Page 16 - Australasian Paint & Panel Magazine

IN DEPTH BLACKSTONE
WHO IS BLACKSTONE?
Finance guru Brad Mewes of Supp-co.com looks at the Blackstone-AMA acquisition and the role of private equity firms in the automotive aftermarket industry.
THE RECENT ON again off again drama of the Blackstone AMA acquisition led to a resurgence of interest in the role of private equity in the automotive
aftermarket. AMA Group announced on 22 June that its $508 million transaction with Blackstone would no longer go ahead after the Australian Tax Office (ATO) refused its request for a de-merger.
The formal response from the deputy commissioner of taxation
meant that there will be no
break fees payable in relation
to the transaction terminating with Blackstone. The ruling was required for AMA to undertake its proposed de-merger of its component, accessory and procurement business.
WHO ARE BLACKSTONE?
Blackstone is a storied and successful private equity firm based in New York and founded by investor billionaire Stephen Schwarzman in 1985. Blackstone is one of the largest and most successful investment firms in the world. It also has an office in Sydney.
While the company is an aggressive investor across multiple asset classes, within asset classes each fund remains disciplined in its investment approach. As such, private equity funds only invest in businesses that are subsequently privately operated.
BLACKSTONE’S INVESTMENTS IN THE AUTOMOTIVE AFTERMARKET
Blackstone is a leader in global private equity with over $100 billion in assets invested in over 70 different companies. According to Joe Baratta, global head of Blackstone’s private equity practice, “We are constantly looking for situations where we are able to add value in a way that our competitors don’t. Our people feel the obligation to go out there and find special situations where we can intervene to drive change.”
Within the smash repair space, the most prominent investment in the firm’s portfolio is that of Service King. Service King is one of the “Big 4” consolidators in the U.S. While Carlyle was the original equity sponsor behind Service King, taking them from 47 locations to 177 locations in only two short years,
16 PAINT&PANEL July / August 2018
“Time will determine if the parties can bridge the gap in the absence of a favorable ruling from the ATO.”
Blackstone was the second equity sponsor to take control of the firm. At the end of 2017 Service King operated 335 stores across the U.S.
Originally reported in early 2017, Blackstone was looking for a bid of US$2 billion for the firm. At the
time, many analysts that I spoke with felt the $2B price tag
was a bit on the high side and the company has yet to announce a transaction.
However, the rumor of an announcement of the sale of Service King has been persistent across North America for the better part of a year now. But as Mark Twain famously quipped,
“the news of my demise has been greatly exaggerated.”
BLACKSTONE AND AMA
The Australian Tax Office has created an obstacle for the Blackstone and AMA proposed transaction.
Spin offs and demergers, especially spin offs of divisions of publicly listed entities is complex, often relying upon perfect synchronization between legal, tax, audit, accounting, finance and operations. Tax implications are a significant aspect of most transactions, and the proposed AMA Blackstone example
is no different.
Time will determine if the two parties can bridge the
valuation gap in the absence of a favorable ruling from the ATO. Unfortunately for both parties, a negative ruling on the tax treatment of certain assets is a “lose-lose”, where both parties are negatively impacted; either in substantially less proceeds realised by the existing shareholders as a result of increased taxation, or a higher purchase price to be paid by acquirer for the same proceeds to be delivered to the existing shareholders.
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