804: Optimizing the Returns on a Business Asset | Al Farrell, CFO, Transaction Data Systems

Instead, Farrell’s angst was due to the fact that management’s asset utilization improvement feat was achieved on the eve of COVID-19’s arrival in the U.S., and the asset that was so adroitly leveraged to pump up returns was none other than a fleet of rental cars some 35,000 vehicles strong.

Certainly, few industries were hit harder by COVID’s arrival than car rentals, and as car rental businesses go, few suffered a more direct hit than Advantage Rent A Car, where Farrell occupied the CFO office from 2016 to early 2022.  

“The car rental business is like the airlines because it requires a great deal of capital investment—but unlike with the airlines, you don’t have a firm reservation and people generally don’t prepay,” explains Farrell, who notes that in early 2020, after the U.S. announced a travel ban in response to COVID, Advantage’s reservation snag was in full view.  

“That’s when 96 percent of our reservations went up in smoke,” recalls Farrell, who reports that prior to the travel ban, Advantage’s growing utilization rates had begun to increase the prospects for selling the company.

Says Farrell: “Unfortunately, we didn’t come out with the outcome that we wanted, but had COVID not hit, I think that we would have had the very successful sale of a business that was significantly more productive and lucrative than it was when we started out.” –Jack Sweeney

What we do is to really provide their core ERP system, if you will, called a PMS—a pharmacy management system. It’s the system of record that they run their business on. We also do point-of-sale, POS, which couples with the PMS. This is kind of a full infrastructure platform for them, but this core then becomes a platform on which we build ecosystem services for them and revenues for us in the business.

We’re located throughout the U.S., with more than 7,000 independent pharmacist customers. We touch about 2.5 million lives. It’s a great platform for recurring revenue through this sort of software-as-a-service model, but it’s also a great platform for growth and acquisition. We’re backed by one of the many BlackRock funds, so we’ve got the resources and the management team and the structure to really build and grow out the business in a number of very interesting ways.

As far as the infrastructure goes, I want to continue to improve our processes, people, and systems because that’s what finance runs on. We’re looking at a variety of ways to do this and a variety of different kinds of configurations, if you will, with which to do it. I think that we need to at least be on the path to—if not at the point of—public company readiness. The market’s a little messy right now, but generally it tends to afford high valuation multiples to well-functioning and good-growth SaaS companies. So, this may be a possibility. It’s a possible exit—not necessarily the most probable one or the one that we’ll do, but I think that we need to be ready for it. I think that we need to have consolidated what will probably be a handful of acquisitions and have done so in a way that both operationally and financially—and from a risk and control standpoint—has them well established.

Then we need to make sure that everybody’s dressed up and ready to go on a road show. I don’t think that this will happen in 12 months, but it certainly could happen in 24 months. We need to make sure not only that we have gotten to where we want to be but also that we can present everything properly and make sure that the next owner of this business—whether public or private—really fully understands its value.

jb