The Riverside Co. kicked off 2004 by purchasing Harmon Autoglass, a national chain of auto glass replacement and repair shops, from Apogee Enterprises. Harmon will be restructured and added to platform company The Dwyer Group, a manager of consumer-oriented franchise businesses that Riverside bought in October.
Dwyer plans to add the Harmon businesses to its existing glass repair service franchise, Glass Doctor. It also owns Aire Serv Heating & Air Conditioning, Mr. Appliance, Mr. Electric, Mr. Rooter and Rainbow International Restoration and Cleaning. The ultimate goal for Dwyer is to create a “one-stop” shop for homeowners and business owners whose insurance companies would work with Dwyer to provide services in response to claims.
“Suppose there was a flood in your basement,” said Dina Dwyer-Owens, Dwyer’s president and chief executive. “Someone from Rainbow could come in and clean it up, someone from Mr. Rooter could fix your pipes and Mr. Electric could send someone to fix the wiring. All those services will come from our businesses.”
The terms of the deal, financed by LaSalle Bank, were not disclosed. Loren Schlachet, a principal based in Riverside’s San Francisco office who was involved in the deal, said the firm plans to slice up Harmon, selling 80% of its retail operations as franchised units under the name Glass Doctor to existing franchisees, Harmon employees and competitors. The other 20%, comprised of Harmon’s retail operations from the Northeast through Washington, D.C., will be retained as Glass Doctor-owned locations.
Harmon’s third-party administration business that provides services for insurance companies, Harmon Solutions Group, will be operated as an independent company under the Dwyer umbrella.
“The franchise world is hot right now,” said Schlachet. “Franchises offer the opportunity to buy an established, national brand with a modest investment, and revenue streams from royalties are relatively stable-once it starts, it continues.”
Riverside became attracted to the franchise model during due diligence work on what eventually became an unsuccessful bid for Chem-Dry early in 2003. (Nautic Partners wound up buying the carpet cleaning franchise.) Afterwards, Schlachet made a list of franchisors that he deemed potential buyout candidates, and Dwyer placed at the top.
Dwyer Begets Apogee
The Dwyer deal, Riverside’s first public-to-private buyout deal, closed in October 2003 at a purchase price of $55 million after the firm brought Harmon a letter of intent. It invested $24 million of equity while management contributed $4 million and banks put up $2 million along with the debt portion. Madison Capital Funding acted as the lead agent on the debt package, while other lenders included First American Bank of Texas and Massachusetts Mutual Life Insurance Co., which provided the mezzanine financing.
The purchase-price multiple was 7.3 times, according to Riverside, for a company that averaged 20% growth in annual sales. For the nine months ending Sept. 30, Dwyer’s revenue totaled $20.8 million, a 9% increase over last year’s $19 million for the same period.
Several days after Riverside acquired Dwyer, the firm entered into a definitive purchase agreement to buy Harmon. Apogee, which hired Lazard Freres & Co. to find a buyer, specializes in making thick, laminated glass for buildings. It decided to shed the Harmon unit to focus on its core business, which has been boosted by post-9/11 demand for blast- resistant glass. Harmon is the third-largest auto glass seller in the nation but controls just five percent of the highly fragmented industry. It had $223 million in sales in its most recent fiscal year and earned $8 million, down from $255 million in sales and $16 million in earnings a year earlier.
Mary Ann Jackson, the director of investor relations at Apogee, said her company felt Harmon should be “back in the hands of entrepreneurs” where it began in 1949 as a single store in Minneapolis.
Schlachet agreed. “The beauty of the franchise model is that it allows individual stores to be run by the people that can do it best-entrepreneurs and small business owners,” he said. “Still, the franchise gives it great purchasing leverage and the ability to go after national accounts.”
His biggest concern at the close of the deal was finding buyers to scoop up the Harmon stores, but demand has been plentiful. “We already have purchasers for over half the locations,” he said.
Going forward, Riverside will be looking for more acquisitions that either add to Dwyer’s existing businesses or complement them with new services.