It Never Rains, But it Pours
The saying was coined by Jonathan Swift in his 1726 novel and remains just as relevant today in the world of parking.
Acquisitions and their integration are challenging at the best of times and Australian companies expanding overseas are no exception. Bunnings’ entry into the UK with Homebase, Boral’s foray into the US with Headwaters and recently Lend Lease writing off $513m on its 1999 acquisition of Bovis Construction in the UK have all been problematic.
Regular readers may recall our 2017 newsletter which looked and rated two significant offshore acquisitions – being Q Park by KKR and NCP/Secure Parking by Park24 from Japan. The latter received a high risk rating due to the extreme multiples paid and also the cultural and country hazards involved.
The future earnings of Secure (before amortisation of goodwill) were forecast at A$11.76m for the nine months to June 2017 ($15.6m annualised), then rising to $19.53m in 2018 and soaring to $22.35m in 2019. In essence, future earnings were forecast to increase by 43% within 33 months. The total purchase price was approximately $212m and apparently 100% debt funded on a 13 times multiple for a business with a WALE of less than five years.
Park 24, together with the Development Bank of Japan, then acquired leading UK operator NCP for £312m in July 2017 – representing 13 times multiple on the March 2017 EBITDA of £23.6m. NCP operated 498 sites and 148,056 spaces. No forecasts were made on future earnings.
And the Development Bank of Japan has a put option over its’ 49% interest in NCP which can be exercised between November 2025 and February 2026 at a cost estimated at 30m Yen – or approximately $A310m to Park24.
Despite having spent well over A$500m on the two businesses to date, profits have been elusive.
Losses from the two acquisitions have increased from A$8.95m to A$12.25m for the six months to 30 April 2023 and 2024 respectively. This included amortisation of goodwill of A$6.45m and A$7.04m.
And when it rains, it pours.
On 5 July 2023, the ACCC commenced Federal Court proceedings against Secure Parking Australia over its Secure-a-Spot parking service. In August 2024, the Court ordered Secure to pay $10.95m in penalties for misleading customers. The ACCC found:
“The Secure- a- Spot Representations were false, misleading and deceptive because a booking by a consumer through Secure- a- Spot did not result in Secure Parking reserving a parking space for the time, date and location specified in the booking…”
The long-serving CEO and CCO have recently left the company, and ParkScience understands a senior NCP executive is likely to be sent to Australia to oversee the business.
Secure is now a shadow of the business sold by the Matthews Brothers in 2016 and the famous words of Kerry Packer still ring true: “You only get one Alan Bond in your life.”
The question is: how did a large, successful and very profitable Japanese parking operator get it so wrong with these two offshore transactions?
On the macro side, there has been little or a negative cost of borrowing money in Japan. Negative interest rates only ended in March 2024 after eight years, with deposits now yielding 0.1%. Where there is little or no cost to money, the appetite for acquisitions is heightened.
From an outsider looking in, car parks are car parks, right? Nothing could be farther from the truth. I have seen two car parks 10 metres apart with revenues per bay exponentially different.
And then you have differences in the submarkets within markets. For example, NCP was concentrated outside of London, where economic growth has been subdued. It is a complex and very dynamic business, exposed to minor economic fluctuations.
The Park24 business in Japan is very different from these offshore acquisitions. It has a large number of small sites (with an average of 70 bays per site) and a significant car-sharing component.
As Parking is a niche industry, good talent is not widespread. Readying executives to cost, negotiate and finalise profitable (and complex) leases or management agreements takes 3-5 years. Hiring experienced executives from other operators has been challenging, given all of the above.
The economic outlook for Australia also presents challenges, with ongoing high interest rates having an impact on volumes, especially nights and weekends. Revenues will be down year on year – with carparks exposed to night and weekend volumes down around 5%. Earlybird and all day volumes are also under pressure from the new Metro Line extension into Sydney’s north west. With rents increasing by 3% and revenues down by 5%, it is going to be a challenging year for Secure and the industry.
And finally there are cultural differences from country to country both in customer behaviour, organisational culture and management style.
You must have strong and independent local management to run the business and make the decisions, subject to Board oversight.
Both Secure and NCP are fortunate to have a financially strong parent in Park24 – but it will take much more to turn these businesses around.