November 2017

Risk is a four letter word

With plenty of M&A activity in the industry, we take a look under the bonnet at the deals that have recently been done.

KKR/Q PARK

Q Park is a leader in European parking with over 870,000 parking spaces across 6,300 locations in ten countries. They have consistently set the benchmark for presentation and operation of carparks. The portfolio is dominated by a large number of small sites – the average size of the sites is only 137 bays. More impressive is their head count – with only 52 staff in Head Office and a total of 2,152 staff across 10 countries.

This suggests a high level of automation and decentralised decision making – essential in the parking business.

The business sold for 2,950 million Euro or a multiple of 15 times 2016 EBITDA to KKR Infrastructure limited in March 2017.  EBITDA has grown from 174 to 195 million euros from 2013 to 2016. Steady, but far from spectacular growth. The net result is far more impressive from negative 146 to positive 129 million euros over the same period. Impairments to property valuations were the prime reason for the negative net results in 2013 and 2014.

You can read the full KKR/Q PARK story here…

PARK 24

Closer to home has been the acquisition of Secure Parking (it included the Australia, NZ, Malaysian, Singapore and UK businesses) by Japanese parking giant Park 24 (15,792 sites and 530,000 bays) in October 2016. The businesses have been run very successfully by the Mathews brothers who have an extensive knowledge of each market and strong contacts with property owners. The Australian New Zealand and UK business represent approximately 50% of the EBITDA with Australia estimated at around 75%. Park 24 followed this up by acquiring UK operator NCP in July 2017. 

The future earnings of Secure (before amortisation of goodwill) were forecast at ($A) $11.76m for the 9 months to June 2017 ($15.6m annualised) then rising to $19.53m in 2018 and then to $22.35m in 2019. In essence future earnings are forecast to increase by 43% within 33 months.  Total purchase price was approximately $212m - and apparently 100% debt funded. No segment breakdown of the growth between the countries is provided.

Secure is an asset light company with no significant owned sites and a considerable exposure to leases with guaranteed minimum returns that rise at or about CPI each year. The parking business in all countries they operate in is highly competitive.

You can read the full PARK24 story here…

NCP

Park 24 acquired the main UK operator NCP for 312m pounds in July 2017 – representing 13 times multiple on the March 2017 EBITDA of 23.6m pounds. NCP operate 498 sites and 148,056 spaces – averaging 297 bays per site – exactly the same as Australia. However, Australia is a far more concentrated market – and more efficient to manage. The top 5 UK and Australian cities by population are:

(1) London 8.250m ~ Sydney 4.0m; (2) Birmingham 1.08m ~ Melbourne 3.0m (3) Glasgow 0.590m ~ Brisbane 2.0m (4) Liverpool 0.550m ~ Perth 1.7m (5) Bristol 0.535m ~ Adelaide 1.2m

The UK operation is spread between 9 medium sized sub regional areas – which do not exhibit the same financial strength of London. The largest “branch” is North (essentially north of Manchester) with 64 carparks and 15,354 spaces. The strongest market, London has only 40 car parks and 8,851 spaces.

In 2012 Gary Koch and I (when I was with Wilson Parking) met with Macquarie and NCP in London with a view to acquiring the NCP business – which at that stage was still recovering from the GFC. It was a great medium-term growth story and the business had been starved of capital for technology and asset refreshment.

You can read the full NCP story here…

More Autonomous Vehicles

Autonomous vehicles are at the forefront of a lot of property executives given the response to the piece in the last newsletter – with sentiment strongly favouring little practical impact for at least 15 years. For those who do not follow John Connolly, The Australians motoring writer, click on the link below for his view on the subject.

https://www.johnconnollycars.com/article/fancy-a-driverless-car--ask-pilots-how-safe-is-the-autopilot

Best wishes to all over the festive season – see you all in 2018.