Burson Automotive joins IPO traffic jam


When Garry Johnson put his 40-year old automotive parts business, Burson Automotive, up for sale two years ago he could have sold it to a rival such as Repco or Supercheap Auto.

"Repco were interested but they were the opposition and it didn't feel right to my people to sell them to the opposition – they'd be angry with me," the 70-year-old Mr Johnson recalled on Monday.

Instead, Mr Johnson decided to sell the business for about $150 million to private equity firm Quadrant because it would keep the group out of a rival's hands. He also liked Quadrant's choice of chief executive, former Repco/Exego executive Darryl Abotomey. Two years later, Quadrant is planning to sell its 90 per cent stake in Burson Automotive through an initial public offer, first revealed in Street Talk, expected to value the company at $450 million.

Quadrant chief Chris Hadley said on Monday he had appointed UBS and Morgan Stanley as advisers to the float. Mr Hadley said he was not pursuing a trade sale – sparing Mr Johnson once again from seeing Burson fall into rival hands.

Humble beginnings

Burson may be the latest company to join the $6 billion rush of floats in the past two months. But its roots can be traced back to 1971, when Mr Johnson and his former business partner, Ron Burgoine, started selling automotive chemicals such as brake fluid and engine coolants from the back of their station wagons.

Mr Johnson took out a second mortgage on his home and Mr Burgoine used the proceeds from the sale of his home to fund the business's early growth, selling auto accessories to auto repair shops and garages and petrol stations.

Within 15 years they had opened 14 Burson stores and Mr Burgoine was ready to move on, selling his 50 per cent stake in the company to Mr Johnson in 1986. He got a fraction of the price that Mr Johnson fetched when he sold to Quadrant 25 years later.

Mr Burgoine, who now owns tool company Kincrome, has no regrets about selling out when he did, even though he missed out on millions. "Garry's done a very good job to build that business up to what it is now," he said.

Burson is now a significant player in the $11 billion automotive after-market parts and accessories market with 112 stores or trade centres and sales of more than $280 million. It is supported by a fleet of around 570 delivery vehicles and a 170,000-square foot distribution centre in Preston, Melbourne.


Time for someone else to take the wheel

Mr Johnson says he's pleased with the journey his "baby" has taken under Quadrant. "I had no successor and it was time for someone else to take the business to another level," he said.

Mr Johnson is believed to have sold his stake for a multiple of around seven times earnings before interest, tax, depreciation and amortisation. Burson is expecting to achieve sales next year approaching $350 million and an EBITDA of over $40 million. It has debt levels of around $100 million.

"It's obviously worth more than I got," said Mr Johnson, who retains a small stake in the business, believed to be less than 5 per cent.

Mr Johnson believes the car parts market is likely to remain strong, notwithstanding the cloud over the Australian car industry if the federal government cuts manufacturers subsidies. "If they do cut subsidies there would still be a lot of old cars around but there will be more cars coming on the market as the population grows," he said.

'They've done a lot of things in a short time'

Mr Johnson is not surprised that Quadrant is planning an early exit but has expressed surprise at the mooted $450 million enterprise value of the business.

"They've done a lot of things in a short period of time to grow the business and make it better," he toldThe Australian Financial Review.

"They've grown profitability, they've grown store numbers from 92 to 112."

More than $6 billion of listings are scheduled for the next three months, in what could make 2013 one of the best years for IPOs in a decade. The $480 million float of OzForex earlier this month ranked among one of the most expensive IPOs in Australian corporate history. Dick Smith's private equity owners are also pursuing a float that valued the company at around $600 million and Pacific Equity Partners is in talks with its bankers to bring Spotless Group back to the market next year in a $1.5 billion to $2 billion deal.

Nine Entertainment Co's hedge fund backers – Oaktree Capital Management and Apollo Global Management – are pushing for a $3 billion listing in December less than a year after taking control of the media company.

The flood of floats has prompted fund managers such as Ausbil Dexia chief Paul Xiradis to advise investors to take a cautious approach and to look into the vendor's reasons for pursuing an IPO

(First published in The Australian Financial Review, Oct 22nd 2013)

Writen by Global Administrator, News