Independently Sponsored: HTR Capital

Tony Hill

Hi David, thank you for speaking with us today. You may or may not know it, but this is an auspicious interview for us, for two reasons: to begin with, this is the first time we’re interviewing an independent sponsor with whom we’ve already partnered on a deal. Second, of the many independent sponsors we’re currently working with, you’re the first one we’ve successfully exited a business with. Can I take a moment to congratulate you on the Oil Changers sale? I understand it was a terrific outcome.

David Hobbs 

Thank you. It was a tremendous experience and outcome. We were able to nearly triple the EBITDA of the company in three years. Critical to the group’s success was the seamless partnership between management, Trivest and Brick Investment Partners. Chris Thorpe and I ran Brick prior to my founding of HTR Capital this year.

TH

That’s great to hear. I know the partners are not only thrilled about the outcome but also the experience of working with you guys. You set a high bar for other independent sponsors.

Now, before we get to Oil Changers, let’s get something out of the way. When you joined forces with Trivest, you were a Managing Partner at Brick Investment Partners. Not long after exiting Oil Changers, though, you launched HTR Capital. What was the impetus behind launching a new firm and what’s HTR’s investment strategy?

DH

I think it is natural to reflect after a successful liquidity event. I wanted the flexibility that comes with establishing your own firm. It is an opportunity to create an investment firm that reflects the experiences and influences I have had over my career. Our investment strategy is to be a generalist but hone down on verticals where we think there is an asymmetric risk/return opportunity. Furthermore, we want to be as creative as possible in working with business owners. They want a great price for their business, but they are also looking to solve a problem or achieve a goal. Keeping that in mind is important.

TH

I could not agree more. So, let’s go back to the beginning. What was the backstory and investment thesis on Oil Changers?

DH

Chris and I encountered the typical investment issues found in the lower middle market such as customer concentration and owners holding key relationships. Also, we felt at the time valuations were going to be more favorable in areas deemed as boring but with strong fundamentals. We saw the quick lube space as not attracting significant attention but with excellent fundamentals of high free cash flow conversion, recession resistance and add-on opportunities available at significant discounts to the multiple of the platform. The owner of Oil Changers desired a narrow process and we had a pre-existing relationship with the business broker. We had signed an LOI previously in the quick lube space that was represented by the broker of Oil Changers. It fell through due to issues at the franchisor. We were a bit lucky as Oil Changers was a larger platform than the other business.

TH

Tell me, what were you looking for in a capital provider and how did you wind up working with Trivest Partners? Was there anything in particular that stood out or, alternatively, was the decision simply an economic one?

DH

First and foremost, Chris and I wanted a partner that truly valued an independent sponsor. We wanted a true partnership. From beginning to end, it was a collaborative relationship. Additionally, the process was very challenging and demanded a partner that understood the industry and, of course, the ability to close was paramount. Trivest distinguished themselves by moving promptly, doing quick diligence and having the willingness to close with all equity. I’m not sure we would have closed the deal with any other capital provider. Visiting Miami does not hurt, nor the fact that Trivest post-it notes adorn my desk and computer.

TH

LOL! I’ll tell you what—those post-it notes are our secret weapon for world domination. So, how did you formulate Oil Changers’ growth strategy, and was it predominantly organic, inorganic, or both?

DH

Our strategy was always weighted toward inorganic growth. The stores were all located in California. That provided a higher barrier to entry than normal but also made opening new locations more time consuming. Eric Frankenberger and his team were such good operators that we had outsized car count growth from acquired locations. We thus further increased our focus on acquisitions and improving the operations of those stores.

However, not to be overlooked was our organic investment in refreshing every store in the system. The willingness to sacrifice immediate EBITDA for the sake of improving the business long-term was a key factor for buyers in the exit process. Trivest understood and agreed with my partner and I to play the long game.

TH

I love that. Too often, we hear the opposite, right? Capital providers acting penny-wise, pound-foolish. I’m glad, though not overly surprised, to hear we took the long view.

What can you tell me about the partnership post-close? For example, who worked on the deal from Trivest and how was portco management divvied up among the broader team? Were their clearly delineated roles and responsibilities or was everyone sharing the load? Also, did you encounter any growing pains or bumps along the road, or was the relationship fairly even-keeled?

DH

Forest Wester and Steve Reynolds worked on the deal from beginning to end. My partner and I led the acquisition origination effort and were the day-to-day contact with management for the most part. This goes back to my earlier comment: Trivest treated us as an equal partner. Forest and Steve focused the team on implementing the Path to 3x, added their strategic wisdom, experience with Take 5 Oil Change, and overall knowledge in building great businesses.

It was even-keeled, except on a fishing trip after a board meeting. Let’s just say, I will fish from the pier next time.

TH

Ha! We definitely have our share of expert fishermen on the team, but that’s great to hear, except for the fishing trip, of course. I’d add that we take our work very seriously, but we don’t take ourselves too seriously. Life is too short for toxic partnerships.

What can you share about Oil Changers’ growth (i.e. operational, financial, locations, add-ons, etc.) during the hold period?

DH

Something we are all especially proud of is we increased store count by a bit over 50% but doubled revenue and nearly tripled EBITDA. We did not merely complete add-ons just for growth’s sake. We were aggressive but disciplined and improved operations after acquisition. Furthermore, we added to the management with key hires including an outstanding CFO in Kabir Merchant, head of real estate and head of marketing. Adding to the team helped with achieving the revenue gains in the add-ons. It also gave the buyer of Oil Changers confidence that Oil Changers growth would continue.

TH

Wow! Hats off, David! Very nice work. How did the team know it was time to sell and what was the sale process like?

DH

Oil Changers throughout our hold period was taking market share. This materially accelerated during Covid. Miles driven decreased by record numbers but we continued to grow the business. Furthermore, the next leg of growth involved entering new markets with new store locations. The demonstration of the strong fundamentals of the business coincided with the decision about whether to take on these new investments that would have necessitated a longer hold period. The confluence of those two forces drove us to explore an exit. We knew we had an attractive business that had more room to grow but, at the time, it was unclear how long the financing markets would remain robust.  

TH

That’s great. Sounds like it was a fun one to be a part of. So, we all know that we exited Oil Changers to Rye, NY-based Greenbriar Equity Group in February of 2021. Without revealing anything confidential, can you characterize how successful the investment was for all three parties to the deal (i.e. you, Trivest, Oil Changers, etc.)?

DH

It is in the Trivest Ring of Honor. Smiles all around.

TH

Bravo, David! Bravo! Sadly, for me, it’s another painful reminder that I did not have any co-invest in that one.

Well, David, as you know, one of the more dubious benefits of doing one of these interviews is the privilege to recount a funny or interesting story from your deal-making days. Hopefully, you’ve had time to prepare a good one. We’re ready when you are!

David Hobbs

When we were looking for investments, we systematically canvassed the entire U.S. coast to coast. It took forever and felt even longer than that. In the end, when we came across the Oil Changers opportunity, we learned that their headquarters is only 20 minutes from Danville, CA, the town I lived in when I graduated high school (let it be known, though, that I consider myself a proud Michigan native). And, as it turns out, the owner’s son and I graduated from the same high school, Danville Monte Vista. I must have driven past his Oil Changers locations hundreds of times as a teenager, never imagining I’d someday be a major investor and partner in the company.

Tony Hill

Incredible. It reminds me of an old quote or expression—something like, coincidences mean you’re on the right path, right?

Well, David, this was great. Thank you for walking us through the Oil Changers deal and your experience working with Trivest. It sounds like a truly spectacular outcome and I think I speak for the whole firm when I say, we couldn’t have done it without you. I hope, and trust, that this won’t be the last deal we work on together.

Congratulations again on Oil Changers, and here’s wishing you continued success at HTR Capital Partners!