Popularity of RVs during covid helped fuel National Auto Care’s growth

After making 21 acquisitions over four years, LMP sold NAC to APCO Holdings earlier in January.

Lovell Minnick Partners (LMP) announced earlier in January that it sold National Auto Care (NAC), a provider of finance and insurance products and programs for the auto industry, to APCO Holdings. The sale generated a multiple in the lower teens, sources told PE Hub.

Growing demand for recreational vehicles during the pandemic and an aggressive and prolific M&A strategy are among the factors that helped NAC grow during the four years that the Radnor, Pennsylvania-based private equity firm owned the Ponte Vedra Beach, Florida, company, said LMP partner Trevor Rich in an interview with PE Hub.

Through a national network of local dealerships, NAC offers vehicle service agreements, limited warranties and asset protection products for parts, including wheels and windshields.

RV sales soared in the early years of the pandemic, and NAC capitalized on the growth.

Trevor Rich, LMP

RVs represented “a very negligible part of the business, but by the time we exited, it was closer to 15 percent of the overall business and a very big driver of the overall success of the business,” Rich said.

What also worked in NAC’s favor is that just a year before covid, the company made a strategic decision to get into the RVs segment based on forecasts of long-term growth.

To accelerate NAC’s expansion, LMP put M&A at the center of its strategy. During the first 18 months after acquiring NAC, LMP laid the groundwork in terms of reorganizing the management team, putting the systems, technology and infrastructure in place for the 21 acquisitions that followed.

Most of those acquisitions were independent agencies, Rich said.

“We came in with a very specific thesis around vertical integration,” he explained. “At the time of our investment, NAC was a pure-play administrator. It created and administered the product, but it was all distributed through third-party agencies, and our view was to go and purchase those agencies.”

The aggressive M&A strategy created “a flywheel effect,” as NAC was creating a total package of products that allowed it to eliminate third parties and deal directly with dealerships.

“Once we started getting these deals done, other sellers took notice and said, ‘Wow, they are growing quickly,’” Rich said, adding that the company ended up being a preferred buyer in the market.

Technological transformation also added stakes to the growth of NAC, the LMP partner said. “Specific to auto warranty, technology is becoming more of a critical factor,” he said. “For a company like NAC, if they do not have that core technology which enhances both the dealer and the customer experience, then ultimately they are going to struggle growing organically.”

As the average age of cars on the road continues to increase, it requires more out-of-warranty products that created more opportunities for NAC, Rich said.

With the complexity of cars growing, many consumers turned to NAC for cover. “The complexity of cars has only increased over time and consumers would want warranties to cover the technology components in these vehicles because they are rather expensive.”

At exit, NAC generated a lot of interest and created some “competitive tension,” Rich said. “The company did have very significant interest, and there were a number of buyers who saw the value of what NAC had created as a platform.”