In the six years since Automobile Protection Corp.’s management team and Stone Point Capital came together to buy APCO back from Ford Motor Co., APCO has been searching for the right acquisition to complement its business.
It found that ideal partner in GWC Warranty Corp., says Larry Dorfman, the chairman and chief executive officer of APCO/EasyCare.
Dorfman talked with Auto Remarketing earlier this week about the deal that brought GWC — a company that serves as a marketer, administrator and underwriter of vehicle service contracts sold primarily via independent dealers — under
the same holding company as APCO.
He touched on what his company was looking for in an acquisition and why GWC fit the bill, the benefits to dealers in this purchase and more.
But first, the basics.
Earlier this year, Stone Point Capital, a global private equity firm based in Connecticut, announced a purchase of GWC and certain affiliated entities from CIVC Partners.
Trident IV L.P. — a private-equity fund managed by Stone Point Capital — and GWC’s management team came together to buy GWC, which is headquartered in Wilkes-Barre, Pa.
Per the deal, GWC is held under the same holding company as APCO, which is also in the Trident IV portfolio. APCO markets and administrates service contracts and related benefits sold through franchised dealers. It also is the administrator of the CarMark Certified Pre-Owned program, owned by Auto Remarketing's affiliated company, POADA.
(EasyCare is an APCO brand).
So why GWC? How does it complement what APCO offers?
“The companies are pretty distinctively different, although in the same genre of business. Their critical focus point is on extended service contracts and GAP in the independent marketplace, and they do business with about 3,000 independent dealers,” he said of GWC.
“They do some business with franchised dealers, and what they look for in a franchised dealer opportunity is higher-mileage cars,” Dorfman added, referring to vehicles with more than 80,000 miles and upwards of 90,000 to 100,000 miles.
“And their expertise is in managing those types of service contracts. They really do have all levels of coverage, but most of what they get sold or purchased from them are those contracts on those high-mileage cars or at the independent lots,” he continued. “EasyCare focuses 99.9 percent on the franchised dealer. We do business with about 1,800 franchised dealers. We not only do extended service contracts and GAP, but key coverage, dent repair, significant training and development in the dealerships we deal with.”
(GWC, he said, does some training, but its primary focus is elsewhere.)
“We do service marketing and CRM for the service department. At EasyCare, we touch every part of a franchised dealer, all six profit centers. At GWC, we basically stick straight to the service contracts, GAP, and delivering outstanding service on those products for just a little different dealer.”
Going back to the search for the right acquisition and how the deal came together, Dorfman mentioned they were “looking for the right group that would not be a channel conflict with our independent agents who service 70 to 75 percent of our EasyCare business.”
He added: “Almost any other acquisition that has been up on the market or available, even quietly, have been with other agency bases … so, other independent agent bases. There you have geographic channel conflict, which can be very, very interesting and difficult to manage. So, we’d look at one company or another and we kept passing.”
Once GWC came along, they knew this kind of conflict wasn’t going to be an issue.
“They’re a very well organized company with outstanding executives. And we took a look at the whole thing and said, ‘Wow. I think we have like nine dealers that cross over.’”
Per GWC’s model, Dorfman explained, they only do business with “a few agents who bring them in for the high-mileage cars at their franchise dealers,” none of which Dorfman says he can recall being EasyCare agents. He emphasized that “most of (GWC’s) business is driven by an employee-based group.”
“So, we have the ability to work together to avoid any conflicts whatsoever in a dealership. Right now, there’s a dealership group where some of what they do really fits better for the high-mileage stuff. We do a lot of high-mileage business with EasyCare, but the particular type of business this dealer is doing — really, lower dollars, between $4,000 and $8000 cars — fits really well for them.
“When we see those opportunities, we’re going to pass them on to GWC, get their guys involved. They’ve got a set a dealers — probably two dozen dealers at this point and intend to grow it — where they’re doing business with the high-end mileage (units) and the franchised dealer and are going to introduce us to handle to core business, to set up the re-insurance opportunity, and so forth, for those dealers,” he added.
“So, we see some synergies and some crossover, but we really two companies who have excellent growth histories and strategies, and we see the two of them being able to be combined and move forward, literally making the company almost twice as big.”
Right now, Dorfman said, the companies are getting to know each other and figuring out where they can grow together.
Ultimately, synergies may come sometime in the next year or so.
When asked the biggest advantage of this deal for dealers, Dorfman had this to say: “The advantage to the dealer, and the advantage to the consumer, is really just scope. We become significantly more national … you take additional spread of the market.”
He also touched on the financial health the companies bring.
“From a national perspective, it always helps to be a bigger stronger organization. GWC has a great reputation for really delivering to the dealers and they are very profitable. EasyCare has the same reputation. You put two companies together like that and you get a much larger base to work from,” Dorfman said. “And it really puts, within APCO Holdings, the ability to do business with any dealer in America.
“There’s no reason why we can’t not only continue to grow separately, but to look for the opportunities together, where we can do business with almost everyone. If I’m a dealer, I want to know that the company I’m doing business with is very healthy and stable, and financially well.”