Carousel Circling The Auto Space –

Soon after Carousel Capital began looking at the franchised automotive services sector three years ago, the initiative resulted in the firm’s investment in Meineke Car Care, which Carousel acquired with The Halifax Group in 2003. But now, two years later, the Charlotte, N.C.-based firm is still reaping dividends from the initiative, and in early April acquired Express Oil Change, a franchised operator of quick lube automotive service centers.

“We were first introduced to the Express Oil management, [CEO Richard] Brooks and [COO] Joe Watson, in 2002,” Carousel Partner Bill Hobbs said. “At that time, they weren’t ready to sell, but we kept in touch and continued to discuss our ideas for the company, which ultimately helped them to go forward with the transaction.”

The underlying trends for the Express Oil investment mirrors those that appealed to the investors in the Meineke deal. Specifically, Hobbs said, there are more cars on the road today than ever before. According to reports, there are an estimated 140 million automobiles on American roads, which outpaces the number of people that actually have U.S. drivers’ licenses.

But even as the number of cars is growing, so too is the services industry as a whole. Today, express lube shops have to compete with the likes of Wal-Mart and car dealerships, some of which are even offering free oil changes for the life of a car. While Hobbs recognizes this threat, he notes that to build a successful franchise it ultimately boils down to convenience and location, adding that he believes Express Oil has an advantage over the newer entrants because of the locations the company occupies in its markets.

Express Oil currently has 149 locations, 35 of which are company owned, with the balance being operated by franchisees. The company is based in the Southeast, with a heavy presence in Alabama, Georgia and South Carolina. Express Oil also operates in Florida, Louisiana and North Carolina, and Hobbs anticipates that Express Oil will continue to bolster its presence and eventually grow into adjacent markets.

Terms of the transaction were not disclosed, although Antares Capital Corp. and Goldman Sachs Specialty Lending Group were identified as the senior debt providers and Gleacher Mezzanine assisted with a mezzanine tranche. Carousel, meanwhile, stayed within its standard equity investment range of $10 million to $30 million, with capital coming out of the firm’s $156 million Carousel Capital Partners II, LP. Hobbs noted that there is enough capital in the firm’s second fund for one more transaction, and he expects to start fundraising this summer with an anticipated target of around $300 million.