Drive for robust F&I menus spurs vendor mergers

NAC's Schrank: On the hunt for M&A opportunities.
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Get ready for some name changes -- at the very least -- among the F&I vendors you work with.

More mergers and acquisitions are likely in the F&I products space this year, F&I administrators say.

F&I vendors are motivated to combine so they can offer a complete menu of F&I products instead of specializing in one or two. Full menus can be more convenient and attractive to dealerships than dealing with multiple vendors.

Private equity investors are fueling mergers in the F&I space, too, lured by the potential for growth and recurring profits, experts say. Private equity firms have acquired or invested in several subprime auto lenders and F&I administrators in the past few years and have an appetite for more.

“The auto space is very attractive to investors and private equity at this time. They see a steady increase in car sales. They think it’s got legs, that it can be sustainable,” Dave Duncan, president of Safe-Guard Products International in Atlanta, told Automotive News last week. Safe-Guard, a major F&I administrator, was acquired by a private equity firm affiliated with Goldman Sachs in December 2012. Safe-Guard hasn’t made any acquisitions since then but is working to expand. Last year it opened an office in Toronto and last month it opened one in Irvine, Calif., near Los Angeles to serve a growing number of West Coast customers.

A more recent merger, in November 2013, joined Family First Dealer Services in Ponte Vedra Beach, Fla., with National Auto Care in Westerville, Ohio. Private equity group Trivest Partners, based in Miami, facilitated the merger after first buying a majority stake in Family First Dealer Services.

This month Innovative Aftermarket Solutions in Austin, Texas, announced it would combine with First Dealer Resources of Oklahoma City.

In both cases, a company that didn’t offer extended service contracts merged with a company that does.

At a disadvantage

Innovative Aftermarket Solutions and First Dealer Resources announced their merger Feb. 18. Innovative Aftermarket Solutions, which does business as IAS, is a dealership software provider that offers GAP, tire-and-wheel and other ancillary aftermarket F&I products, but not extended service contracts. First Dealer Resources offers extended service contracts plus a menu of F&I products that includes tire-and-wheel policies and guaranteed asset protection, or GAP. It also offers training.

Bob Corbin, CEO of IAS, says one reason for the merger is that changes in the F&I space have made it tougher to compete.

“Traditionally, for many years, the service contract companies stayed in the service contract space and the aftermarket companies like us stayed in our space. We didn’t encroach on them and they didn’t encroach on us. But they started adding other products like GAP and tire-and-wheel. They started having what we have, and we felt like we were going to be at a disadvantage not having a vehicle service contract product,” he said in a phone interview Tuesday.

Corbin said IAS gets more than just service contracts by combining with First Dealer Resources, especially that company’s training lineup. Corbin said the two companies would combine under the IAS brand name.

One-stop shop

Meanwhile, in November, Family First Dealer Services joined with NAC.

Family First Dealer Services offers GAP and trade-in protection but not extended service contracts. Trade-in protection covers negative equity on a vehicle when it is traded in. Trade-in protection is sold at the time of purchase. NAC offers extended service contracts as well as dealership software programs and services. Combining the two is aimed at creating a one-stop shop that can attract dealerships looking for a single company to provide a complete menu of F&I products, the companies say.

In an interview in New Orleans last month, Christina Schrank, president of NAC, and Courtney Wanderon, vice president of sales for the combined companies, said their first priorities for 2014 are to implement the merger and rebrand the combined company. Schrank said at the end of January the companies expected to have a single brand within a few months but did not say what it will be.

She did say, though, she’s still on the hunt for M&A opportunities. “We are also going to be acquiring companies in our space,” Schrank said.

You can reach Jim Henry at autonews@crain.com.

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