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Company: Asbury Automotive Group Inc. (ABG)
Business: Asbury Automotive Group is an automotive retailer in the United States. It offers a range of automotive products and services, including new and used vehicles; and vehicle repair and maintenance services, spare parts and collision repair services. The company also offers financing and insurance products, including vehicle financing through third parties; and secondary market products, such as extended service contracts, debt cancellation with guaranteed asset protection, prepaid maintenance, and credit life and disability insurance. As of December 31, 2020, the Company owned and operated 112 new vehicle franchises representing 31 automobile brands at 91 dealerships and 25 collision centers in the United States.
Stock market value: $ 3.5 billion ($ 184.17 per share)
Percentage of ownership: 5.02%
Average cost: $ 105.34
Activist comment: Impactive Capital is an activist hedge fund founded in 2018 by Lauren Taylor Wolfe and Christian Alejandro Asmar, both formerly of Blue Harbor. In just three years, they have made a name for themselves as ESG – environmental, social and governance – oriented activists. Impactive will use all of the traditional operational, financial and strategic tools used by activists, but will also implement the ESG change they deem important to the business and that drives business profitability and shareholder value.
Impactive Capital has declared a 5.02% stake in ABG for investment purposes.
This was one of Impact’s first positions when they launched the fund – they bought it in the 1960s and continued to build it. The company has an attractive, recurring revenue razor / blade model, with new and used car sales being the ârazorâ and the parts and service industry being the âbladeâ. The company has achieved compound profits above 25%, has a yield on free cash of 10% and there are many growth opportunities for it to continue to generate profits above 25% in the future.
First of all, Asbury Automotive implemented Clicklane to give it e-commerce capabilities online, which allows it to compete with Carvana, thus driving its growth. Second, there are strategic acquisition opportunities to increase revenue and profit, and the company has shown that it can be disciplined acquirers of good companies. For example, in December 2019, the company struck a deal to acquire the Park Place business for around $ 1 billion, negotiating a very favorable $ 10 million termination right, which it ended up paying when it terminated the agreement. Six months later, the company re-engaged with Park Place at lower prices and more flexible financing terms for a new purchase price of $ 889.9 million. Third, the company’s parts and services business has been underprivileged due to pandemic-related downturns and labor shortages preventing it from operating near full capacity.
Impactive has an impressive track record in providing solutions to operational issues like this, which also reinforce ESG considerations. For example, to address the problem of labor shortages, the company reached out to businesses run by women to bring more female mechanics to collision centers. To do this, they put in place two shifts a day to better accommodate daycare centers, built separate locker rooms and bathrooms for women and men, and became the first publicly traded car dealership to offer a maternity leave. While 98% of mechanics are men, ABG can solve their manpower problem by hiring a significant portion of the remaining two percent and hopefully increase the percentage of female mechanics in the workplace. If that ratio were to go from 98/2 to 90/10, it would add a huge amount of work to the pool of mechanics. These changes in its workforce could help accelerate growth in its most profitable business segment – parts and labor – from mid to high single digit where it sits today. two digits. This is a perfect example of Impact’s investment thesis: using ESG to drive value creation and profitability.
Impactive Capital has owned this share for years, but very discreetly. While they enjoy being on corporate boards, it probably won’t happen here for several reasons. First, the company has an exceptional management team who have exploited it impressively over the years, generating significant shareholder value. Second, the board has shown it to be diligent and disciplined in focusing on shareholder value – the negotiation and renegotiation of the Park Place acquisition is proof of that. And third, Impactive appears to have an excellent relationship with the board of directors and management who have shown they are receptive to considering reasonable suggestions from shareholders.
Ken Squire is the founder and chairman of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of 13D Activist Fund, a mutual fund that invests in a portfolio of 13D activist investments. . Asbury Automotive Group is owned by the fund.