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Biggest Story of the Year Standard Buys Central!

April, 2012


The News Release (excerpts):


Standard Parking Corporation (NASDAQ:STAN) announced today (Feb. 29, 2012) that it has signed a definitive Agreement and Plan of Merger with Central Parking Corporation. When completed, the transaction will add more than 2,200 locations and approximately 1 million parking spaces to Standard Parking’s portfolio across the United States. Standard Parking will pay total consideration comprised of cash, Standard Parking stock and the assumption of Central Parking debt.


“This transformational merger with Central Parking will enable us to cross-sell our SP Plus® transportation, maintenance and security service line expertise across an expanded location base to create the preferred provider of outsourced parking facility management, maintenance, transportation and security services,” said James Wilhelm, President and Chief Executive Officer of Standard Parking Corporation. “In addition, Central Parking’s direct-to-consumer marketing programs and advanced technology applications, including Central Parking’s Focus Point remote management division, as well as its USA Parking valet expertise, will enhance our strategy of transforming customer and client service in our industry, adding value to the entire platform.”…


Mr. Wilhelm added, “Effectively doubling the size of the company will allow us to save costs by eliminating duplicate infrastructure and leveraging the combined company’s purchasing volume. We expect to generate annual run-rate cost synergies of at least $20 million by the end of the second year after closing. We’re confident that we can achieve these cost efficiencies through a variety of measures, which will include a headcount reduction expected to be less than two percent of the combined work force.” …


With an expected transaction close in the third quarter of 2012, it is anticipated that the transaction will be accretive to earnings per share within three years. …


The combined leadership will represent the best of both organizations, including individuals who are best qualified to integrate and lead the company. James Wilhelm and Marc Baumann, Standard Parking’s current CEO and CFO, respectively, will continue in the same capacities at the combined company. James Marcum, Central Parking’s current CEO, will become the combined company’s COO. Tom Hagerman, Standard Parking’s current COO, will assume a new role with chief responsibility for all of the combined company’s business development efforts throughout North America. …


What the Industry is Saying:


JVH: A lot of talented parking managers, middle and senior managers, will be on the street in the next few months as the consolidation moves forward. They will have relationships with customers, and if they want to stay in the business, they could form new companies, or join smaller regional firms and take those customers with them. The 4,400 locations could become 3,400 quickly.


New technology has made starting a parking venture relatively easy, and inexpensive. New companies will spring up quickly and become formidable competition. Customers will be forced to rethink their requirements (company size, location and the like) when they go out to bid and that will allow smaller companies an opportunity to bid.


One of the parking professionals quoted below noted that “all parking is local.” A consolidation such as this signals to owners that there are no guarantees, that just because one is large, that doesn’t guarantee it’s going to be around in its same configuration.


Smaller, personalized boutique operators will find their marketing task easier in a “David vs. Goliath” world.


I have spoken to senior Central managers concerned that they have no voice in a court located in Chicago. Who will survive in cities where both companies have a similar number of locations and infrastructure? It will take all of Standard’s wisdom to make the right choices.


The Justice Department also will have a say in how many locations Standard can keep in some markets, and how many it must divest. Surely those will be available to help strengthen regional players.


At least the Central remnants now have a group of parking folks at the helm. We all know what happens when non-parking managers try to lead a parking company. It is a debacle. Witness Allright and even Central two or three times in the past. Plus, remember Macquarie Group and its purchase of National Car Parks in the UK.


We live in interesting times …


Some quick reactions from across the parking spectrum:


The following comments represent a cross-section of what I heard in the first six hours after the announcement. Also, check Parking Today’s Blog for more reaction and information as this evolves. JVH


… You know another side you may want to consider is that Central started to have troubles after they acquired Allright. These acquisitions are never easy, with two large firms like these there is duplication of effort and people’s jobs descriptions have to change and that does not always set well. I wish them the best of luck if it goes through, but something is going to smart, it always does. If done right, they both should benefit. Time will tell.


… It really does lessen the competition for clients who have a significant amount of parking and need an operator. We have already had difficulty getting reasonable competitors for our clients, and so have other folks. Airports in particular will be at a disadvantage now, I would think. I do think it will hasten the pendulum swing in the other direction — the establishment of new and smaller operators who will focus on quality, stability of managers, etc. … This combination will throw out a number of folks who will start their own firms, go to smaller firms, or go elsewhere in the industry. There is no way that everyone from Central will be accommodated in the new organization. And, of course, it may give Standard’s management the opportunity to eliminate some employees that they may have wanted to before.


… The original purpose of purchasing Central, which was primarily a real estate play, couldn’t work with the economy in the shape it has been. Unlucky for the group (Kohlberg et al) that they bought Central just when the bottom began falling out of commercial real estate development.


… Clients will need to begin to think about the real effect of their qualifications for running their parking. Phrases like “experience with 5,000 spaces in one location,” “experience with 5 other airports,” and the like will really begin to be difficult as qualifications. And some of the smaller firms are going to have to get ready to gear up and make a case that they can do some of the big jobs.


… The effect on small local operators like us is yet to be seen, since all parking is local. What has been helpful to smaller companies is the technology that has become available (I am referring to accounting systems, payment methodologies, and the like) that “assures” the client that revenue control and lower operating expenses are the province of not only the large operators. You don’t need to be a big company to benefit from bundled services and competitive pricing, from signs to credit card processing fees, but you must educate your client and potential client because the “big gun” that the big companies use is “bigger is better.” Maybe if you are Walmart, but there is another side to that argument as well.


… The fear of the larger and larger companies, coupled with the economy, has made the smaller companies look inward and perhaps do things quicker than in the past, and that is a good thing, resulting in more streamlined and cost effective operations. The other point is that with local ownership and long-term co-workers (in other words, I am never going to be transferred to Cleveland because we have no Cleveland location), there is the comfort of knowing that I am there for you because I always have been. I grew up going to Walsh’s Drug Store: My grandfather knew Joe Walsh, my dad knew Joe Walsh and I knew Mr. Walsh, and Joe Walsh’s medicine was just as good as Walgreens, except they didn’t have Mr. Walsh. Maybe I am a bit melancholy in my old age, but I think there will always be a need for Joe Walsh.


… It surely will hurt competition, but regional competitors can easily form and compete on largely labor contracts. I don’t think it will have an impact on pricing except possibly in large-scale areas like airport operations. Standard’s pricing will have to go up. They can’t justify market share pricing any more, and their creditor will insist on significant gains in free cash flow. My guess is that we will not hear much of interest from this deal for three years. They will be so inward focused, finding $20M in labor savings, rationalizing systems and structure, etc.


… If you and I are interpreting correctly, it’s a classic textbook case of the rise and fall of an American firm. From a small parking firm family-run in the ‘70s and ‘80s, to the largest operator in North America and possibly the world, as they were successful in the EU and Asia with Monroe (Carell Jr.) at the helm, and now this. Sometimes you get so big you lose how to control it and what you’re good at. As soon as they hired that guy James Marcum – from Circuit City – as CEO, we knew he was getting it ready for sale. When he systematically let the guys with big pay checks go, we all thought it would happen last year. … This was inevitable.


… Time will tell if this acquisition / merger proves to be something good for the market or a complete disaster. On paper, if management focuses too much in delivering the stated operational savings of $20M, I think the merger will straggle and encounter all sorts of problems along the way. … The businesses should concentrate on using the enhanced joint resources and freedom of not being constrained by a venture capital owner to invest in technology and deliver high-quality and enhanced services to their patrons – much along the lines of Q-Park in Europe. How well the businesses are integrated and all involved feel valued and wanted will be the key for success, or failure.


 


You could have read these comments Feb. 29, 2012, the day of the announcement, when they were posted at Parking Today’s Blog by logging on to www.parkingtoday.com and clicking on “blog.” JVH updates it almost every day.


 


 




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