Boyd sees growth opportunity while auto sector suffers crash

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Boyd Autobody & Glass’s new outlet on Scurfield Boulevard is just a small part of the chain’s new aggressive growth plans. (BORIS.MINKEVICH@FREEPRESS.MB.CA)

BOYD Group Income Fund has increased its growth projections, partly because of market opportunities presented with the expected closing of thousands of GM and Chrysler dealerships.

The Winnipeg-based collision repair company reported record quarterly sales and profit for the first quarter of this year and has indicated it intends to almost double the number of new stores it will open.

But that doesn't mean Boyd will dramatically increase its capital spending.

The company has figured out a way to do these deals essentially with no money down.

Brock Bulbuck, president and chief operating officer of Boyd, said its record-setting performance for the quarter ending March 31, 2009 was particularly pleasing because it was achieved in a weak collision repair market.

Sales for the quarter were $63.7 million, up 23.8 per cent from the same period the year before, and profits reached $2 million, up 17.2 per cent.

After retrenching in 2006, Boyd has produced same-store sales growth for nine consecutive quarters.

Bulbuck said the company's business is strong enough and market conditions are right to accelerate its acquisition pace to eight-to-10 new stores a year from the previous four-to-six.

"Our balance sheet is strong enough to accommodate our goal and maybe even more aggressive goals," Bulbuck said.

The North American collision repair business is worth about $40 billion annually and it is estimated that new-car dealerships capture about one-third of that.

With General Motors and Chrysler expected to announce the closing of as many as 3,000 dealerships across North America, Bulbuck said that will create an opportunity for Boyd's outlets (operating as Gerber Collision and Glass in the United States) to capture market share.

In the past, when Boyd was aggressively acquiring collision repair stores across North America -- it now owns 37 in Canada and 46 in the U.S. -- it was buying only top performers and paying multiples of earnings.

At the time, its own units were trading at much higher multiples than is now the case.

Now Boyd will not pay more than what it perceives to be the asset value of the business.

That generally means a gross purchase price of less than $500,000. And the company is using a combination of capital leases, vendor financing and forgivable funding provided by a long-standing relationship with Boyd's paint supplier to do the deals.

That typically breaks down to $100,000 in cash from the supplier fund, about $200,000 in capital leases and another $200,000 in vendor financing.

"Times are different now," Bulbuck said. "There is a greater appetite from independent shop operators looking for exit strategies to do deals at asset values."

Many, he said, acknowledge there are not as many potential buyers and they will sell their business if it means they can secure a long-term revenue stream on the real estate they own that would form the basis of their retirement plan.

One Winnipeg finance expert said that means Boyd will not have a lot of potential acquisitions because many entrepreneurs still expect to receive some goodwill for the businesses they have built up.

"The number of cases where you are going to pay net asset value and ask the guy to carry the paper is quite small," said the finance official, who asked that his identity not be revealed.

But Greg Klassen, a Wellington West Capital agent who has followed Boyd for many years, said Boyd is a better operator now and can use its insurance company relationships, particularly in the U.S., to increase business at what might have been underperforming independents.

"They are only looking at acquisition targets that fit," said Klassen.

Boyd's units closed up five cents on above-average trading volume on Thursday to $3.16.

martin.cash@freepress.mb.ca

Expanding -- with no money down

In the early part of the decade, when Boyd Group Income Fund was aggressively buying collision repair shops, it was looking for the busiest locations and paying top dollar.

Boyd is now a preferred supplier for some of the largest insurance companies -- especially in the United States -- who send Boyd their business. As a result, Boyd is able to be less fussy about the shops it acquires.

For various reasons, there are fewer buyers of collision-repair shops in the market, sending purchase prices downwards.

Several years ago, Boyd negotiated a forgivable loan from its paint supplier that it can use to make acquisitions (thereby increasing Boyd's paint orders).

A typical $500,000 acquisition for Boyd now includes about $100,000 drawn down from the supplier's fund, $200,000 in lease financing for the equipment and another $200,000 paid over time to the vendor.

Republished from the Winnipeg Free Press print edition May 15, 2009 B4