H2’s SATOR SALE THE UA WAY

When H2 Equity Partners bought a controlling 50.1% share in Unipart Automotive (UA) in September 2011, CAT asked whether the private equity firm could be trusted with one of the grand dames of the UK aftermarket.

Unipart’s John Neill said it could, but now H2 has sold a vaunted partner of the deal, Sator, to one of UA’s key UK rivals, Euro Car Parts.

Has it not pulled the rug from under the feet of UA? Is this not proof that private equity firms can’t be relied on? UA Marketing Director Andrew Jeffrey says that isn’t the case.

“You can trust them to do what is right for their fundholders and shareholders – they will always seek to maximise value.

“One of the ways they wanted to do that was exploit synergies between Sator and UA. H2 took their stake in 2009 and they have, over four years, driven value improvements.

“H2’s view, and I agree with them, is that they realised all of the value of the synergies on the table.”

Has H2 hurt UA?

Good news for H2, then, but won’t losing Sator harm UA? Doesn’t a key UK rival like ECP securing the benefits of working with the group undermine the UA business in which H2 still does have a financial interest?

“One thing they certainly wouldn’t have done was damaged or impaired their investment in UA to make a quick buck.” He says the bulk of the benefits of working with Sator had been realised.

“We’ve had 18 months since the acquisition in which we’ve been doing just that. Look at the product launches that we’ve made over the last few months.

“Could we have done that without Sator’s help? No, we couldn’t. The question, though, is how many more synergies could we have realised and the answer is relatively few. We think we’ve squeezed all of the juice out of it.”

Jeffrey says Sator helped UA secure deals with LUK, SKF and, most recently Bosch, but adds this isn’t all of the development.

“There’s a hell of a lot that’s gone on in the last 18 months, and those brands are just the tip of the iceberg. We’ve also invested in our hubs and put a lot of stock in the business.”

Today was spent, he says, with colleagues from H2 discussing how to develop Unipart Automotive through the second quarter and into the second half of the year.

“We’re a completely separate business from Sator. We talked about it as a minor ‘it’s of interest and I expect there’ll be some interest in the market’, but it’s in the background so let’s now get on with UA.”

Not spooked

“It really hurts when suppliers get nervous, but we’ve got suppliers queuing up to put stock into us on proper commercial terms. They don’t commit if they feel there’s a risk there. They’ve come here, they’ve had a good look and they’ve chosen to partner with us. As long as they’re not spooked, I’m not spooked.”

There has been no more financial injection from H2 since the acquisition of the stake, but Jeffrey says that tens of millions has been put into the business with improvements such as the 18 hubs, which now deliver same day to branches rather than overnight as before, and stock.

What about losing the added buying power of Sator? And what’s happening with Nipparts?

“If you look across Europe you’ll find that Holland is a relatively high price market and the UK is a relatively low price market.

“When you’re talking about the branded suppliers, they all run their business on a European level on a country-by-country level.

“Cross-border negotiations, if anything, slow you down. I’m not saying there weren’t benefits to be realised, but it was a bit of a double-edged sword sometimes.”

There is also a contract to supply Nipparts, even now it’s within ECP/LKQ, and it extends beyond a year.

ECP/LKQ to buy UA next week – ‘official’

Even so, there are those in the market that feel H2 will soon sell UA, perhaps to ECP/LKQ. Some think the deal is already done, but this isn’t the case says Jeffrey, and it’s not about to be either.

“I’ve heard that rumour as well. certain suppliers have called me and said ‘I hear Sukhpal’s bought you’, but he hasn’t turned up in Bicester yet. I haven’t seen him.

“If you look at the journey we’re on with H2, there is a lot of value left to realise for our shareholders.

“It’s not just us. I hear rumours about Page and about HG – I’ve heard every day since Easter that it’s definitively happening the next day.

“Occasionally someone with real knowledge will let something slip, but I will buy you dinner any place you like if this turns out to be true. I wouldn’t hold your breath.”

It wouldn’t be McDonalds…

Would UA buy back H2’s 50.1%?

The other shareholder in UA, with 49.9%, is the Unipart Group. Would Jeffrey like to buy either of them out?

“No. I’m very happy with both shareholders. We get benefits from being with H2, which is around independence and direction, and we get benefits from having Unipart as a minority shareholder which is all about heritage and the brand and we still rely on them for some of our services.”

How much did UA make/lose last year?

Finally, Unipart Automotive has never had to reveal turnover and profit/loss figures. Companies in every business sector under the sun could probably earn a shirt full of Scouts’ badges for creative accounting, but not having any UA numbers to go on feeds the rumour fire like ethanol.

The most regular figures heard in the CAT office are that from a turnover of £170 million last year Unipart Automotive made a loss of £7 million.

“It’s not accurate. What I can tell you is that we are doing better than that as a new standalone business. We’ve transformed aspects of our performance.

“Our turnover is a bit better than that and our profitability is quite a bit better than that.”

Does that mean the UA business is in the black?

“It depends what over which timeframe you do it. This was a loss making business when it was acquired, so you don’t change that overnight, but we are there or thereabouts.”