BlackArch Partners’ Bram Hall Q&A: The Auto Aftermarket Surges

It’s been two years since Bram Hall, 39, left Harris Williams, the middle market investment bank where he spent 10 years. Hall helped co found BlackArch Partners in 2009 with Drew Quartapella and Matt Salisbury (the co-founders of Edgeview Partners), as well as Kelly Katterhagen, ex-president of IOA Corp.

Charlotte, N.C.-based BlackArch, which also advises middle market companies, began operating June 1 and currently has a staff of 22 people. Hall leads the firm’s transportation & logistics and automotive aftermarket practices.

He recently spoke to me by phone:

Q: Has the automarket rebounded since the downturn?
A: When I look at automotive, the OEM industry is separate from the auto aftermarket. The aftermarket has a tendency to do extremely well in a downturn. The OEM market is really cyclical. In a soft economy, people will try to prolong the life of an old car. The OEM market is still down. But the auto aftermarket has been a hot sector. It performed really well in the downturn. It generated a lot of investment interest in the downturn.

There have been a decent number of deals [in the aftermarket]. We’re engaged on two. In the last five months, there have been a handful of notable ones. The Rank Group bought United Components, a Carlyle portfolio company. Shell has sold two of its automotive aftermarket businesses. They sold Auto Expressions to Kraco, a Sun portfolio company.

Q. What are the multiples?
A. Multiples for the auto aftermarket depend. The distribution business can go for 8x to 12x and the service businesses (like Amoco or Meineke) will go for 8x to 11x. Product suppliers are 6x to 9x deals. It depends on the size and the  product category and the brands.

For OEM, those tend to be much lower-multiple deals. They’re competing primarily on price. Those might be 4x to 5x.

Q. How did auto aftermarket perform during the downturn?
A. It did well. In prior downturns, people would’ve said it was counter cyclical. In ’01 and ’02 downturn, it grew seven percent. In this downturn, in 2009, it ended up going down two percent. In 2009, we saw that some of the expenditures in the aftermarket can be delayed but can’t be permanently suspended. People can wait but eventually they have to replace [their car’s] brake pads. You don’t have a choice. The aftermarket is one of the best performing retail sectors in the country in the 2009 period.

Q. What’s the hardest thing about founding your own investment bank?
A. That’s a good question. It’s been not having the friends that I miss. I’m tremendously excited about what I’m doing. But after being in a firm for 10’s not having the same frequency of interaction with the people that I’ve had for 10 year. Yes, I miss these people. It’s the human element of the story.

Q. What do you like most?
A. The energy around building something. Everything that we are doing the first two years is deciding who we will be in 10 years. That mantra carries through to every aspect of what we’re doing. It creates energy around what we’re doing. It’s different knowing that everyone we’re recruiting out of undergrad will be a key part of defining who you will be six or seven years from now. It makes training them much more energizing.

Q. What does BlackArch mean?
A. We do a lot of sell side M&A and capital raises. When taking on an engagement, we view it as putting a company on our shoulders and carrying them over a potentially more turbulent period in their life cycle. An arch or bridge symbolizes carrying a client over that rugged terrain. Crossing over an arch is also an appropriate metaphor for a client in transition to its next phase of growth.

Q. Do you think the overhang is prompting the surge in PE deals?
A. I think its combo of couple things. In addition to the ongoing need for liquidity in the private company marketplace, it’s a couple of years of pent-up demand from sellers in 2008 and 2009. On top of that, we have the overhang. There is a lots of capital available from financial buyers and strategic buyers. The cash that companies in the S&P 500 have is at an all-time high. This has given strategic buyers a lot of ammunition to do deals as well.

Q. What’s your favorite deal this year?
A. I will name one of my colleagues’ deals. He sold XE services in December, which was the former Blackwater. It’s the defense services business owned by Erik Prince. It was an exciting deal.

Q. What books do you read?
A. I’m more old school. I like Michael Crichton and Tom Clancy. I do fiction.

Q. Who do you think will hit the final four?
A. With the Tar Heels out, all I care about is that Kentucky loses. This is my bitterness coming out.