A strong management team, alignment with franchisee interests and a “winning operational model” were among the attractive elements for Franchise Equity Partners as it evaluated the opportunity to enter the Valvoline Instant Oil Change system.
FEP made its entry in a big way this week, buying 38 company-owned Valvoline locations in Texas and committing to the development of 75 new units. The transaction closed December 4 and includes Valvoline stores in Austin, San Antonio, El Paso and surrounding regions.
“It’s primarily focused on oil change, and therefore it gets people in and out of the stores quickly, which customers value. Their average throughput time is 12 minutes or so,” said Mike Esposito, co-founder and managing partner of FEP. “We think that simple operating model is good, and it is proving out to be winning market share.”
Valvoline operates 950 of the system’s 2,010 locations. Having significant skin in the game, noted Esposito, means the company understands operations and what is needed at the unit level for itself and its franchisees to be profitable.
Franchise Equity Partners’ Mike Esposito says there’s plenty of white space in Texas for more Valvoline development.
“They’ve been clocking at high single digit same-store-sales growth, most of which is coming from transaction growth,” he added. “And we think there’s a lot of white space out there.”
Valvoline in November reported its 18th consecutive year of systemwide same-store sales growth, up 6.7 percent for the fiscal year ending September 30. Same-store sales for the quarter were up 5.4 percent.
New York City-based Franchise Equity Partners is an investor in or majority owner of a variety of franchise businesses. In the auto segment, it’s a minority investor in Parks Automotive Group and Georgica Auto Holdings, which together, said Esposito, own about 60 dealerships touching brands such as Audi, Ford, Subaru and Toyota. In the restaurant space, it holds stakes in Pacific Bells, a large Taco Bell franchisee, and Fresh Dining Concepts, with more than 200 Auntie Anne’s, Cinnabon and Jamba stores.
Last year, FEP acquired a multi-unit franchisee in the Precision Garage Door Service system and it owns a stake in a Planet Fitness business.
To run its Valvoline business, FEP formed Velocity Auto Care and brought in Robert Fish, who was the CEO of large European Wax Center franchisee EWC Growth, to lead it. Also on the Velocity team are Chief Financial Officer Ashish Chapagain, who came from Time Manufacturing, and Vice President of Operations Spencer Mason, who was the market manager responsible for the stores FEP purchased.
Those 38 units, said Esposito, were performing well and have good margins and sales growth.
“These are definitely not broken stores. Our key to success would be not to screw it up and really keep the eye on this development,” said Esposito. “Because, you know, to do 75 stores, we’ve got to do like 15 stores a year. It’s a lot of development.”
The sale of stores to FEP is part of Valvoline’s strategic refranchising efforts, said Chief Franchising Officer Adam Worsham, as the company works toward its goal of adding 250 new units by 2027. Earlier this year it sold 28 corporate stores in Las Vegas and Colorado to franchisees.
FEP, Worsham continued, shares Valvoline’s people-first culture. “We talked to other franchisors they work with and to their operating teams and saw they have a long-term outlook and they’re willing to make investments” to grow their businesses.
There aren’t many private equity sponsors in the system, he noted, but those partnerships have been effective in markets where a significant amount of capital is needed to develop white space. Carousel Capital, for example, invested in franchisee Quality Automotive Services in 2021, became the majority owner in 2022 and that group now has nearly 200 Valvoline units.