ADW Capital Management on June 9 issued an open letter to Driven Brands Holdings’ board of directors and controlling shareholder Roark Capital Group urging Driven Brands to undertake a strategic review process and expressing ADW’s “disdain for the status quo.”
“Our firm has continued to increase our stake in Driven and today beneficially owns approximately 4.8% of the shares outstanding through stock and options,” the letter reads. “We have repeatedly attempted to impel action from the management of Driven and its controlling shareholder, Roark Capital, which have clearly yielded no progress whatsoever.
“We believe the business is showing signs of even worse mismanagement than when we first got involved. Driven’s stock has endured a double-digit percentage decline year to date while the market is up nearly 10%, and the company is still not current on its financials.”
The letter goes on to state: “As detailed recently in The Wall Street Journal, the low consumer receptivity to electric vehicles/elimination of tax credit, increased used and new car prices, consumer attitude to slowing changes in feature set, and stickier interest rates have extended the life of the average combustion-engine vehicle to over 13 years. There has never been a better time to be in the aftermarket auto care business, and yet Driven still figures out a way to fumble the ball.”
In its letter, ADW asserts numerous claims, including …
• Driven’s selling, general and administrative (SG&A) expenses have ballooned to new highs, even after divesting a major business. “We cannot fathom how this is possible,” ADW writes. “When questioned about it on the earnings call, there were no satisfactory answers …”
• The company has governance issues, a spending problem and accounting failures, according to ADW, leading it to ask: “How can anyone possibly expect the public markets to trust this team and this structure?”
• ADW questions Roark’s motivations, noting that the private equity firm is in total control under the current governance structure and may have other priorities.
“Driven needs to be sold, and our voice will only grow louder until it is,” ADW’s letter concludes. “We will make our case in the court of public opinion … . If Driven’s management and Roark do not take decisive and immediate action to address this situation, they will reveal themselves to be unfit stewards not only of this business, but of any company — public or private.”
ADW has offered $18 per share for Driven.
The Greensheet reached out to representatives of Driven as well as Roark for comment but did not receive responses prior to publication.
