Australia deal mechanic: In the driver’s seat

Melbourne-based WorldMark Group was a collection of about 10 separate businesses in the automotive aftermarket space and doing A$16 million ($12 million; €11 million) EBITDA when Malaysia-headquartered Navis Capital Partners bought it in March 2010. The company sold a gamut of products and services – from window tint, car electronic systems and engine additives, to offering automotive sales consulting and building prison vehicles in western Australia – and it needed a clear focus.

Phil Latham, senior partner and director of Navis Capital Australia, had a long history with WorldMark, having first acquired the company in 1999 while at RMB Capital Partners. After moving to Navis, Latham re-approached the company in 2008 but the conditions post-global financial crisis made it challenging to buy WorldMark. In addition, car sales in Australia had fallen off a cliff, dropping 20 percent, so Navis withdrew its offer. Finally, in 2010, Latham made another offer and sealed the deal at A$110 million.

1. ACHIEVING FOCUS
Latham says the firm’s main priority was to focus WorldMark’s business into three divisions: trade, consumer and international.

Trade refers to sales in car dealerships. WorldMark sold its products and services to about 1,200 of Australia’s 1,600 car dealers, as well as through lease finance companies and smash repair yards. In the consumer area, WorldMark ran a franchised network of about 100 shops called Tint a Car. And in its international division, it had a global consulting and outsourcing company, Sewells Group, specialised in automotive retail.

“That was a lot of work for us in terms of which business went into which bucket,” says Latham. “We collapsed profit and loss accounts that were numerous into three streamlined accounts (trade, consumer and international), changed the accounts regime, and spent a lot of time with our portfolio directors in improving the operating efficiency and the financial structure of the business, including streamlining warehousing and logistics, and simplifying financial and management reporting in Australia and internationally. That was the first thing we did.”

2. BOOSTING SALES & EFFICIENCY
The second step was to zero in on specific initiatives such as building new sales channels and increasing efficiency.

Navis built WorldMark’s fleet leasing area and targeted fleets of vehicles around the country that were either owned by corporates or leased by financial owners.

Another initiative was to ramp up efficiency in logistics and warehousing. Latham says the firm brought in a Navis specialist in this field who decided to collapse WorldMark’s seven warehouses across Australia into four, reducing holding value by about A$10 million – an immediate cash release on the company’s bottom line.

The firm also added telesales to existing face-to-face sales at dealerships, which increased revenue by over 10 percent annually. In addition, Navis changed the management reporting structure. The firm brought in a new CFO, as well as a head of fleets.

John Weekley, one of the founders of WorldMark, became executive chairman of the company and spent time with Navis in Kuala Lumpur and as Latham recalls, was “very aligned and involved in the business all the way through”.

3. INTERNATIONAL EXPANSION
The firm’s third main initiative was to focus on international growth, a Navis speciality. Latham says the firm looked at the Navis network and determined the best growth markets.

“General Motors and Ford were opening car dealerships on a weekly basis in China. They were trying to pick the best spots, normally staffing them with 20 or more sales employees, and quite often these sales staff had no experience selling anything, let alone cars,” Latham says. “We realised that was a massive market for sales training efforts in China. That’s when we started to recruit a large number of trainers to teach sales people how to sell. This led to a massive growth for us.”

On acquisition, WorldMark’s international division had 400 Australian staff and 20 employees in Asia. Its Asian footprint had just been Thailand and some aftermarket sales in South Korea and China, but at the time of exit, the company had 450 staff in China, India, Thailand, Philippines and Indonesia.

Navis also looked at India and decided there was an opportunity to create a technical sales division to teach mechanics how to do servicing on Indian two-wheelers and cars. Training mechanics was done in partnership with the Indian government, which supported the growth of technical training workshops in the country. The firm did one for Volkswagen in Chennai, for instance, training large numbers of technical apprentices in what eventually became WorldMark’s technical training division.

4. THE RIGHT EXIT
It was clear to Navis that the international division and the Australia unit would not have the same buyer so it decided to split the sales.

“A lot of work went into the structure of the business to get ready for sale. We then looked at the potential universe of buyers. Several private equity firms were interested and we had been approached three times by different private equity shops in Australia in the lead up to 2015,” Latham says.

Navis appointed two different advisors – Greenhill for Sewells Group and Miles Advisory for the core Australian division. The firm had about 23 parties interested in the business, from private equity firms to dealership suppliers and specialist automotive service companies.

The sale process for Sewells Group started in September 2015 and in April the following year Detroit-based business process outsourcing company MSX International completed its acquisition for around A$60 million.

Meanwhile, 23 Australian and international parties were interested in the Australian business. The firm, however, sold the business to Sydney-based Quadrant Private Equity for A$300 million in July 2016. Latham adds: “We decided on Quadrant because we knew them very well; they are a reliable and honest firm and we knew we could do a quick deal with them.”

The sale of both businesses delivered proceeds of A$300 million to Navis’s investors. 

Latham says that WorldMark’s international growth was the most exciting achievement for him and that Navis’s network enabled the company to grow internationally.

“A lot of companies have the ability to grow from one country to another but they don’t have the confidence to do it. They are worried they are going to fail or won’t understand the economic climate in one country versus another, and concerned they won’t understand the cultural differences and the language.

“And therefore great Australian companies are frightened about growing in countries such as China, Malaysia or Vietnam because they just don’t know what they don’t know. But Navis has a wonderful way of saying: ‘We can help you, it’s not hard. You can learn from our people and you can grow your business in Asia’.”