suggest that more mergers are likely to come, yet very small and independently owned businesses may not attract the interest from these large industry players. In other words, small shops looking to be acquired may not be as desirable.
“It is a bit of a shift in the industry,” said Michael Baynes, president of Auto Center Sales, which helps auto shop operators sell their businesses. “The folks like Driven Brands and Valvoline are looking at multi-operational brands to buy. It is really an economy of scale.”
Part of this is that the quick lube industry is now embracing how private equity, capital not noted on a public exchange, is being used in these deals.
“Private equity, of course, isn’t new, but it is new to the quick lube world,” Baynes said. “There will be more of this, but one thing to remember is there is a finite number of large multi-operational brands that can be bought or sold.”
As for why the smaller shops — the so-called mom-and-pops — are less desirable comes back to that economy of scale.
“The juice isn’t worth the squeeze if it gets too small,” Baynes said. “That isn’t to say it won’t happen, but the valuations for the buyers will shrink.”
What the industry also shouldn’t expect is a mega-merger, however.
“That’s not going to happen, but these brands will continue to look at shops that have 50 to 75 locations,” Baynes said. “There isn’t anyone out there right now that is bigger.”
While size matters, there are other factors that play into what might attract a larger player – and Valvoline’s Puckett countered the notion that individual shops might not be so attractive. In many cases, what can attract the larger brands is a shop’s track record.
“If a quick lube operator is interested in selling, we want to talk to them, regardless of whether they operate a single store or a regional chain,” Puckett explained. “Our expertise is in the quick lube business, and those are the businesses we seek to acquire.
“The first question we’re going to ask is about the store’s historical oil change counts; a minimum of 7,500 oil changes per year is our threshold. After that, we’re going to look at a lot of variables: the retail trade area the store is located in, ease of ingress and egress, demographics, competitors, plus the store’s performance, including annual revenue trends, premium sales, service penetration and the resulting average ticket.”
Valvoline’s strategy has also been to invest in and grow market share across its three business segments: core North America, quick lubes and international.
“For the quarter ending September 30, Valvoline’s Quick Lube segment represented about 30 percent of our total operating income, so adding quick lube units is a significant part of our overall strategy,” Puckett said.
He further credited the company’s ability to provide a superior platform, which includes its proprietary SuperPro operating system and fully-integrated point-of-sale system, that is key to the success in the market. This, in turn, should mean better service for customers heading to the shops Valvoline has acquired.
“Our mission is to provide quick, easy and trusted service, so we start by improving speed of service in a newly acquired service center,” Puckett said. “We then focus on team member development, so customers see better-trained employees, while employees start to see a career path in this business.”
Graying of the Industry
These acquisitions could be coming at a time when many independent owners and operators are looking to retire; so in this regard, this could be seen as a win-win for all parties involved.
“Take a quick look around the industry today, and you’ll see many quick lube owners are nearing retirement age,” Puckett said. “They’re starting to explore their options, and they want someone who’s going to care for the business they worked so hard to build. Selling to Valvoline gives owners confidence because they know we’re in this business for the long-term, we’ve demonstrated an ability to improve store performance and we invest in employees. It’s a win for the seller, the customer, the industry and Valvoline.”
The question is, how do those who aren’t ready to sell or retire deal with this changing market, and should they be worried about how it is changing the landscape for small operators?
“If you are running a successful shop, it isn’t really an issue,” Baynes said. “It is about customer service, and if you can provide good customer service, you can always stand the competition — and that doesn’t matter if it is a larger brand. It isn’t something I’d be overly concerned with if I was an indie operator.
“My mentor told me years ago that a quick lube is really selling the convenience that comes with an oil change. If you provide that service and have a good location, then it doesn’t matter. Competition from a larger brand isn’t going to hurt you. One thing about this industry is, the larger players can’t undercut you on pricing — they can get a little cheaper, but not enough.”
Industry acquisitions may change the signs on the shops, but the day-to-day business across the industry should continue. What could be a game-changer, however, is if those larger players ever do start to eye one another.