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Firm: Asbury Automotive Group Inc. (ABG)
Enterprise: Asbury Automotive Group is an automotive retailer in the US. It presents a spread of automotive services, together with new and used automobiles; and automobile restore and upkeep companies, alternative elements, and collision restore companies. The corporate additionally supplies finance and insurance coverage merchandise, together with arranging automobile financing by third events; and aftermarket merchandise, comparable to prolonged service contracts, assured asset safety debt cancellation, pay as you go upkeep, and credit score life and incapacity insurance coverage. As of Dec. 31, 2020, the corporate owned and operated 112 new automobile franchises representing 31 manufacturers of vehicles at 91 dealership areas and 25 collision facilities in the US.
Inventory Market Worth: $3.5B ($184.17 per share)
Share Possession: 5.02%
Common Value: $105.34
Activist Commentary: Impactive Capital is an activist hedge fund based in 2018 by Lauren Taylor Wolfe and Christian Alejandro Asmar, each previously of Blue Harbour. In simply three years, they’ve made fairly a reputation for themselves as ESG — environmental, social and governance — oriented activists. Impactive will use all the conventional operational, monetary and strategic instruments that activists use, however can even implement ESG change that they consider is materials to the enterprise and drives profitability of the Firm and shareholder worth.
Impactive Capital has reported a 5.02% curiosity in ABG for funding functions.
That is considered one of Impactive’s first positions once they began the fund – they purchased it within the $60’s and stored including to it. The corporate has a horny recurring income razor/blade mannequin, with the sale of recent and used vehicles being the “razor” and the elements and companies enterprise being the “blade”. The corporate has compounded earnings larger than 25%, has a ten% free money movement yield, and there are a lot of alternatives for progress to permit it to proceed to compound earnings at 25%+ nicely into the longer term.
First, Asbury Automotive applied Clicklane to offer it on-line e-commerce capabilities, which may enable it to compete with Carvana, additional driving progress. Second, there are alternatives for strategic acquisitions to develop income and earnings, and the corporate has proven that they are often disciplined acquirers of the appropriate companies. For instance, in December 2019, the corporate entered into an settlement to accumulate the Park Place enterprise for about $1 billion, negotiating a really favorable $10 million termination proper, which they ended up paying once they terminated the settlement. Six months later, the corporate reengaged with Park Place beneath extra favorable pricing and extra versatile financing phrases for a brand new buy value of $889.9 million. Third, the corporate’s elements and companies enterprise has been underearning due to pandemic associated slowdowns and labor shortages stopping it from working wherever close to capability.
Impactive has a powerful observe document of offering options for operational issues like this that additionally additional ESG concerns. For instance, to treatment the issue of labor shortages, the corporate has been reaching out to female-led firms to deliver extra girls mechanics within the collision facilities. To perform this, they’ve applied two shifts per day to higher accommodate for little one care, constructed separate locker rooms and bogs for ladies and men and have become the primary publicly-listed auto supplier to supply maternity go away. Whereas 98% of mechanics are male, ABG can clear up their labor downside by hiring a good portion of the opposite two % and hopefully develop the share of feminine mechanics within the office. If that ratio went from 98/2 to 90/10, it will add an enormous quantity of labor to the mechanic pool. These modifications to its labor power might assist speed up progress in its most worthwhile enterprise phase – elements and labor – from the mid-to-high single digits the place it’s right now to double digits. It is a good instance of Impactive’s funding thesis – utilizing ESG to drive worth creation and profitability.
Impactive Capital has been homeowners of this inventory for years, however very quietly. Whereas they prefer to take board seats at firms, that’s not more likely to occur right here for a number of causes. First, the corporate has a stellar administration group that has been working it impressively through the years producing vital worth for shareholders. Second, the board has proven that it’s diligent and disciplined in specializing in shareholder worth – the negotiation and renegotiation of the Park Place acquisition is proof of that. And third, Impactive appears to get pleasure from an incredible relationship with the board and administration who’ve proven that they’re receptive to contemplating cheap ideas from shareholders.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Asbury Automotive Group is owned within the fund.