Nationwide Autocentre Purchase Brings Halfords Full Circle
The latest developments in Halford’s complex car servicing history (see Halfords Buys Nationwide Autocentres for £73.2 million – 18/02/10), bring with them a distinct sense of déjà-vous and highlight the cyclic nature of ownership in this industry. From Halfords point of view the latest venture represents a new beginning for a business that is radically different to when it last tried car servicing.
“You’re right Halfords [used to own a servicing business] a while back,” chief executive David Wild told journalists via video interview on the day of the Nationwide acquisition. He went on to explain how Halfords was very different business back then. However, in addition to Halfords’ evolution, some marked changes have taken place in the sector as a whole, particularly in relation to its influence on the wider tyre market. And the increasing influence of non-tyre specialist ‘autocentres’ is a significant part of this.
Halfords’ car servicing exploits date back to September 2001, when energy company Centrica bought the company’s 122 garages. At the time Centrica also owned motoring association the AA and so the servicing depots were subsequently renamed AA Service Centres.
To put everything in context, it is worth mentioning that this was all going at the time when, having paid Sir Tom Farmer around £1 billion (US$1.6 billion) for Kwik-Fit in 1999, Ford Motor Company was considering selling the company for less than half what it had paid. In the end CVC Capital partners was the successful bidder, paying just £330 million. Just 17 days earlier on 26 July 2002, CVC Capital bought Halfords from Boots Comp. PLC for £410 million pounds, a year after it had sold its servicing depots to the AA. And of course this led to speculation that CVC was planning to merge its two new businesses.
However, this didn’t happen and when CVC Capital partners and Permira subsequently bought the AA from Centrica in October 2004, it took the new owners just a few days to decide that the old servicing branches (and 900 jobs) had to go. At the time AA chief executive Tim Parker said the centres weren’t profitable and hinted that they would be better off as part of a larger group of centres. In a parallel move, the AA also said it intended to close AA Tyre Fit, which provides mobile tyre fitting through a fleet of 130 vehicles, and its used car inspections business.
That’s where Nationwide Autocentres came in, taking on 50 of the sites, as well as 400 of the 1,300 workers affected by the plan, bringing the total of number of branches on its map to 225. At the same time Nationwide became the AA’s approved service provider for members and customers.
This move followed was the repeat of a strategy the company had successfully executed a year earlier. In January 2001 NBGI Private Equity bought 41 Lex Autocentres from Lex Service PLC. These in turn were rebranded as Nationwide Autocentres with the intention of offering fixed price servicing to retail and fleet customers. A further four independent garages were added to the network during 2001, with the total number of centres rising to 142 and a sales turnover of amounting to around £40 million.
Phoenix Equity Nominees Ltd acquired Nationwide in February 2006. Since then sales have grown to £97 million for the year ended 31 December 2009 and Nationwide’s pre-tax profits (EBITDA) have leapt to an estimated £10.1 million (up 70 per cent in four years). According to the new owners, the re-branded Halfords Autocentre business will double EBIT to around £20 million in its third year of ownership and is expected to increase earnings per share by circa 6 per cent in its first full financial year within the Halfords Group.
Halfords’ theory is that demand for aftermarket services is increasing as the national car parc grows and ages, while the average cost of servicing is also increasing. At the same time market capacity is said to be contracting. Halfords’ management believes fast fit outlets only supply a limited range of services and, as the cost of operating increases (through the need for diagnostic equipment, for example) the numbers of independent garages and dealerships is declining by approximately 5 per cent per annum.
They see Nationwide’s “scale advantage and robust business model” along with high levels of service as the reason the company has been able to establish market leadership in the sector and why the company presents a good opportunity for Halfords.
Commenting on the acquisition, David Wild said: “Our expansion into the adjacent car servicing and repair market is an exciting and logical move for Halfords. Car maintenance is a large and highly attractive sector where there is increasing demand from motorists for reliable service at affordable prices. Nationwide is a high quality business and represents an opportunity for significant growth.”
“We have grown strongly in this market through the provision of expert advice and our ‘wefit’ services, and Halfords Autocentres will complement our retail business closely. Customers trust the Halfords brand and we are sure that a national chain offering great service and MOTs at fair prices will be both popular and successful,” he concluded.