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Letter to the Editor

March Comes in a Lion

It's March 2 and doom and gloom still prevail over the stock market, based on the over 300-point drop in the Dow Jones earlier in the week.

The next day after the major drop the market recovered slightly, but today the stock market appears to be continuing a slight downward trend. Literally all stocks have taken a tumble in the last few days including automotives PPG and Sherwin-Williams, which had been showing strength in their stock prices through mid-February.

The reported reasons for this significant drop in the market value of stocks include a lack of strength in Chinese stocks and Japanese stocks, and an overall feeling that the market could become too strong and was due for an overall correction.

What will happen over the next month or so is anybody's guess. My own sense of the situation, and I could be wrong, is that the market will rebound over the next two to three weeks to a level perhaps one or two percent below where it was in mid February. My blood pressure can probably withstand that tiny adjustment.

On another note is Solera Holdings, which purchased the auto claims operations of ADP, including offshore operations. The company has filed a form S-1 with the Securities and Exchange Commission, which lays out its plan for an initial public offering (IPO) of Solera stock. News of its planned offering is mentioned on page 15.

After reading 193 pages of the S-1 form, I am more than a little bit confused as to just exactly what is going on. It would appear that for the years 2004 and 2005 ADP operations were profitable. Then, in 2006 Solera, which had taken over ADP in April, lost approximately $18 million. Most of this is attributable to a combination of depreciation and amortization restructuring charges and interest expense.

The cost to Solera of acquiring the claims services group at ADP was $988,000,321, plus approximately $14 million of transaction and other costs, for a total of a billion plus dollars. The cost of acquiring ADP by Solera was primarily achieved through a combination of loans and investment through companies such as GTCR Golder Rauner II LLC of Chicago, that in its website states that “GTCR’s primary focus is on high-growth segments of the economy that not only have strong organic growth but also are fragmented and benefit from consolidation opportunities.” In some respects it is difficult to see how a provider of database information and support to auto physical damage insurers falls into this category.

According to the S-1 form, in 2006 approximately 40 percent of Solera’s sales came through the insurance industry worldwide and approximately 50 percent came from collision repair facilities, independent adjusters, automotive recyclers, independent adjusters, and others.

The S-1 report makes interesting reading, and provides insights into Solera's overall profit structure, customer base, worldwide activities, and future plans. The S-1 can be downloaded through Edgar.Com.

From an overall collision repair perspective, bad weather in February throughout most of the country has put a great deal of work at the doors of most collision repair facilities. And this obviously will have a positive effect on the sales of refinish materials manufacturers and OE parts sales through dealers, as well as aftermarket and salvage.

-Charles Baker-

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