Insiders and hedge fund billionaires like Driven Brands. Driven Brands manages a family of automotive companies including MAACO, Meineke Car Care Centers, Merlin 200,000 Mile Shops, Pro Oil Change, Econo Lube & Tune, AutoQual, Aero-Colours, and Drive N Style. Collectively, the brands generate annual system revenues of approximately $1 billion through 1,500 locations in 50 states and 2 countries.  It’s a decent back-to-work play and reopening the economy but that’s probably not why insiders are buying it.

Driven Brands DRVN just went public at $21 with a market cap of    Roark Capital, a private equity firm, bought Driven Brands in August 2015 for an undisclosed amount of money. It then proceeded to buy CARSTAR in October 2015 and CARSTAR Canada in December 2015, which together brought the portfolio up to more than 2,200 locations in the U.S. and Canada yielding nearly $2 billion in sales. Other automotive acquisitions followed.

Driven Brands Holdings Inc. raised $700 million in its initial public offering yesterday, selling almost 32 million shares, down from a planned 38 million, for $22 each. That’s 19 percent higher than its initial range of $17 to $20. The IPO set a couple of records, too, according to BofA Securities, bookrunner on the deal. Investors liked the “hot topics” that Driven Brands satisfied, including “franchised,” “very little market share with massive TAM” or total addressable market and “Amazon-proof services.  The IPO was hot, opening at $28.

What’s interesting is that insiders were buying, not on the IPO but where it was trading in the aftermarket. That’s very unusual.  VP Mendoza bought 30,000 shares at $29.75 on 1/21/21.  A director bought 15,000 shares at $28 on January 14th. The President, Kyle Marshall bought a token amount, 2200 shares at $26.98 on 1/19/21.  The Insiders Fund made a profitable trade on this name exiting after the syndicate group and investment banks underwriting all came out with buys on February 9th. Today we re-entered below $30.  I think this is a trade as we don’t like the 70% private equity ownership overhang.

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Insiders sell stock for many reasons, but they generally buy for just one – to make money. You’ve always heard the best information is inside information.  Everyone who has any experience at all in the stock market pays close attention to what insiders are doing.  After all, who knows a business better than the people running it?  Officers, directors, and 10% owners are required to inform the public through a Form 4 Filing any transaction, buy, sell, exercise, or any other with 48 hours of doing so. This info is available for free from the SEC’s Web site, Edgar, although we subscribe to SECForm4  as they provide a way to manage and make sense of the vast realms of data. I’ve tried a lot of vendors and SECForm4 is one of the most customer-friendly and responsive I’ve used.

We publish a subscription newsletter called The Insiders Report.  We offer a free 30-day trial so you have nothing to lose by trying it out. Be sure to carefully read the TERMS OF SERVICE.

Another source for insider buying and selling and much more is FinViz Elite. FinViz stands for financial visualization and they do an amazing job of providing reams of data and the tools to help you get to the bottom of it, the information that helps me make informed decisions and probable outcomes. I’ve been using their site for years and it only gets better over time.

This is as close to “insider information” that an ordinary investor is likely to see- and it’s entirely legal. 

BEWARE– Following insiders can be hazardous to your financial health unless you know what you are doing.  Unlike the raw, unfiltered data, The Insiders Fund blog informs you of the purchases that count, the ones that are just window dressing into deceiving the public that all is hunky-dory, and those that are just flat out other people’s money and should be just discarded like bad fish. As a rule, we only look at material amounts of money, $200 thousand or more, as anything less could just be window dressing.

The bar is different from selling because the natural state of management is to be sellers. This is because most companies provide significant amounts of management compensation packages as stock and options. Therefore, with selling, we analyze for unusual patterns, such as insiders selling 25 percent or more of their holdings or multiple insiders selling near 52-week lows. Another red flag is large planned sale programs that start without warning. Unfortunately, the public information disclosure requirements about these programs referred to as Rule 10b5-1 is horrendously poor. Also planned sales that just pop up out of nowhere are basically sales and are seeking cover under the Sarbanes Oxley corporate welfare clause. I also generally ignore 10 percent shareholders as they tend to be OPM (other people’s money) and perhaps not the smart money we are trying to read the tea leaves on.

Of course, insiders can also be wrong about their Company’s prospects. Don’t let anyone fool you into believing they never make mistakes.  No one tracks and understands insider behavior better than us. We’ve been doing it religiously since 2001 when I quit being an insider myself and devoted myself full time to managing my personal investments. They can easily be wrong about how much others will value them, and in many cases, maybe most cases have no more idea what the future may hold than you or I. In short, you can lose money following them.  We have and we curse aloud, what were they thinking!  Needless to say, past good fortune is no guarantee of future success.  We may own positions, long or short, in any of these names and are under no obligation to disclose that. We welcome your comments on our analysis.

This blog is solely for educational purposes and the author’s own amusement.  Investing with The Insiders Fund is for qualified investors and by Prospectus only. Nothing herein should be construed otherwise.  THE INSIDERS FUND invests in companies at or near prices that management has been willing to invest significant amounts of their own money in.  If you would like to hear more about how you can get involved with the Insiders Fund, please schedule some time on my calendar. 

Prosperous Trading,

Harvey Sax

The Insiders Fund was the 4th best long-short equity fund in the world in 2019