"We Don't Have A Magic Wand"
by Debra Levy
Belron's acquisition of Safelite is scheduled for March, pending regulatory approval. Gary Lubner, Belron's president and chief executive officer, sat for an exclusive interview with AGRR/glassBYTEs.com™ last week.
Q-There's been quite an outpouring of comments since the announcement of Belron's "merger" with Safelite. Has anything surprised you?
A-Not really, but I have been a bit surprised by the positive reaction of most people. However, it seems some think we are coming in on a white horse and are going to wave a magic wand and fix the whole industry …
Q--Isn't that the case?
A-No. I don't have a magic wand or a white horse. We are going to work hard to be successful here, just as others need to work hard in their own companies to be successful.
Q-When I interviewed you a few years ago, you said that the U.S. market was broken and that if you "knew how to fix it, [you] would have done so." This begs a question. Why would you want such a big presence in such a broken market?
A--I still think it's the toughest market I've see anywhere in the world, that is true. But we've learned a lot in the past 18 months that we have been in the States. We've learned there are a few important things to be successful.
First, scale. You have to have a national presence and second, you ought to have links to insurance companies and third, you need access to capital. With this deal we have all three. There have been some real misperceptions about why we are here. We are not here to "save" an industry. We are here to get a good return on our investment.
Q-Yes, I saw D'Ieteren stock was up 8 percent after the announcement.
A-Exactly. Obviously the experts out there saw it as a good move too. I hear some of the comments about us from the people who threw darts and, I have to say, they are wrong. They should be focusing on quality; they should be focusing on standards and best practices.
It seems that some people think Safelite is in trouble. It's not. It's a very well run company. It had its difficulties with bankruptcy, but that was seven years ago. We would not be investing the kind of money we have invested without due diligence. We are not doing a turnaround. The business is growing; it's profitable and has a clear strategy. It's going to continue to be successful. Safelite is, by far, one of the best auto glass businesses around--not just in scale but growth. It also provides a really strong base for us here.
Q-You had a minority stake in Safelite a number of years ago and chose to divest of it. What do you see as different this time?
A-- What do I see is different? Buying 100 percent of the business instead of having a minority stake. Safelite of 2007 is a very different business than the Safelite of the 1990s. Safelite embarked on an innovative and highly efficient customer-focused business model, led by a strong and motivated management team, with a track record of profitable growth.
Belron's overall business philosophy has evolved as well. In the 1990s, Belron operated as a group of independent companies operating autonomously in each country. However, during the past five years it has accelerated its global growth strategy and shifted to a collaborative management system that took advantage of sharing best practices amongst its diverse businesses.
Q-Do you anticipate that management will stay the same?
A-Yes, when the deal closes [Safelite president and CEO] Dan Wilson will become the CEO of Belron US and Rich [Harrison] is also joining the senior team. Rich is overseeing the integration of Safelite with the existing Belron model. Remember, we've been through this many, many times before. We will be taking and bringing best practices from and to Safelite. And we are always looking for further growth opportunities.
Q-Let's talk about that growth. You had a bought a number of regional players in the last 18 months, yet have now gone for the country's largest chain. Did you come across anything unexpected with those regional acquisitions?
A--The market is tougher than we expected it to be. The number of insurance claims is decreasing. But customers, no matter who they are, want the same things. They want good value for their money and a great service.
Q-I have been talking to a number of industry experts who are skeptical about the success of the deal. They point to the Windshields America-Globe merger and the Vistar-Safelite merger and say that no two large auto glass companies have ever been able to join together successfully. What makes you think this will be different?
A-It will be different. We are going into this thing with our eyes wide open. We have learned the lessons of those previous mergers. With this acquisition, we can grow much more efficiently.
We also have a lot more experience at integration. The most successful recent one is the Canadian acquisition of TCG. I have spent a lot of time with our people in Canada over the past year and they are doing a great job of integration. It now looks and feels like a Belron business. My role is to engender some sort of a value-based atmosphere and the culture that makes it happen.
Having said that, there is history in this deal. And there will be some issues going forward. But I have been so impressed with the open-mindedness of both Safelite's and Belron Inc.'s senior staff. They are taking the time to listen and share with the rest of the staff what both companies do.
Q-I am assuming that you will be keeping the names of the companies in place for the time being?
A-- Branding is very important to us. It is one of the reasons for our success. It allows you to compete on another level. Our intention is to continue to build our brands in the United States. Are we going to have one name? Probably not. We don't plan to do away with strong brands like Auto Glass Specialists and Elite. We paid money for some of those brands and won't give them up. We are going to approach branding on a market-by-market basis.
Q-Which brings me to the next question. Is there a profile of your typical acquisition target?
A--We look for strong regional players. Our target profile is that of a strong business, ideally with a brand, a strong management team and strong financials. We are not looking for turn-around situations. Size, large or small, isn't an issue with us. Our criteria are fairly constant. Let me say that, while we've looked at many businesses, we haven't bought that many.
Q-You know that Safelite has a vocal group of critics here the United States, mostly independents …
A-Yes, but they're a minority - the vast majority are very positive.
Q-Do you intend to keep the subcontractor "network" in place?
A- Yes. Those companies are an important part of Safelite's ability to service [its] customers. We value those relationships.
Q-So if you were the owner or manager of one of those smaller shops, how would you best compete with Belron US?
A--I'd look at the numbers. The new Belron US is going to have less than 20 percent of this market. There are 18 million pieces of glass installed in the U.S. every year. This leaves a huge market to go for. I'd stop worrying about Safelite. I'd deliver fantastic service at a good and fair price. There's no reason to become obsessed with what Safelite is doing. I say, "they don't even have 20 percent of the market, there's plenty of business for everyone."
On the other side I've met many who understand this and have grown their businesses profitably.
Q-Have you thought at all about going into the flat glass at all?
A--My personal view is we have got enough to get on to do with our automotive business here without taking on flat glass.
Q-Have you met with any insurance companies yet?
A-No, not yet. I have a meeting set up this week, but have not met with anyone yet.
Q-In a speech you gave last year, you were a very vocal critic of discounted "cash" pricing and called for the elimination of this practice. Many in the industry have stories about Safelite stores giving such discounts. Do you plan to end that practice?
A-It's not as straightforward as it once seemed. There are some general reasons why cash pricing is lower, including model and product mix. And, averages can deceive. Having said all that, there is a gap between the two, but it's premature to talk about it. So all my previous comments remain.
Q-You now also own a manufacturing plant. Is that a good thing?
A-Again, this was one of those misperceptions. We have done extensive due diligence on the plant. We have been pleasantly surprised by the improvement in the finished product. It's very efficient and we have no plans to do anything different with it. There is, however, a need to educate the market as to what goes on in the plant.
Q--How are things going in your European operations?
A--2006 was a record year. We have once again had an excellent year of growth. The growth did not come from just one country, but across the board. Canada was a big reason for that. And, we've had very good results all across Europe.
Q-Has the Safelite leadership been over to visit yet?
A-No, but once the deal has closed the Safelite team will be traveling. Our big passion is best practices and integrating the Belron US team into the rest of Belron and we are anxious to get started.
Q-I know Safelite has explored moving its claims administration beyond glass to including other property/casualty areas. How do you feel about that?
A--Expanding beyond glass? I haven't gone into that yet, but will take my lead from the Safelite team and their customers.
Q-You've been very supportive of the Chicago Group's effort to develop an alternative pricing system to NAGS. Most of the leaders of the Chicago Group-Wes Topping, Bob Birkhauser-and the architects like Dave Leach have either sold their businesses to you or work for you now. The effort seems stalled. Is the Chicago Group still viable?
A-- I personally haven't been involved in their efforts. I do completely support what they set out to do. In an industry where every cost continues to rise-the cost of fuel, of labor, of materials--NAGS prices don't increase. My frustration remains. I don't know where they [NAGS] get their info. I am a vocal proponent of bringing about a situation where prices reflect the cost.
Q- Do you have anything else you'd like to tell our readers?
A-- I noticed that glassbytes.com™ took a poll on whether or not the acquisition was a good thing for the industry, and most readers said that it was. That was encouraging. My view is that it is a good thing. I'm really looking forward to working a lot more in the U.S.
Q-Thank you again for your time.
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