Winnipeg Free Press - PRINT EDITION

Payback for Boyd's paint supplier

Collision-repair firm reimburses PPG for 'free' acquisition cash

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Things have gone so well for Boyd Group Income Fund, it's going to pay back the "free" money it's been getting from its paint supplier.

The Winnipeg-based collision-repair company -- that now has more locations in North America than any other operator -- is going to pay its paint supplier, PPG Industries, millions of dollars the company had advanced to Boyd over the years to help fund the company's acquisitions.

The money -- a total of about $50 million was paid to Boyd since 2006 to help it buy more locations and, therefore, buy more paint -- was provided on the condition Boyd used PPG paint exclusively for 15 years.

The business is now so big and competitive, conditions in the industrial-paint-supply business have changed to the point Boyd CEO Brock Bulbuck said the company can be more profitable and provide a better return to its unitholders with volume discounts rather than the prepaid rebates.

"We are not so naive as to believe that we were not giving up something on the back end when we purchased the product," Bulbuck said.

The so-called unearned income was amortized or "forgiven" via a formula, over time.

This week, the company successfully raised $55 million in an equity offering. It will use about $35 million of that to pay off the last of the unearned income still on the company's balance sheet.

"Our analysis at the time (in 2006) determined we were better off with the up-front money," Bulbuck said.

But he said Boyd continued to do forecast modelling as to whether unitholders were better with the company taking up-front money to help fund growth or trade that in favour of buying paint at a lower price.

"That is one of the things that has changed," he said. "We have now determined that given our growing size and purchasing scale, the price that we can buy paint at is much lower than what we are buying it at now if we chose to forgo the up-front money."

Bulbuck said the company intends to go out into the market to validate the pricing options that may be available to them.

"Then we will have a choice to make, whether we stay with PPG or move to another supplier," he said. "Obviously PPG is in an advantaged position. They are our current supplier and they have been a great business partner for us. We know them, we trust them and they trust us, but it is our duty to validate the fair market value offering."

The other factor is the company has greater access to capital, so it does not need to be so dependent on its paint company for funding growth.

The company raised about $55 million selling two million units at $27.60 per unit this week.

Boyd's unit price has been on a dramatic upward trajectory since October 2011. But between October 2006 and October 2010, the unit price went from $1.39 to $6.25. During that time, the company would have had to sell far more than 10 million units to raise $55 million.

Bulbuck said if Boyd did not have the PPG money and had to raise equity at that time, it would have cost the company a lot more.

"We have now assessed that moving to higher, market-driven, back-end purchase discounts will be to our advantage and be very accretive to our unitholders," he said.

Trevor Johnson, an equity analyst at National Bank Financial, said the equity issue was well-received by the market

"It's a positive sign for the units," Johnson said.

He said while he does not have all the details on how much the company does spend on paint, he trusts management's belief this new approach will be more profitable.

Republished from the Winnipeg Free Press print edition October 3, 2013 B6

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