$DRVN Cruising Through the Driven Brands Thesis | Kyle Mowery GrizzlyRock Capital

Why It Matters

Driven Brands offers a low‑cost, high‑margin franchise engine poised to benefit from a still‑dominant ICE fleet, making it an attractive undervalued catalyst despite short‑term accounting uncertainty.

Key Takeaways

• Driven Brands focuses on high‑margin Take Five quick‑lube franchise model.
• Recent divestiture of underperforming car‑wash units simplifies business focus.
• Take Five shows strong unit economics comparable to Valvoline peers.
• ICE vehicle fleet remains dominant, supporting demand through 2035‑2037.
• Accounting restatement poses short‑term risk but fundamentals stay attractive.

Summary

The podcast revisits Driven Brands (DRVN), a fragmented automotive‑aftermarket operator whose core growth engine is the Take Five quick‑lube franchise. Host Andrew Walker and GrizzlyRock’s Kyle Mowery stress that recent divestitures of low‑margin car‑wash assets have stripped away a capital‑allocation distraction, leaving a streamlined, cash‑generating business. Key data points include Take Five’s near‑300 locations, double‑digit unit growth, and unit economics that rival Valvoline’s 11‑times‑EBITDA multiple. The car‑wash sales fetched only mid‑single‑digit EBITDA multiples, underscoring the strategic benefit of exiting the weather‑exposed segment. Franchisees—from mom‑and‑pop operators to private‑equity‑backed groups—report strong cash‑on‑cash returns, reinforcing the model’s scalability. Notable remarks highlight Take Five as the “crown jewel,” with Mowery noting, “ICE vehicle fleet will peak around 2035‑2037, giving us a 20‑year service runway.” He also compares Take Five’s returns to Valvoline, suggesting the market undervalues the business due to accounting noise. The discussion acknowledges a pending accounting restatement that adds short‑term volatility but does not alter the underlying cash‑flow story. For investors, the combination of a simplified portfolio, robust franchise demand, and a long‑tail ICE market creates a compelling value play. While the accounting issue introduces near‑term risk, the fundamentals—high‑margin recurring revenue and attractive capital returns—support a bullish outlook on DRVN’s upside potential.

Original Description

Driven Brands ($DRVN) puked on a February accounting restatement. Kyle Mowery (GrizzlyRock Capital) walks through why Take 5 remains a crown jewel and could be worth the entire EV of the company (making the franchise and autoglass businesses a free option). We also dig into how the April and May 8-Ks took the scary left-tail risks off the table, why Roark Capital (65% owner) might run a sale process later this year, and the bear case (corporate cost bloat, weakness in the non-Take-5 brands).

disclaimer: Andrew is long DRVN

Kyle's late 2024 DRVN podcast: https://www.yetanothervalueblog.com/p/grizzlyrock-capitals-kyle-mowery?utm_source=publication-search

[00:00:00] Intro and disclosures

[00:03:23] What is Driven Brands today

[00:05:14] Why the car wash divestiture sold so cheap

[00:09:19] Why Take 5 is the crown jewel

[00:11:15] EV risk and the US ICE car park

[00:13:21] Franchisee demand and unit growth

[00:15:31] Take 5 vs. Valvoline

[00:18:13] The addbacks problem

[00:20:57] Inside the accounting restatement

[00:23:22] The cash adjustment

[00:28:50] The ATI revenue recognition issue

[00:30:12] Reading the April and May 8-Ks

[00:32:40] Debating adjusted EBITDA

[00:34:55] Corporate cost bloat

[00:37:54] Is this fraud? No

[00:39:49] Weakness in the non-Take-5 brands

[00:43:45] Sum-of-the-parts: Take 5 covers the debt

[00:46:30] Why public markets misprice the franchise brands

[00:48:04] Durability of franchise cash flows

[00:50:14] Timing the resolution

[00:53:26] Roark Capital's strategic options

[00:57:40] Labor Day or Halloween?

[01:00:00] Capital cycle stories Kyle's watching

[01:03:02] Chinese supply pressure on industrials

Links:

Yet Another Value Blog - https://www.yetanothervalueblog.com

See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

Production and editing by The Podcast Consultant - https://thepodcastconsultant.com/