20 Years Ago

Twenty years ago today the United States subsidiary of Belron International Ltd. (Belron) operating under the trade name of Windshields America (WA) merged with Joe Kellman’s U.S. Auto Glass (USAG)/Globe Glass & Mirror (GG&M) companies to form a company named Vistar. The second and third largest automotive glass repair and replacement (AGRR) businesses merged on February 26, 1996. If memory serves me WA had 274 stores in 43 states and the retail arm of Kellman’s two companies, GG&M had approximately 200+ locations in maybe 20+ states. USAG was the network call center arm of the business covering all 50 states. The merger provided Belron with a majority shareholding in Vistar, but management control fell to USAG/GGA. WA had annualized sales at the time of approximately $ 225,000,000+ and USAG/GG&A had annualized sales were approximately $ 200,000,000+ so as one sales totaled $ 425,000,000+ with approximately 500 store locations.

At the same time Safelite Auto Glass (SAG) was the largest AGRR company in the United States both in the number of stores and total sales. SAG had well over 500 stores and sales of approximately $ 500,000,000+. So if you had been able to combine the largest AGRR company together with the second and third largest AGRR company’s sales would have been over approximately $ 925,000,000 in 1996. A very tidy sum by anyone’s measure. The race was on two determine who could become the true market leader in the United States AGRR industry.

Lo and behold just two and one half years later on December 17, 1997 the shareholders of Vistar and SAG decided that they could achieve their market goals better together than apart so they agreed to merge. SAG at the time was owned by the Boston based private equity firm Thomas H. Lee Partners. When the merger took place Belron received the largest shareholding followed by Thomas H. Lee Partners and Joe Kellman. After the merger Vistar was absorbed by SAG with SAG and Thomas H. Lee Partners holding management control.

As you would expect, when in just 1 year 9 months 21 days the three leading companies in any industry merge, attempting to bring together three distinctly different cultures would be a big challenge. Especially when the largest and smallest shareholders of the new SAG didn’t have management control even though they had considerably more experience in operating AGRR companies than the shareholder with control. I’m not going to delve deeply into what happened next, but the newly formed company lasted just 2 years 5 months 23 days before heading into bankruptcy via a Security and Exchange Commission filing on June 9, 2000. As reported at the time a SAG spokesperson said,

“In papers filed in U.S. Bankruptcy Court in Wilmington, Delaware Friday, Safelite, based in Columbus, Ohio — with 500 U.S. locations — listed $ 559.2 million in assets and $ 591.4 million in debts. A spokeswoman for closely held Safelite, Dee Uttermohlen, said the Chapter 11 filing was related to a debt-load from an acquisition three years ago–but added that the company has been renegotiating debt with creditors.”1

So with that bit of historical background of the two mergers that took place in 1996 and 1997, along with the fallout from those mergers with the subsequent bankruptcy in 2000; I read with interest the 2015 financial results released by Belgium based D’Iteren n.v., majority shareholder of Belron International (and its subsidiary SAG). SAG’s 2015 sales, as per a SAG press release from February 3, 2016 (follow link), are $ 1,500,000,000 ($ 1.5 BILLION). That certainly sounds like a lot of sales doesn’t it?

Looking back to the total sales of WA plus USAG/GGA plus SAG in 1996 ($ 925,000,000+) and reading the sales that was reported today for SAG (remembering that the company now comprises WA, USAG/GGA and SAG) I found it surprising. Very surprising. DollarTimes.com calculates the value of a dollar in one year and adds the cost of inflation to determine that value to today’s dollar. Using the DollarTimes calculator you will find that $ 1.00 in 1996 would equate to a value of $ 1.54 today. The site shows an annual inflation of 2.18% or a total inflation of 54.09% over the past 20 years. When you calculate the 1996 value of $ 925,000,000, today’s value is worth $ 1,425,313,518. So when you look at SAG’s reported 2015 sales against the 1996 sales you see a real growth of 5.24%.

 

There has certainly been a lot that has happened in the AGRR industry in the United States over the past 20 years. While SAG has faced a number of challenges over the past 20 years they have always come out somewhat unscathed. Bankruptcy, legislative issues, what have you they seem to always come out on top. But in real dollar growth they’ve seen a 5.24% increase in sales. Seems small doesn’t it?

But arguably there is a problem if you only look at the growth in sales dollars over the past 20 years. Sales figures really don’t take into consideration calculating the effect of the large increase in windshield repairs that existed in 1996 versus today. Nor does it take into consideration the price compression that was wrought on the industry in the late 1990’s and early 2000’s by the insurance industry. Determining what those two factors have in the calculation of real sales growth is difficult as it requires you to look at both the industry’s and SAG’s 1996 mix of products sales and customer versus that mix today. SAG and Belron unquestionably know what those factors mean to the performance of the company, but I’ll leave that for speculation and debate by you.

In my looking back over the past 20 years I’m taking a positive spin as you can see that today there are competitors both old and new that are busy chasing SAG. Be they local, statewide, regional or national competitors; there are countless companies working hard to take on SAG and its position in the AGRR space. There are AGRR retailers, alliances, networks, collision and glass companies, internet platforms chasing after consumers, insurers and commercial customers alike that need the services that the AGRR industry provides. Competition abounds and although it is always difficult to take the throne from the market leader, you’ve got to continue to try at the local, statewide, regional or national level if you want your company to find success in the industry with you’ve chosen to compete.

So when you look back 20 years ago to today at the AGRR industry and at what the landscape was like then versus what it is like today, what comes to my mind is a joke about a pony attributed to President Ronald Reagan.

“Worried that their son was too optimistic, the parents of a little boy took him to a psychiatrist. Trying to dampen the boy’s spirits, the psychiatrist showed him into a room piled high with nothing but horse manure. Yet instead of displaying distaste, the little boy clambered to the top of the pile, dropped to all fours, and began digging. ‘What do you think you’re doing?’ the psychiatrist asked. ‘With all this manure,’ the little boy replied, beaming, ‘there must be a pony in here somewhere.'”

I admit that I’m an eternal optimistic and I always see the pony in the room, but I think that opportunities abound for those who want to take on any leader in any industry. Never give up. Never.
Just sayin’.

 

1. Desert News article titled “Safelite Glass files for bankruptcy after listing $591 million in debts”

2. http://www.tomfishburne.com / http://www.marketcartoonist.com