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When Scott Solombrino announced at the DavEl/BostonCoach annual affiliate meeting in August that the company intended to acquire chauffeured operations as part of its strategic plan, the 300-plus affiliates who were present were left to speculate on the who, what, when and why.
On Oct. 1, Solombrino made the first of what he promised would be a wave of announcements. The company, which has 589 affiliates worldwide, purchased Torrey Pines Transportation, the second largest operation in San Diego County.
LCT related article: Torrey Pines Owners Exit Industry With High Achievements
LCT: To some, this purchase was perplexing because on the surface the company, at 17 vehicles and less than $5 million revenue, doesn't seem big enough for a company your size to bother with. What’s your reasoning here?
Solombrino: DavEl/BostonCoach wants to broaden its footprint in California. San Diego has a great convention/meetings business and we want to tap into that more. It’s our opinion that San Diego has always been underserved. We anticipate we will double the size of Torrey Pines in the next 12 months. Further up the corridor, from San Diego to Newport Beach, we find an unpolished gem as well.
LCT: In a time when many brick-and-mortar businesses are moving towards the outsource model, this play seems counterintuitive to that trend. Why not just outsource?
Solombrino: We do outsource and we will continue to lean on our affiliates. However, there is a point when we look at our volume and say, “Hey, we are sending too much work out. We need to have some metal here.” There is a point when we determine it’s safer from a quality control standpoint to physically be there. In the San Diego market, we see too much untapped growth potential and not enough companies that can do the work our way. We become too exposed to mistakes, which our clients of course won't tolerate. While it's true that more companies are moving away from company-owned fleets, we believe that is a flawed strategy. In today’s environment, creating “separateness from TNCs” is a key selling point. So we’re betting on that and expanding our corporate owned fleets. It’s contrary to popular vote, however, that’s the point. We want to be different.
LCT: Will you change the name of the company to DavEl/BostonCoach San Diego?
Solombrino: No. We’re leaving the brand intact for now because Torrey has a solid reputation and brand equity that holds value.
LCT: You stated to us that many deals come across your desk. How did this one find you?
Solombrino: Honestly, Torrey Pines fell into our lap. Charles Tenney [broker] brought us this deal and it just looked good. We are not exactly prospecting 15-car operations, but on the other hand we are looking at all solid options and growth markets.
LCT: How do you analyze a company in terms of valuation?
Solombrino: It all has to look good on paper — strong brand equity and recognition, a solid client base, profitable, and with a great legacy. Unfortunately, there’s a reason companies are for sale in this market. Many are in really bad shape which we find out through due diligence.
LCT: What kinds of problems are you seeing that turn you off from buying?
Solombrino: Companies with too many legal issues, companies with employee issues, weak brands, outdated infrastructure. And the kiss of death is that they are not making money.
LCT: Back to California. You love the state even though it's one of the toughest on businesses. What makes it worth it to put up with all the hassles?
Solombrino: Money. There is a lot of wealth and the market regions are spread out. We are very serious about Orange County and that’s only an hour or so away from San Diego. There is just so much affluence. Orange County is a key California market, and as I've said, we are looking at that. We own a huge customer base in California, San Diego included.
LCT: It's clearly a great time to buy companies, but with valuations the way they are, no one's going to make it rich selling off a company in this climate. Would you agree?
Solombrino: No doubt about it. Valuations are off.
LCT: In your speeches and interviews during the last several months, you call for a heads up that the market is consolidating. But we go through these cycles every 10 years or so. We have growth spurts and then companies merge, and so it repeats itself. What's different about the normal ebb and flow, which is always dictated by supply and demand?
Solombrino: What's different is that the TNC business changed the world. They are now infiltrating the corporate market. You are correct in the market trends going through cycles of growth, retraction, etc. My calculation is that even if the TNCs do get regulated, the instantaneous nature of booking a car is here to stay, and because of that, companies are not going to be able to compete long term. The good news for chauffuered car is that the TNCs have created a new market of passengers who would not have looked our way. That's good for the business long term if we survive the onslaught of TNCs in the here and now. Investing in the chauffeured car market is way off because we are still brick and mortar; we are not tech companies. The money is behind the TNC/on-demand model. If the TNCs lose their independent-operator status and have to compete with us on a level playing field, then our valuations will dramatically improve.
LCT: You took a position that small operators cannot survive the new culture of mobile technology based car service. However, our research tells us they are much more malleable than you think. Not only are they cultivating their own clients through traditional means such as local advertising, bridal shows and such, but they're also enlisting their fleets with the TNCs. So they're being filtered leads they wouldn't normally have access to. It's been helpful, and not necessarily hurtful.
Solombrino: You are right. They have new opportunities. It’s the mid-sized operators who are threatened the most. My two cents are the TNCs have forever changed the game.
LCT: Do you believe the meeting planning/group business is safe from TNCs? Uber is truly an on-demand service. How can they be organized enough to handle group logistics?
Solombrino: The meeting space is going to also be disrupted. I disagree that we are safe in that area from TNCs. Meeting planners are definitely being courted by TNCs and they are lured by the path of least resistance and cheapest way to travel. We own and operate Best of Boston, a meetings business, and we know firsthand that TNCs are infiltrating the market every day.
LCT: What are you finding when your legislative group through the National Limousine Association talks to Congress about TNC issues?
Solombrino: Congress, the Department of Labor, and the IRS are all sitting up and paying attention to the impact that on-demand companies are having on the workforce. Overtime, lack of taxation and insurance are resonating with them. They are realizing how much money states and workers are losing due to the new sharing economy model. It's a problem.
LCT: Meanwhile, what about your clients? Is corporate America concerned about safety?
Solombrino: A year ago, there was a love-fest going on, and Uber was clearly the darling. With so much bad press about drivers, compliance and safety, corporate America is on high alert. There is a real concern about liability exposure. So, we have momentum here that we did not have a year ago. However, GBTA just published a white paper — 25% of the 3,000 travel managers surveyed stated they care about compliance, so clearly more needs to get done. The fight is far from over.
LCT: Not only have you mentioned publicly that you are working closely with your competitors, you're showing up at trade shows and conducting presentations with them. What's that all about?
Solombrino: Well, we've come to terms with the adage that there's strength in numbers. We have no alternative. Collaboration is real. We cannot survive as an industry without banning together to stand as the David against this Goliath called Uber. The NLA is very focused on this strategy of sticking together as one force, and I give Gary Buffo a lot of credit for staying on point. We're in a paradigm shift, and these are historic times.
LCT: Any parting shots?
Solombrino: Mobile applications are here to stay. Whether or not Uber makes it in the long haul, disruptive technology has changed the landscape forever. Companies will have to work very differently compared to what they are used to. That said, there are many people who can't or won't make those changes to their business organization. Those are the companies that will either close or merge or find buyers. So we expect more acquisition opportunities because of all this. We're in a financial position to capitalize on this opportunity. And we're going to take it. As a legislative chairman for the NLA, I am involved in the negotiations and discussions happening in Washington, and I believe the labor matter will go our way in the end. DavEl/BostonCoach is betting on that, but if I'm wrong, it's O.K. too. We'll still be in great shape because we will have corporate offices in the primary global markets and that gives me great peace of mind. I always feel better when I'm in control of my own destiny!
Related Topics: affiliate networks, Boston operators, BostonCoach, business deals, California operators, Dav El Chauffeured Transportation, Massachusetts operators, mergers & acquisitions, San Diego operators, Scott Solombrino, TNCs, Torrey Pines Transportation
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