EP23: Greg Shares Some Thoughts On Private Equity And Its Effect On The Automotive Aftermarket

0:00Hey, good afternoon. Greg here, another episode of, uh, Shop Soup here on soup radio.fm. My name is Greg, of course, and owner-operator of Buckley's Auto Care with two locations in Wilmington and in Millsboro. But who cares about that stuff? Hey, I, uh, I had a pretty decent week, and for some reason, um, it all centered around private equity. I think it started off with a post that was shared by, uh, Dutch Silverstein, regarding what has recently happened in the restaurant business.

0:31And it was a pretty big deal. Um, for those of you who might not know, Sysco Services, which supplies thousands of restaurants, more than you can count, more than we probably can count. But we're— I'm almost positive that at some point you have visited a restaurant or you have eaten food delivered by Sysco. And there's not— here to talk about food quality and all that, that can go down the road a little bit, however your preference is.

0:57But what is important is They had recently purchased for $29 billion— that's with a B, billion— acquisition of Restaurant Depot. Now, Restaurant Depot is sort of like your Costco or your BJ's or your wholesale clubs for restaurateurs. And, you know, public-wise, you can get yourself in there too. You know somebody that knows somebody that knows somebody. Okay, no big deal on that.

1:24But the acquisition price of $29 billion is pretty extreme. But the explanation underneath of all that was it wasn't because they want to sell more supplies in a sense, or they're trying to buy another business just to be in that business. They're buying it for the data and the ability to control more of the restaurant business. And, you know, I would like to say that it's the casual dining situation that's there, but it filters down to the small independent restaurants as well.

1:58And I think it was a really great comparison to what we're experiencing here in our aftermarket, amongst others, the HVAC, the electricians, anything with like service and commodity situations. You know, you find something that can be scalable, you extract its value, you take little bits and pieces out of it, you see what the value is there, and then you you take it and you amplify it, right?

2:32So, and let me be clear, I'm not an expert on private equity, you know, and there are groups out there that promote private equity and that will do private equity and owners from all small businesses. Well, maybe not small business, but bigger business, whatever. You know, everybody has the right to, you know, put their hard-earned work and everything they've done and sell out to private equity.

2:59That's, that's not what I'm here to say. And there's groups that will oblige with you with that. You know, if you like, if you like that approach and that's your future, that's your only way out to take in, to extract all of the value that you as an owner have put into it and you have no other plans to do that, or fine, if you've built a business or an enterprise with the intent of building up, building out, and then selling off its business.

3:33American way. Fine. I have no problem with that. I have no problem with how each of the small businesses or anyone else operates their business. To each their own. Your flavor is your flavor. Your taste is your taste. It doesn't matter. All right. What does matter is that I'm starting to recognize where all of these patterns come in from. Now, one of the interviews that I had with a large operation and a gentleman I call a friend exposed me to a gentleman by the name of Adam Coffey.

4:10And Adam Coffey is a serial entrepreneur in terms of private equity, making deals, doing deals. He's got some bona fides and he's a credible individual. And I hopped on a couple of podcasts, uh, outside of our industry with other hosts that I wasn't familiar with and you wouldn't be familiar with. But I listened to a few of things that he's doing, and basically he's coaching people on how to attract private equity, what goes on with the deals, how the exits go, and what to expect as an owner/investor into these operations.

4:52And I will say this again, I am not an expert. I'm giving you what my view is, and there is no right or wrong. There is no ill will or hard feelings to anybody or anything. I am giving you what I see and what I have offered as— or I have done in my time within the industry, what I've seen and witnessed, amongst other things.

5:18Now, I'm going to give you a local scenario here in the Wilmington, Delaware area with a restaurant business that was started by, I believe, two brothers and one partner, all from college. Iron Hill. Iron Hill Brewery. Right. And you can look it up. There's no problem. Just go to ironhillbrewery.com or Google it, whatever. You'll, you'll see where it started. You'll know the history.

5:43So they became very successful locally. They had a great menu. It was a personal favorite of mine and my wife where we would go and have a casual meal, a great beverage. They made their own brew, waterfront dining, hospitality was great. You name it, I really enjoyed them. And then one day last year out— well, let me go back up. The partners, the brothers and the partners, or the, the original core management group, decided to take on private equity in order to grow.

6:27Well, they did, but they grew to a, a point where it just didn't make sense, whereas their hub of activity, they're known, their brand Everything about them, their essence was here locally, maybe within a 25 to 30 mile circumference between Pennsylvania, lower PA, West Chester, Delaware. And they had crept into Rehoboth with very strong operations. So they get into private equity and all of a sudden I think they're in South Carolina, they're in Georgia, one-offs.

7:03Not groups, not like, hey, you know, we're coming to town with 3 or 4 operations within 10 miles of you. They're not— they're not building the brand. It's a one-off. And everybody's going like, well, what are you doing in Georgia? What are you doing? And why are you outside your circles? Well, private equity came in and decided to blow it up. Why?

7:23Because debt is a good thing, I take it, when you're doing private equity. So lo and behold, um, they built the business, 22 locations in, I don't know, 7 or 8 states, uh, and you would think that that's a sign of success, that the owners are, man, they're well off and they're doing everything right, and man, good for them, right? American way.

7:48Well, one day, one day last fall, they closed the door and made the announcement here in Delaware that they were closing up. Clear Blue closed up. Now, they had some pretty prime real estate. The riverfront here in Wilmington, aces. Philadelphia, Center City, aces. West Chester, right in the heart of West Chester University, aces. Great spots, closed. Newark, University of Delaware, college town, kids, foot traffic, you name it.

8:18Well, what happened was they were going bankrupt. Because of the debt. And just to make a story short, they had 22 locations. They— and at the end, when they went to bankruptcy, of course, that's the exit strategy, to go to bankrupt, put the debt into something else and let that go. And boom, you know, uh, there you have it. Um, they— 22 locations, millions in dollars of revenue, but only less than $200,000 in the bank to pay the vendors, right?

8:50Pay the vendors off. And that is something that I couldn't grapple with. I just said, man, how do you not pay your debt? But again, when I'm listening to Mr. Coffee and how he explains that it's good to have debt, it means that you're growing and you want to grow. Well, yeah, you want to grow, that's fine. But You got to pay the piper at some point.

9:17And who pays the piper? I don't know. I don't think anybody has given me that answer, or I don't know if they have or I understood it. One or the other. You know, the way that I look at it is that somehow, some way, the debt's going to be paid. I know it's a tactic. Bankruptcy is a strategy that is used quite often.

9:41Um, you know, you— it's a negotiating tool basically to the vendors, and they either take it if it's allowed, they take it or leave it, but at least they get something back. It might be a 20% cut, 30%, sometimes 50, sometimes 75. Anyway, you can get some of your money back, you're gonna, you're gonna want to take what you get, right? So in the case of Iron Hill, just recently, like I think last week, um, the former owner of Iron Hill is going to assume possession of 3 to 5 of the locations and reopen it, right?

10:23Whole new deal. And I thought, well, does that start the circle all over again? The process of, all right, you've got a company worth nothing You buy the debt. I suppose you're going to take on the debt at a discount, and then you open the doors again under a completely different structure. It just seems to me that if you're an entrepreneur and you want some sort of, um, legacy towards your name, or do you, do you want to be known as, you know, someone who's been through bankruptcy millions of times?

11:00Hundreds of times. Is that the way that— is that the honorable way? I know it's— I know that it is, uh, one of those things where, um, I learned it a long time ago with oil companies. Dealing with them is— was just, uh, you learned a lot. You, you took a beating, but you learned a lot. And one of their favorite sayings was, well, it doesn't have to be fair, it just has to be legal.

11:23And that wraps everything up, right? I mean, that is it in a nutshell. But to continue. And I really got to think about where did all this start. Now, Mr. Coffey referenced that he was a member of the Jack Welch GE, uh, times back when Jack Welch was, you know, the, the, the king of kings, I guess, in, in corporate world. Um, but was Jack King the beginning of what we're experiencing today.

11:57And I think you really need to go back and look at that and analyze whether Jack Welch's practices— now remember, Jack Welch would fire 10% of his workforce, the bottom 10%, every year and bring fresh people in or make people earn it. And that management style, look, I couldn't be part of it because I would tell you to fuck off. Excuse my language, but that would piss me off that, you know, if you go in knowing that you're going to get cut, it's like going into an execution, I would think.

12:27And I don't think that went well for the people who got cut that tried their darndest. And okay, so you don't make it. I get why you don't— you wouldn't make it. I'm— I, you know, there's so many reasons out there that someone just couldn't cut the mustard, you know what I mean? I mean, so okay, I get it. But that style, the people that would argue against Welch's style have a point, and I experienced this, is that his management style kind of led to what we see today in our parts quality.

13:07And let me go on with this, and right or wrong, this is an observation again for me, but I want you to kind of understand where I'm coming from. So in 2010, one of my first speaking engagements was in Chicago, and by an invite of an industry gentleman, um, who was part of GAS, and that was, uh, suppliers and manufacturers, uh, that would get together yearly and talk about the parts business, you know, manufacturing, all this.

13:46So I'm in there and I am green as can be. Never have been to a conference in my life, in my professional life like this. And I'm on stage. I'm with the former and the founder of RepairPal, and we're on stage. And I'm looking around, but I get off stage and we're hearing this buzzword called BCC, best cost country. And I said, what the hell is BCC?

14:16So I literally, I asked somebody, so what does that mean? Well, best cost country is where they determined that the cheapest labor could be found to create, to manufacture the parts. And in that era, 2010, you had up-and-coming Southeast Asia, you had China. You had India, you had all of the BRICS that were hungry for manufacturing. And of course, manufacturers were willing and able to, hey, look, man, I'll offshore all my labor because it's cheap.

14:46Don't build it here in America where it's expensive. Let's go overseas. And there was such a gold rush to build any kind of manufacturing plant in these countries, Colombia, Vietnam, uh, North— South Korea, of course China, you know, you had all of that. And of course it followed suit, like, okay, if I had a 3-year run of manufacturing parts, labor is naturally going to want to increase, right?

15:19People are going to want increases in their labor rates or their, uh, their wages and so forth. And then it gets to a point where it's too expensive and these companies literally just get up and leave. And go to the next hotspot. And of course, I believe that is probably still the way today, and manufacturers are looking for, hey, can I offshore?

15:40But recently, and I think thankfully, we're starting to see more manufacturing come back to our shores. But going back to a couple of things, and if you look at what China, China is even doing, is that they're— they are um, uh, purposely, uh, creating— or yeah, they're purposely creating a, a environment of, um, they're destroying economies in their own country, in their different regions.

16:11Like, uh, instead of the mainland where all of the manufacturing did take place, they completely took it out of there. That part of the country went into depression, and at the same time, the main— the, the, uh, the shoreline, the mainland— not Mainland, the shore became— the coastal areas became the primary spot for manufacturing, right? You had manufacturing, you had export opportunities right there.

16:36Well, when that labor started getting too high, they moved it back to mainland because that was a depressed area that they forced to be depressed, and now they want to bring it back up again. And that is manipulating their own people, their own country, and everything like that. I mean, it seems totally ridiculous, but again, go back to the statement: doesn't have to be fair, it just has to illegal.

17:00And in countries such as third world countries, or let's say China, do you really think they care about their labor? No, they, you know, they're going to subsidize them in any way. If, if they feed them a meal a day and pay them pennies a day, that's all they need to do, right? So you have this manufactured economy Believe me, you're almost hearing random thoughts in a sense, but when I look at it, where does it stop and what does it do?

17:37Well, that all filters down. BCC, best cost country, I believe is a derivative of the Jack Welch way of managing people. I don't think that's good. Right now we have everybody in our industry seeming, seemingly wanting to butt heads with one another, to fight one another. And that's not the way that it had been. And I clearly remember that we had people, we had people who wanted to be at work with us.

18:09We had, we didn't have the strife between us. We, we didn't have an us versus them type of mentality. And now we do. And it's more common than ever, which I find terrible. I, I can't, I can't tell you how many times I complain about why does it have to be us versus them? Why isn't it we have an understanding that the motorists, the people who pay all of our bills from the vendor to the technician and everybody in between, they are the ones that 100% of our focus should be on.

18:42And everybody, I mean everybody, should be willing and able and, and conscious of that premise and do everything they can in order to secure that relationship with the client. There's no other way that you survive without respecting the consumer. And yes, I say it all the time, we have to be better at relationships in our business, in our industry. We have to be more transparent.

19:18Most importantly, we have to be confident of who we are. We have to be proud of who we are, and we have to understand where our value is in the entire economy. And, and if we look at who we are, what we do, and the value that we bring— not just the value that we bring, but what type of economy rides on our skill sets, right?

19:50If it, if it can't move, people don't go anywhere, goods don't go anywhere. Somewhere along the line, transportation, which we are part of, you know, it has to move. It's like anything else, you know, uh, if it needs to be transported, people included, It's going to take someone of our skill set in order to make that happen. But going back to private equity, uh, you know, I'm trying to be— I, I'm not stepping around those that will do it, those that won't do it.

20:25Again, I say this, man, you are your own situation, you know, you do you, it doesn't matter. But the after effects I clearly start to see that at some point there may be a— not an abuse, no way, I'm not saying that— but there'll be cuts and there'll be people put on the wayside. Uh, there'll be a lot of road debris, let's put it that way, as I see it.

20:52And that cycle of let's build it, let's sell it, let's destroy it, let's build it again, constantly revolving door of debt and building up, tearing down, building up. And I can tell you that coming from Delaware, we've seen many corporations— I mean, this is corporate capital of the world for now. And so we've seen the DuPonts, we've seen their spinoffs, Insight, you name it.

21:18We see Corporation GM, you know, Amazon coming in, all of these companies. And DuPont is really one of the bigger ones. When a shareholder activist gets involved with the board and says, hey, I can make you— I can make you shareholders richer and we can do this. Let's tear this company apart. Let's take every one of the values, start a company here, start a company there.

21:47And before you know it, hey, we've got— we've got beaucoup bucks. Carl Icahn with— it's trying to create a vertical a vertical economy with auto— is it Auto Care or AutoZone? Pep Boys, Carlyle, all those, I think it was. Anyway, that failed. DuPont here in Delaware is still trying to come up with things. And what they did was they took one of their companies and they placed all the debt and all the environmental injuries that they were dealing with and they put it into the bucket of their newfound company.

22:28Um, the name escapes me for a moment. I'll think of it in a little bit. But that became the debt holder. And again, I'm going off of a lot of history and memory, but the biggest thing that I can tell you for a fact is being in Chicago that, that day, um, at that conference, that it lit me up. It, it made me realize that what was coming and what is here now.

22:54And I go back to that as being the starting point for me anyway, of completely understanding what took place. And when the story is— this is not a story, it's fact. Prior to going on stage the day before, I was with the former CEO, the founder of RepairPal, David Sturtz. And I'm sure it's so long ago, and David and I will, you know, we've shared laughs over it because it was just so funny.

23:26But again, I remember him turning around. We were actually practicing for the stage, practicing to be on the next day. Well, he calls me up. We were supposed to meet at like 6:00, go over our scripts, our talking points, everything like that. And this was the time when internet was coming on, internet purchasing, very, very rudimentary. Type levels. But again, it was coming.

23:51We knew it, the manufacturers knew it, all that. So David and I said, well, let's get together, let's go over our talking points, have dinner, maybe a beer. So he calls me up and he goes, hey, I was just shitcanned. And I go, what? I said, you're a founder. I didn't get— again, me being a novice, being green, I'm like, what the hell are you talking about?

24:11Yeah, the board just let me go. And I saw I go, well, I go, damn dirty mfers, you know, like saying, what the hell? But thankfully I had the experience of oil companies, and I said to myself, hey man, that's exactly the way it goes with these guys. They don't mess around and they don't care. I mean, it's just like, you're out, done, finished.

24:37And I thought that was something that where if That was one of the things that I will never, ever, ever forget. I know David won't either, because it's a hell of a story. But here he was. He was just starting RepairPal, not into what it is today. But when he had it, it was more or less a referral network. Very simple. The startup on RepairPal was basically him and a few friends couldn't find service the way they like it.

25:05A couple of bad experiences. Hey, let's do something about it. They created this RepairPal thing, went on down the line, and it grew from there. And once he got out, it went to every Tom, Dick, and Harry out there and blew up. And it is what it is today. I think Yelp just bought it. But it was funny to have that happen.

25:28And again, it was a shame. But David and I went on with the show. David was a true professional. I give him credit because he was up there. I probably would have walked off and gave the finger to everybody, you know, like, you know, screw you guys. But he didn't. He carried on like a pro and the show went well. But it was something that I would never forget.

25:46And from that point on, it made me realize and rationalize exactly where our industry is going. And thankfully, with our skill set, you know, we get through a lot. You can't imagine how much turbulence that goes on above our head And yet we still survive. We do the things we do to make our industry, our businesses survive whatever comes our way. And that is the attraction to what PE is doing.

26:24If I had to get— if I had to look at it, will it destroy our industry? In the long run. And again, I'm not saying that it will or it won't, but if we look at the other industries that it has attached itself to, where do we go? What are we to expect? There's never been a company, to my knowledge, that has completely been able to round up every type of operation within our profession that I know of.

27:08I had a conversation and just recently with cats. Who knows how to herd cats, right? One of the most independent creatures on earth. Is the house cat. Dangerous, has all the tools, they know it, they don't care. They, they've got the claws, they've got the quickness, they, they can bite, they can do it. They are like an A-type predator. They don't care.

27:38How do you herd them? It's difficult. I got practice, trust me. My stories will tell you. But in the world of automotive, how do you heard all of the types of businesses that we operate, right? The independent side, the, the two-bay, the one-bay, uh, the business that— the, the, the operation that's, uh, ethically grounded. Let's say that, you know, there, there's, uh, there's an Asian, uh, market, there's a Latino market, there's a, you know, a Black market.

28:15All of that How do you round all that up and yet make it the same so that culturally it resonates with the client base? That's what I'm getting at. It's not a matter of race or ethnicity. It's a matter of relating to the culture that that operation is in, because we all see it, you know. I mean, let's face it, you can have a 2-bay that doesn't look like the models that we would envision But yet they're a strong operator.

28:45They care about their community. They care about the people. I just think that is very difficult, but it's not impossible. And at some point, what goes away? Our independence? I think that would crush the way that we've grown our industry and what we've done to preserve it. But again, I hold no ill will towards private equity if the owners— and it's a great situation for those that are involved and it's a perfect exit strategy— or if you are a quality group.

29:26And I know that there are operators who may be listening in or watching that are part of large, very large groups that go and buy and round up these operations. I'm not here to tell you that you're going to destroy us or destroy the industry. What I'm saying is that the long-term effects from what we've learned in the past, how are they being filtered through the industry?

29:54And it comes down to the people. Like, how are we really managing the people? How are we caring for the people? You know, we have this us versus them, and I really— and I hate it. I really hate it. I hate even thinking about the division that we've sowed into our industry. It doesn't need to be that way. There has to be a better understanding, a better method of how we work together.

30:23But in general, society is not our friend when we're trying to build these intercompany relationships. And that's a whole nother level to go to. So the week was spent with PE, and I'm not done yet. You know, I think my first mark with Adam Coffey, learning more about him, learning more about what PE does— and I'm sure someone out there is probably much more knowledgeable and has been through some deals and can counter or talk about what I've done.

30:58I'm not here to say right or wrong or anything. I'm just giving you my personal observation. I get everything about it. I get— I, I understand it, and I hold no ill will. I, I mean, look, uh, I talk to everybody. I want to talk to everybody. I need to learn about everything, and so should you. You should be out there learning about what goes on, from the technician to the service advisor to the owner.

31:22You all need— everybody needs to understand what business is all about in order to improve upon it. And it starts by just looking outside of your lenses. Now put on a different set of glasses, man, and get out there and look at what's happening in the marketplace. All right. You should be able to see and understand and really kind of look at where your futures are going to be.

31:50Everybody, that's called a SWOT. And I say a personal SWOT. You got to look at everything, you know, so Yeah, I just needed to get on today and, and talk about what's happening because it really did come to light. I mean, let's put it this way, the puzzle— more pieces got put together in the puzzle for me. All right, I got to understand.

32:12And then going back on my experience in history, now I start to see things a little bit clearer. And what I always thought was going on actually is going on. You know, the manufacturing base, the way that it has been distributed and cut up. And you know how, you know, we, we look at, we look at the quality of the parts that we have now.

32:32My God, you know. But again, the, the expense of the deal has to be brought home at some point by some way. And you can have all of the efficiencies in the world, but what happens when you're 100% efficient? And you still owe debt. Where does it come from? Higher prices, less labor, more work for the people that you have with you.

33:02There's only so many ways that you can profit or you can bring profit in, and there's so many times, so much time that you have. So it might be, you know, PE could be, like I said, it could be helpful to those who want to exit their own businesses. And as a lot of operators operators get older and they may not have family.

33:27Here's another thing, they might not have family because they've told their family, don't get in my business, my industry sucks, my trade sucks. From the technicians that I hear, no, I don't want my kid being a technician, it sucks. To an owner, you don't want my business, it sucks. Well, how can it suck if, you know, how can it suck? If you're making money at it and you have something that you're passionate about and you love and you want to continue to do it.

33:56I don't know. I'm fortunate that I wasn't brought up that way. I was— I'm fortunate that I've never had that attitude. I'm fortunate that I believe in our industry 1,000,000%. And I don't care what level you're at. I don't care if you have 10 million locations and you are next to God. In terms of revenue and money and all that, and you have everything.

34:22I don't care. I never cared about what you are or what you have. I care about who you are, and I care about what our industry is all about. I grew up in an era of giving, being part of everything, enjoying my career, my job. And then when it became my business, I cared even more and still do. And I know that a lot of you out there do as well.

34:53So I don't know what to recommend except learn, understand, communicate, enjoy the ride, but be proud of who you are, what you do, why you are. And take that to work every day. And when you're ready to expand, consider all the options. Look at what is doing. Get out there and be part of your community. I, you know, I could go on and on, but the biggest thing is, is keep our, keep our profession in your heart.

35:34You know, I don't know how else to say it. I love what we do, and I'm sure you do too. But is it harder? Yeah, it's harder. But Christ, what isn't harder these days? And especially as you get older. I mean, Jesus, it's just like anything else, you know. There's good days and bad days, right? You know it. So I don't know why we try to hide it from one another, you know.

35:58Days that are great, days that suck. But overall, when you wake up in the morning, don't you feel— I mean, for me, I feel proud of I have a business. I have something tangible. I have something to go to every day. Every day. It's my responsibility that I have for others as well. I have a place for them to go to, you know, my, my, my team.

36:22Yeah. Anyway, long, a long kind of rant, kind of story, kind of everything else on, uh, ShopSoup today. So I appreciate you hanging in there, listening to me ranting and raving and doing all that stuff. It's not really a rant. I, uh, I just had to get it out there because I— it was, it was a good week. It was, it was a week, a week of learning again, as I say, and then going back and looking and reflecting.

36:45And, um, I don't know, we still got a long way to go, guys. We've got technology, we've got skill sets, we've got brains. Um, we're, we're the package. We are the package. The people in this industry, they're great, they're fantastic, every one of you. You're fantastic. You're amazing. You don't really— I don't know if you understand just how freaking good you are.

37:11And we need to tell people, uh, more about us, whether we do it or not. We should do it because when we let other people do it, might not come out the same way. But we need to be more of a voice to our public and our motorists. And, and I'm sure that's going to come out to increase— to let them know of our value.

37:29All right. So, all right. Well, hey, I'm out. Appreciate everything. Tune in Shop Soup, download the podcast, subscribe if you want. Also, you can go to soup radio dot FM. We have great tunes, great music. I stack it up with some really deep dives, deep cuts, rock, funk. I got it all. I'm diverse when it comes to music. Anyway, have a great day.

37:53We'll talk to you on the next episode at Shop Soup. Greg here signing off. Peace.