SPZ - Business Model/Strategy

Forum Topics SPZ SPZ Business Model/Strategy

Pinned straw:

Last edited 2 months ago

SPZ released 1H25 results this morning which on balance were fine, a little weaker than I expected but largely due to operating losses in Denmark and Germany before those geographies scale up.

However what dominated the result and the conference call this morning was the acquisition of Peak Parking based in Texas for the measly sum of $56m. 8x forecast EBITDA is nothing to sneeze at either!

It is a step change from the previous acquisitions made by SPZ:

UK - NE Parking (517 manual sites) for $520k

UK - Enterprise Parking Solutions (68 ANPR sites) for $1.54m

Germany - ParkInnovation (46 manual sites) for $2m

UK - Local Parking Security (72 ANPR, 54 manual sites) for $5.8m

Of course everything is bigger in Texas, including acquisitions!

SPZ management has earned the benefit of the doubt and I'm sure the lofty multiple the business trades at made the decision to acquire an easier one. That said, there are things shareholders will need to keep an eye on because unlike the acquisitions above the integration of Peak won't be as simple.

The business doesn't operate with SPZ's traditional parking breach notice business model. They charge a management fee to customers to manage their complete parking solution including valet, event management and consulting services. SPZ disclosed 20 of Peak's existing 134 sites have already expressed a desire to implement breach notices in their existing parking solution so there should be some immediate synergies on that front.

However it requires a change to the Peak business model where currently customers pay for any capex installed on their sites (boom gates, ticketing machines, etc.). SPZ has seen great success with the no capex model for customer, installing their ANPR system for free but then collecting the full benefit of any parking breaches (the customer benefits from better turnover in their parking site). On the call, the SPZ CEO said there is no one in the US using that model and they will remain flexible and use the model that best suits the customer.

In the end it became clear that despite Peak not being a "plug and play" acquisition like others in the past, SPZ management are very excited for it as the business has grown very strongly over the last few years all organically with an entrepreneurial management team committed to staying on and driving that further. But realistically today's announcement is bigger than Peak, it is confirmation that SPZ is ready to take on the gigantic US market. It will be a challenge and we will have to wait and see whether the Peak acquisition was the right one but nonetheless it is exciting to see them attack the US opportunity.

mikebrisy

Added 2 months ago

I wanted to add a few additional thoughts to the Peak Parking acquisition assessment provided by @Wini.

Market Footprint

First, a key positive feature is that this business already has an operating footprint in 6 US States, of which TX (pop. 31m ) and FL (23m) are very significant territorities. On the call Paul highlighted in particular Florida and, within Texas, Houston and Fort Worth, as priority locations which have favourable laws, bye-laws and regulations. This shouldn't be a surprise to anyone because last year Paul explicitly told us that FL and TX were the priority targets due to market fit. (Hey, everyone who entered the sweepstake is a winner!)

ANPR and Penalities in the US

It is interesting that $SPZ have been engaged with Peak Parking for about a year and I join this up with the comment picked up by @Wini that 20 of Peak's existing 134 customers had expressed interest in implementing breach notice technology. Now, while Paul said no-one in the US is currently operating the $SPZ technology and business model, my BA (ChatGPT 4.0) did some research and found that several firms are using ANPR technology (they call it ALPR in the US). See Annex 1 (below). It is conceivable therefore, that the alignment between $SPZ and Peak was that Peak was looking to enhance it's customer offering to remain competitive in the market. These 20 sites will therefore be an early indicator of product-market fit, and an early indication as to whether $SPZ can apply or adapt their business model to the US markets. That is the key acquisition risk, and one to track over the next couple of results calls. Once we have confirmation that they are able to get traction with the technology and achieve favourable economics, then the transformational nature of the Peak acquisition would be confirmed. Clearly, Paul and his team having made the acquisition believe it to be the case - and I don't have any reason to second guess them. I also consider it a positive that to date, Paul has provided country-level EBITDA visibility. We already know the starting point for peak, and so it should be a relatively simple matter to track progress over the next year or two.

Peak Quality

Peak appears to be a quality business. In CY2024, it's EBIDTA margin on revenue of US$9.1m was 36.2%, which compares with 24.0% achieved by $SPZ for FY24, although I note the 1H FY25 result was even better at 28.7% (or 26.4% backing out the FX benefit). And with a CY2022-CY2024 Revenue CAGR of 45% and a capex-light model, the founder-led management team are clearly doing something right. Unlike earlier acquisitions, this one actually adds quality to $SPZ from Day 1. Retaining the Peak management team is going to be vitally important for $SPZ, particularly over the coming years.

Diversification

Strategically, I really like the market diversification aspect of the deal. It gets $SPZ much more quickly to a place where it is less-exposed to regulatory change in a UK, potentially, shaving 5-10 years off the time for the survival of $SPZ not to lie solely in the hands of His Majesty's Government. Successful growth in the US would fundamentally change the risk profile of the business.

Valuation

At 8 x Forecast CY25 EBITDA (including the management incentive), the deal is well priced, and Paul cited the comarable benchmark. Of course, this is less about what Peak is today, but in that it gives immediate access to $SPZ's largest target market. It is an immediately cash generative US footprint, adding some 33% additional EBITDA to the combined group.

I'll do a little work tomorrow on attempting to value $SPZ, the range will be wide and, to be honest, the analyst views of $1.10 as a central case are probably not far off. So, I'll happily be taking my entitlement in the capital raise at $0.88.

Conclusion

I really like this deal. A lot. (Full Summary in Annex 2) But we will need a couple of years to see if it delivers.

Disc: Held in RL and SM

-----------------------------------------------------------

ANNEX 1: ANPR Technology Firms Operating in the US.

(A report by ChatGPT 4.0 prepared for Mikebrisy)

Several U.S. businesses utilize Automatic License Plate Recognition (ALPR) technology to issue parking fines. ALPR systems automate the identification of vehicles by capturing license plate information, which is then cross-referenced with parking permissions or time restrictions. When a violation is detected, such as an expired permit or overstayed time limit, the system can automatically issue a parking citation.

Examples of ALPR-Enabled Parking Enforcement Solutions:

Leonardo's ELSAG Parking Enforcement Systems: These systems use ALPR technology to monitor parking areas, identifying vehicles that violate parking regulations. The system captures license plate data and, upon detecting a violation, alerts enforcement officers to issue a citation.

leonardocompany-us.com

Genetec's AutoVu ALPR System: Designed for parking management, AutoVu helps enforcement teams identify parking violations efficiently. By automatically scanning license plates and comparing them against permit databases or time-limited parking zones, the system streamlines the process of issuing fines for infractions.

genetec.com

ParkEngage's ALPR-Based Parking Enforcement: This solution enables parking operators to implement accurate enforcement procedures. The ALPR system scans license plates and verifies them against a database of permitted vehicles. When unauthorized or violating vehicles are detected, the system facilitates the issuance of fines, thereby increasing compliance and revenue.

parkengage.com

Enforce Plus ALPR Parking Enforcement App: This application leverages ALPR technology to enhance parking enforcement. It allows officers to scan license plates using mobile devices, automatically identifying violations and generating citations on the spot.

enforceplus.com

These systems are widely adopted by municipalities, universities, and private parking operators across the United States to improve the efficiency and accuracy of parking enforcement.

---------------------------------------------------

ANNEX 2: Deal Summary

(A report by ChatGPT 4,0 prepared for Mikebrisy)

Here’s a summary of the key points related to Smart Parking’s proposed acquisition of Peak Parking PL from the uploaded earnings call transcript:

Acquisition Overview:

Smart Parking Limited (SPZ) announced the acquisition of 100% of Peak Parking, a U.S.-based boutique parking operator, for USD 36 million.
Peak Parking operates across 134 locations in Texas, Georgia, Washington State, and Florida.
The acquisition aligns with SPZ’s strategy to expand into the U.S. market, the largest parking operations market globally.

Financial Highlights:

Peak Parking recorded USD 9 million in revenue in 2024 with a CAGR of 45% since 2022 and an EBITDA of USD 3.3 million in 2024.
The acquisition price includes:
USD 26 million in cash,
USD 6 million in SPZ shares, and
An earnout of up to USD 4 million based on achieving a 2025 EBITDA of USD 4.5 million.
SPZ is launching a fully underwritten $45 million equity raise at $0.88 per share to fund the deal, along with a debt facility from HSBC.

Strategic Rationale:

Market Expansion: SPZ gains immediate access to the U.S. market, focusing initially on high-growth areas like Houston, Dallas-Fort Worth, and Florida.
Synergies: SPZ will integrate its proprietary parking management technology with Peak’s operations, aiming to improve efficiency, create new revenue streams, and expand the customer base.
Leadership Continuity: Peak’s Founder, Will Spielhagen, and his team will remain with SPZ, ensuring business continuity and leveraging their local market expertise.

Operational Details:

Capital Expenditure: Peak Parking currently has no CapEx requirements, as landowners fund infrastructure.
SPZ’s technology rollout will require time for integration, training, and setup, with a team from SPZ’s U.K. operations assisting the process.
The acquisition is expected to deliver over 25% EPS accretion in FY ’25, with significant growth potential as SPZ’s technology enhances Peak’s operations.

Future Outlook:

SPZ aims to make its U.S. operations larger than its current U.K. business, focusing first on fully integrating Peak and leveraging its technology platform.
The company remains open to exploring further acquisitions, particularly in Europe, once the Peak integration is complete.

This acquisition is positioned as a transformative step for Smart Parking, expanding its footprint into a highly lucrative market and leveraging its technology to drive future growth.

UncleWally

Added 2 months ago

Thanks for sharing your thoughts @Wini much appreciated.

I was late to get on board this one but I see a long runway ahead if management continue to execute.

Held in RL

Smart Parking Limited