IMG-backed Falconhead Capital, a sports and leisure focused private equity firm, recently acquired National Powersport Auctions. Terms of the deal were not disclosed, although the purchase price has been reported to be roughly $50 million. The transaction closed in late February.
While the company specializes in auctioning off powersport vehicles, such as motorcycles, all-terrain vehicles and light water craft, ironically Falconhead was able to avoid an auction to acquire the business. Madison Capital provided senior debt to help finance the transaction, contributing $17 million in debt and an $8 million seller note. Madison also put in a small equity component alongside Falconhead’s equity investment, while management, led by Cliff Clifford, also agreed to rollover their equity. Falconhead was able to acquire a 60% stake through the transaction.
“The powersport vehicle [auction market] is a tiny industry, but it has the potential to a multi-billion model,” said Falconhead Chairman and Chief Executive David Moross.
NPA currently maintains an 85% marketshare in the powersport repossession business, a trade that gives banks and lenders an efficient method to sell off repossessed vehicles. To grow the business, Moross said NPA would look into creating satellite locations around the country as a way to make the business more efficient. The company is currently based in San Diego and has a presence in Atlanta as well.
“The banks have a massive inventory,” he said. “NPA’s strategy is to clear those bikes from their auction as quickly as possible, and to do that, access to inventory and making the auctions more accessible to the dealers becomes a very important component to the business.”
As eBay has demonstrated, if there’s one area that lends itself to a successful Internet model, it would have to be the auction circuit. And the success of eBay has not gone unnoticed by Moross. “Internet sales currently represent 4% of NPA’s revenue, but there’s a huge opportunity to grow that,” he said. “There’s also a great possibility to create a whole consumer division as well. Right now NPA has more of a business-to-business model, but there is potential [in a consumer model].”
In describing one of the primary draws to NPA, Moross said that the business is fairly resilient in the face of economic weakness given its reliance on repossessions. “The potential pitfall for this business lies in supply, but we feel that should continue to be robust. During good times, repossessions and new purchases track very consistently, and during recessionary times, repos spike… Our model is based on a constant median repossession growth of around 6% to 8%, annually.”
Cliff Clifford, a co-founder of NPA, along with Andy Lomas, will stay on with the company as president and CEO. However, the deal did allow three family members to walk away. Regarding the management team, Moross said, “This was a family run business, but [Clifford] really built the company, and we have great faith in Clifford’s ability to continue to grow the business.”
Falconhead used its Sports Capital Partners, L.P. for the deal, a $250 million fund with roughly 75% of its capital invested. Moross said Falconhead is not yet in the market for a new fund, and is instead focusing on finding potential exits for its current holdings.
Buyer: Falconhead Capital
Target: National Powersport Auction
Purchse Price: $50M
Advisor: NPA: RSM Equico
Lawyer: FC: Weil Gotshal & Manges LLC
Accountant: FC: KPMG