GrizzlyRock Capital's Kyle Mowery on $DRVN's goodco / badco thesis

Episode Summary

Executive Summary: The episode analyzes Driven Brands as a complex but potentially mispriced automotive aftermarket company, arguing that its high-quality growth businesses—Take 5 oil change and AutoGlass—are being overshadowed by a troubled U.S. car wash segment. The discussion focuses on franchise economics, private-equity control, disclosure improvements, EV risk, and potential value unlocks from restructuring or divesting underperforming assets.

Main Topics: Driven Brands as a ‘good co / bad co’ investment (Priority: 5/5): The hosts frame Driven as a classic dislocation: about 90% of EBITDA is performing well, while roughly 10% tied to U.S. car wash has driven a major stock decline. The market is seen as over-discounting the whole company because of the weaker segment. Take 5 oil change growth and economics (Priority: 5/5): Take 5 is presented as the crown jewel: a recurring, low-labor, convenience-driven service taking share from dealerships and DIY. Its unit rollout and store maturation are expected to drive substantial embedded EBITDA growth. AutoGlass as a hidden growth driver (Priority: 5/5): AutoGlass is argued to be an underappreciated business benefiting from ADAS-related calibration requirements, higher ticket sizes, insurance channel expansion, and national scale advantages versus fragmented mom-and-pop competitors. Car wash overinvestment and strategic reset (Priority: 5/5): U.S. car wash is described as the problematic segment that suffered from industry oversupply, high purchase prices, and weak execution. Management is ring-fencing it and running a strategic process to sell all or part of it. Private equity ownership and capital allocation (Priority: 4/5): Rourke’s control is treated as both a positive and a scrutiny point. The conversation weighs whether a private-equity sponsor improves discipline and alignment or creates disclosure and capital-allocation concerns. Valuation, disclosure, and re-segmentation (Priority: 4/5): The podcast argues Driven is too cheap relative to its growth businesses and that forthcoming re-segmentation and improved disclosure could help the market properly value Take 5, AutoGlass, franchise, and other segments separately. EV risk and long-term demand (Priority: 4/5): The main structural risk discussed is faster EV adoption, which could reduce oil-change demand over time. Still, the speakers argue the current installed ICE car park and geography-specific adoption curves limit near-term downside.

Key Arguments: Driven is mispriced because the market is valuing the entire company through the lens of a troubled car wash business, despite most EBITDA coming from growing, high-return segments. Take 5 should command a much higher implied value because it has strong unit economics, recurring demand, and embedded growth from store maturation. AutoGlass has a credible path to growth because ADAS makes windshields more expensive and requires calibration, shifting the market toward insured, specialized service providers. Private equity ownership can be a positive when it forces better capital allocation, but it also tends to suppress disclosure and increase complexity, which may contribute to the valuation discount. The U.S. car wash business was hurt by an industry-wide overinvestment cycle and execution issues; management is now trying to ring-fence or divest it to unlock value. The company’s current structure obscures the underlying quality of the core businesses, but the planned 2025 re-segmentation should help investors value each segment more accurately. EV adoption is a legitimate long-term risk to Take 5 and the broader service mix, but it is unlikely to derail the business in the next several years given the aging ICE fleet and regional adoption patterns.

Data Points: Driven unit count: ~5,000 units - Company operates predominantly in the U.S. across automotive aftermarket services. Rourke ownership: ~62% - Private equity sponsor control of Driven Brands. Goodco / badco EBITDA mix: ~90% good EBITDA / ~10% bad EBITDA - Used to describe the share of the business performing well versus troubled U.S. car wash. Stock price decline: ~$30 to ~$14 per share - Illustrates the market’s repricing after car wash issues. IPO trading range: Low to mid-20s per share - Driven traded as a compounder at IPO before car wash deteriorated. Car wash investment: ~$2 billion - Capital spent acquiring/building roughly 400 car wash units. Car wash footprint: ~375 units - Current Driven U.S. car wash footprint discussed as part of strategic review. Mr. Car Wash comparison: ~500 units - Largest likely strategic buyer/peer in the car wash sector. Take 5 EBITDA growth target: ~$280 million to ~$450 million by 2026 - Analyst Day projection cited for Take 5’s growth path. Take 5 trailing EBITDA: >$300 million - Current scale of the Take 5 segment. Take 5 valuation context: ~8x next-year EBITDA - Speaker’s estimate of the implied multiple after adjusting for the depressed company valuation. Valvoline trading multiple: ~15x EBITDA - Used as a public comp to argue Take 5 may be worth more than current enterprise value. Quick lube share of oil changes: ~20% - Only a fifth of oil changes are currently done at quick lube, suggesting room for share gains. AutoGlass market share leader: ~50% - Safelite’s approximate U.S. share, framing the size of the incumbent leader. AutoGlass installed base age: ~11.5-12 years - Average age of the U.S. car park, supporting ongoing need for repairs and replacement. ADAS on new cars: ~90% - Most new vehicles require windshield calibration after replacement due to driver-assist technology. AutoGlass current scale: ~$50 million EBITDA run rate - Speaker’s estimate for the AutoGlass segment, with expectation it can double over 2-3 years. Leverage: ~5.0x EBITDA declining to ~3.5x - Management’s deleveraging target over the next two years. Street EBITDA estimate: ~$740 million - Referenced as current market expectation for Driven’s EBITDA. Company guidance / adjusted Analyst Day EBITDA: ~$825 million to $850 million - Speaker’s adjusted forward estimate after lease accounting considerations. Growth rate implied: ~43% EBITDA growth / ~13% three-year EBITDA CAGR - Derived from company guidance and analyst-day numbers. Franchise multiple reference: ~13x - Speaker’s rough multiple for franchise-style businesses when separated from car wash issues.

Pivotal Quotes: "There is a lot of complexity, a lot of noise, a lot of hand-wringing, and you have a lot of debt." — Kyle Mowry: Explaining why public markets discount Driven versus cleaner comps like Valvoline. "Yet, yet is the issue." — Kyle Mowry: Answering why Take 5 numbers are not yet separately disclosed, while expecting re-segmentation in 2025. "I think the market is overly focused on the negatives." — Kyle Mowry: Summarizing the investment case that car wash problems have overwhelmed the valuation of strong operating businesses.

Implications: If Take 5 and AutoGlass continue compounding and car wash is sold or ring-fenced, the market may rerate Driven materially higher. The main risks are slower disclosure progress, poor capital allocation, or unexpectedly rapid EV adoption.