April 23, 2021 – On today’s podcast, we welcome special guest Tom Tomlinson, CEO of Holley,  the largest and fastest growing platform in the enthusiast branded performance automotive aftermarket category. Holley recently announced a business combination with SPAC Empower that valued the company at $1.55 billion.

On the podcast, Tom discusses: 

  • How one of the nation’s oldest companies, tracing its roots to 1903, has evolved over time
  • Holley’s strategy and growth profile under private equity ownership and the transition to a public listing
  • Its focus on automotive enthusiasts and how that is driving DTC revenue growth
  • Holley’s approach to acquisitions
  • The case for Holley’s stock
  • And more

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Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.com.


Julian Klymochko: Welcome Tom, to The Absolute Return Podcast. Excited to have a real car guy on the show today. Obviously, everyone likes cars, especially some of the cars and some of the parts you make it Holley apply to and getting into the company. I find the story pretty fascinating just because it’s one of the oldest businesses that I think I’ve ever heard of being founded in 1903. So real classic company that’s been around for many, many cycles. I’m sure it’s been owned by a number of competent companies, various entities, private equity firms as well. Could you walk us through a quick history of the company and how it’s developed over the years?


Tom Tomlinson: Sure, sure. Like you said, founded in 1903 by brothers George and Earl Holley. And you know, they were two really innovative guys. They actually started out building some cars and some motorcycles. They taught themselves how to basically cast and machine metal and build their own engines. And so innovative guys and that’s really one of the traditions that we’ve focused on continuing here, has been a big part of the most recent renaissance of Holley. As the story goes, Henry Ford came to them and said, you know what? I’m going to build this great car. You guys make great carburetors. Why don’t you supply my carburetors? So, the company really started out supplying carburetors to Henry Ford. Today we provide parts to Ford racing, but we’ve actually then continued as a supplier all these years.


So, you know, when you look at the company over time, I mean, just an amazing history of more than 50% I’m told of the vehicles used in World war II were used Holley carburetors as an example. And then some of the baddest muscle cars of the sixties and seventies also had Holley carburetors. In fact, I got to tour Jay Leno collection.


Julian Klymochko: Oh, nice.


Tom Tomlinson: And he actually had a PT boat engine, you know, one of his buildings and it was in this, you know, beautiful glass enclosure and it had a Holley carbo on it. So, it was pretty cool to see that, but you know those are the routes. I’ve actually been with the company for 18 years. I started out as chief financial officer and then became CEO in December of 2009. And we really refocused the business on two things on the performance automotive aftermarket, and then also on, you know, on our enthusiastic consumers, that was the number one person in the equation for us. When we took the reins of the business in that 2009 timeframe, we had literally two engineers. Today we’ve grown that too over 135 engineers. And, you know, with just a major focus on developing products that are, you know, enthusiastic consumers love to put on their cars and trucks.


Julian Klymochko: It’s really interesting to note how the company is changed and transitioned evolved over the 18 years that you’ve been with the company. I was wondering how this has related to the various different ownership structures you’ve been to, whether it be, you know, owned by conglomerate, private equity, and now going to be a public company. Does that affect, you know, these various transitions and how the companies manage?


Tom Tomlinson: I think it does certainly. Prior to the time I joined the company it was owned by a conglomerate. But ever since I’ve been with the company so far, it’s basically been private equity investors and you know, early on, you know, we moved through a series of investors that had differing objectives and perhaps didn’t understand the company’s roots. And we really took the company back to, again, you know, focusing on where our brands are known, you know, that’s performance, automotive, aftermarket parts, and then also in building relationships with our enthusiastic consumers. In this really kind of naturally leads into the SPAC discussion. Again, we took the reins in that 2010 timeframe and company was growing rapidly. And what we found is that every few years we would need to go out and you know, raise capital and in the private equity world, that usually meant a transaction where basically almost a hundred percent of your investors change over. And so, you’re in a cycle of getting to know a new group, you know, educating them on the company. Melding your strategy with theirs. And we’re very grateful. The last couple of sponsors that we’ve had have just been very, very good partners, very supportive of the company. And you know, with a good partner it’s helped us drive this growth. We’ve done quite a few acquisitions. A couple of them, at least in my logical construct were transformational. But again, you know, after this a few years, you’re out in the market spending a lot of time raising capital. And so, we were actually at that natural juncture in our development again coming into 2021 and actually in 2020. And so, we became aware of that the SPAC phenomenon and it was intriguing.


And we looked into it, we started talking to SPACs and I guess from our perspective, there are a couple things that we really liked about it. One was, it seemed like a relatively quick and efficient way to take the company public. And you know, there are some upsides, like the ability to really, you know, partner with someone and share, you know, levels of information with them that I think it’s hard to, in the context of an IPO, but also to partner with somebody who could help, I think maybe ease our transition into life as a public company, but also had something meaningful to bring to the table in terms of a consumer focus. And then one of the primary tools today that you use to reach consumers is a variety of digital tools. And so that’s one of the things that we found that empower. We were very excited after the initial discussion and as our discussions continued and we’ve met more and more of the folks at or around Empower, it’s just been very exciting. And we have a great consumer engagement program. You know we know a little bit about digital. We feel like we’ve been learning our way through this. And we see this as a great opportunity to really supercharge the growth of the company, the tap into the know-how. Just really on the digital side, especially, but also on the broader consumer side.


Julian Klymochko: So, to recap for our listeners, that SPAC transaction that you mentioned. Merger with special purpose acquisition company Empower. The deal values Holley, at $1.55 billion dollars. Wondering if you could get into the weeds a little bit. More details on how exactly that transaction came about? Was this a fairly competitive process? Did you go, you know, date a number of SPACs prior to marrying Empower or was it fairly exclusive?


Tom Tomlinson: Yeah, we did. We did. I liked the way you put it. We did date, the number of SPACs. Really had lots of discussions, and I have to say that very early on, we felt very aligned with the Empower folks and you know, we thought it would be a great partnership that would let us really continue to grow the business and drive the growth. And so, it was pretty competitive. And you know, when you look, I mean, from our perspective, once we started looking around in the public markets you know, there’s quite a difference in the multiples you know, private versus public. And so, I mean, when I think of it in terms of our future investors. This looks like a very, very nice multiple to us. And you know, on the flip side of it as a seller, you know, it made sense in the context of, and relative to what our primary investors could have gotten, you know, focusing on a private transaction. So hopefully I said that coherently.


Julian Klymochko: No, that totally makes sense. And now you’re moving from the private equity ownership model, which you have been basically your entire career at Holley. Traded between a number of private equity firms and typically private equity firms. They’ll use a significant amount of leverage, debt and looking to really kind of harvest the cash flows. However, I assume, as you guys transition from private equity ownership to a public entity, that’s more so financed by equity capital, less reliant on debt, you know, less transactional focused. How does that change the business model for the company? Are you more so focused on growth now as opposed to, you know, harvesting those cash flows for the owner?


Tom Tomlinson: Yeah, I mean, I think that it will inevitably allow us to focus more on growth. You’re right, I mean, clearly, we have a long history of operating with a lot more leverage than we’ll have after we closed this transaction. So, I mean, that’ll be nice, but the reason that we really look forward to that I think is that it’ll allow us to focus more of our time and effort, you know, on driving the growth of the business. So, I mean, to us that’s exciting, and I guess I would say the other the other thing that I think is worth talking about, if you think back to our discussion a few minutes ago, we talked about being in this cycle of having to, you know, having to go out and raise capital in the private markets. And just a tremendous amount of management time was dedicated, has been dedicated to that over the years. And then even after you pick a partner, you know, then it’s getting them on board, you know, helping them understand the company. Melding your approach to their approach. And so, this is really exciting to us because it’ll eliminate that side of it. And again, we’ll be able to focus on growth. Now we are picking up some of the additional activities you know, related to being a public company, but also, we’re, bringing on people that are skilled. You know, we’ve got a chief financial officer you know, that we’ll be bringing on here soon to just, you know, bring that next level of public company experience to us. We think it’s going to be very much a positive, and it’s going to allow us to focus on growth.


Julian Klymochko: One aspect that I find compelling about Holley is the digital marketing and the engagement with your enthusiast customers. And I was wondering how this has dovetailed into the distribution of your products? Clearly DTC, direct to customer has been a high growth area for you guys. Is this a real focus of Holley on a go-forward basis?


Tom Tomlinson: Yeah, it definitely is. It started out for us. We realized that, you know, as a family of brands, we needed to have these direct relationships with our consumers and before we got serious about it, I mean, we frequently heard from consumers, you know, indicating that they wanted to buy from us. And so, you know, that is definitely a part of the strategy. It is the fastest growing part of our distribution. We think of that as one of the ways, you know, direct to consumers, one of the ways we distribute our products and it’s also, you know, obviously the highest margin for us. But the most important thing is, understanding what our consumers want, building those relationships with consumers. And so, selling to them directly as an important part of that. I don’t know if you can hear that in the back here? 


Julian Klymochko: It sounds fast. 


Tom Tomlinson: Yeah, exactly. I mean, as our enthusiasm goes by, they want to let us know. Let me know, louder exhaust system on their car. So, I hear that quite a bit, but it actually, you know, it’s just part of the fun. So yeah, I mean, what’s next here?


Michael Kesslering: One area that I’m focused on because obviously the DTC that channel having a ton of growth in that channel for kind of on the e-commerce side and then as well, I mean, the favor ability of it being high margin. That all makes sense from a company perspective and something else that caught my eye that you’re doing, that’s fairly innovative, is getting rid of the negotiated discounts as part of your selling program. Now, you’re still able to have a significant amount of growth. I believe it was 2019 that you stopped that, but you were still able to generate strong demand and grow despite not having guidance that industry practice of discounts. How are you able to do that? Where competitors seem to very much rely on that?


Tom Tomlinson: Yeah, you know, this has definitely been a journey for us. And we made major changes to this, you know, more than a decade ago. And for us, a lot of it was eliminating noise, you know, and actually as we, this is very common in the industry and most of the businesses we look at acquiring have some level of this, you know, activity going on. From our standpoint, we really wanted to understand consumer demand for our product. And when you have a sales team that’s out there individually negotiating orders, you know, nobody can keep track of all that. And so, you know, we want to understand, you know, what the patterns are, if something’s doing well, we want to see it, you know, as quickly as we can, if something isn’t going well, we want to see it as soon as we can.


And for a number of years, we held on to a promotion that we did and it was a mixed consumer promotion and resell or promotion, but you know, after doing that for a number of years, we really just decided that was putting the same level of noise into the business or nearly the same level of noises as some of the discounting practices that we had eliminated earlier in our development. And so, 2019 was the first year. We didn’t do the reseller part of that promotion. And then we also had closed on a large acquisition in 2018. And we implemented this pricing model. We call it our disciplined pricing model in 2019. And they had been, you know, discounting heavily to, you know, management teams, use it to manage monthly earnings. And you know, from our prospective again. Instead of pushing products out to distribution, we’re all about creating demand for our products and to get that pull through distribution and, you know, it has really worked for us. I mean, our top resellers, the resellers that, you know, carry abroad, you know, kind of a broad sample of our product portfolio are. you know, growing very nicely and growing with us.


Julian Klymochko: So, from a product perspective. Many of these parts that you guys sell have been around for, you know, over a hundred years, starting out with the carburetors, but now the auto businesses going through, perhaps its biggest transition ever as, you know, popular internal combustion engines over the next few decades, we’ll be seeing more and more electric vehicles as the, you know, vehicles on the road slowly transition to becoming more and more electrified. I was wondering, obviously this presents a massive macro change for Holley. For example, you won’t be hearing super loud cars going by as much I assume, unless they, you know, create really loud electric engines. I don’t know. But how are you guys managing the transition to electric vehicles on a go-forward basis?


Tom Tomlinson: Yeah, so there a number of things there. One of the first things I want to respond to, yes. We certainly have products in the product line that have been around for decades, which is actually a wonderful thing. And you know, the engineering was all incurred years ago. And so, you know, we continue to sell those and it’s really great to have such long product life cycles, but you know, one of our, there are really two ways that we grow at the highest level. And, you know, one of those is innovation and that comes down to exciting new products. So, if you look at our 2020 sales, 40% of the revenues in 2020 came from products that had been introduced within the last five years. And we have a very full new product pipeline. 


In the 2009, 2010 timeframe, there really was no new product pipeline. Today, you know, we have a very, very robust, very full new product pipeline. So, you know, that then gets us to the, to the EV question and you know, we’re, actually very excited about electric vehicles. I began noticing this a few years ago. I don’t know if you guys have seen, the internet just seems to be covered up with videos of Tesla blowing the doors of everything out there. Lamborghini’s, Ferrari’s, Corvettes, Camaro’s, you know, on and on and on.


Julian Klymochko: Ludicrous mode. 


Tom Tomlinson: I’m sorry? 


Julian Klymochko: Ludicrous mode.


Tom Tomlinson: Ludicrous mode, yeah, absolutely. And then now the Plaid car is coming, which just absolutely incredible performance. So, a couple of years ago I thought, you know what, this is coming, we just need to get familiar with it and experience it. And so, I bought a Tesla Model 3 Performance, which I’ve actually been daily driving. And so, we’re actively developing products for those. And in fact, I have prototype parts on the car I drive every day. We really see two opportunities on the EV side. One, and this very much mirrors kind of the rest of the business. A lot of what we do is people that buy a later model car and want to modify it. One of the ways that we can serve enthusiastic of electric vehicles is, to develop and sell products that improve the performance of those EV vehicles.


And so, there are plenty of opportunities there. The other major opportunity we see is, we really see a growing interest on the part of enthusiasts to convert, you know, internal combustion engines to electric power. And a lot of these are, you know, classics that we humans love nostalgia. And so, you know, the classic category is very important. But, but even, you know, we’re seeing it in some cars that we would classify as, you know, modern and late model. And so, a lot of what we do for classic vehicles today is we provide products that allow consumers to update them with modern technology. So electronic fuel injection being one. And you know, another example is modern drive train conversions are very, very popular with owners of classic vehicles.


In fact, you know, one of the categories we see, it’s called a restomod, which is a mashup of restoration and modification and you know, updating those vehicles. I mean, look, if you have an electric car, you’ve experienced that, but you know, probably if not, then you drive a modern vehicle that has a high degree of electronic controls. And as we think about supporting these electronic fuel injection conversions and the modern powertrain conversions. Over time, we’ve become experts in electronics. And so that gives us really, we think a, you know, a natural progression to provide consumers with cost-effective and easy to use electronic controls for their electric powertrain conversions.


Michael Kesslering: And so as well on the M&A side. You have been quite active as I believe you’ve completed; I believe eight acquisitions since 2014. You mentioned as well on the integration side that, when you bring a new brand under your portfolio that you’ll implement disciplining pricing on the integration side, but can you talk a little bit as well on both the identification of acquisition targets, how you go about that process and deciding what to look at?


Tom Tomlinson: Sure. So, the first thing I would say is, we go out looking for brands and for products that will be appealing to our enthusiast consumers. It’s not just a matter of bulking up. We want something that we have a high degree of confidence, is going to be additive to our overall product portfolio. And part of the way that we go about that is, we really have this vision of offering a very complete journey to our enthusiasts. So, if you’re an enthusiast of, let’s say a Ford Mustang. We really would like to have all of the products necessary for an enthusiast to realize, you know, his or her vision of that perfect modified Mustang without having to send them to any of our competitors or to anyone else in the industry.


And so, as we look at acquisition targets, we think about, okay, how does it fit within, you know, that vision and so filling out product categories allows us to, you know, help them through or serve them more during that journey. There are also businesses that have focused on platforms where maybe we don’t have strength today. We have a fair amount of presence in domestic cars and trucks, you know, a lot of muscle cars, Mustang, Camaro, Challenger, Charger you know, F-150, Silverado, Sierra. And then we also through the APR and dining brands have VW, Porsche Audi as well as Dinan. You know, we know that there are enthusiastic who are very passionate about Japanese vehicles for an example. So, you know, we could add that type of vehicle. There are other platforms out there that we can just continue to add, and that informs, you know, this acquisition strategy. So, the neat thing about the, you know, the ladder is that you know, we’re bringing more consumers into our fold and leveraging this consumer-focused infrastructure we’re building, and that’s very exciting to us.


Julian Klymochko: It’s certainly appealing to your enthusiastic customers and bring them into your ecosystem makes sense. Now, I want to give you a platform to speak your case for Holley stock, to investors, obviously going through the merger with Empower. Trading as EMPW on the stock exchange, when you’re up in a newly minted public company, what is the elevator pitch for the stock? There’s a lot of parts companies out there, auto companies. Why should they pay attention to Holley?


Tom Tomlinson: Well, gosh, I’ve never done an elevator speech before, so, well, you know, I mean, I think maybe the first thing I would say is that when we look at it relative to the public markets. This looks like a very attractive price to us going in. And we’re a growth company. We’re very focused on growth. We grow through innovative, you know, new product. We’ve made an incredible commitment to that, and we’re driving you know, thousands of new products every year from a release standpoint. So that’s a big part of it. We’ve had great experience with M&A, you know, certainly that gives us more revenues and earnings, but we’ve also integrated them and driven great synergies. And so, you know, I look at that as exponentially, you know, growing the value of the company, I guess, another way to look at it is whatever we pay for these acquisitions. It gives us the ability to leverage them down you know, through capturing the synergies. And, so, you know, we’re all about creating value. We do that through growth and revenue and earnings, and you know, I think the public markets are going to reward that over time. I haven’t obviously focused in the public markets throughout the course of my career. I’ve been very, very focused on driving Holley forward. And, you know, when we think about Holley relative to where so much SPAC activity has been, we’re pretty unique, you know, in that we actually have revenue and earnings and growth, and, you know, some of those things that I’ve come to understand makes us unique relative to a lot of the companies that have gone public via the SPAC vehicle.


Julian Klymochko: Great. So, I put you on the spot with respect to that elevator pitch prior to letting you go, Tom, I want to put you on the spot one more time. What would be your favorite car and why?


Tom Tomlinson: You know, out of all the questions you’ve asked me, that is probably the hardest, and I have to tell you, I just can’t pick one. So, I can talk about that a little bit. It tends to be, you know, whatever I’m working on at the moment. 


Julian Klymochko: Right.


Tom Tomlinson: But I really do like my Tesla Model 3 Performance, it is my daily driver. It’s very fast and you know, with a busy life, not having to get gas is nice. Being able to enjoy the quiet is nice, so, I love that. In terms of late model vehicles, another vehicle I own, which is the polar opposite is a Jeep Trackhawk. 


Julian Klymochko: Oh, nice. 


Tom Tomlinson: And that’s the 707-horsepower supercharged, crazy crossover SUV, all-wheel drive. And, you know, they actually, if you look at them in the quarter mile, they actually run very close to the same time. The Tesla does it in virtual silence. The Jeep Trackhawk is loud and obnoxious. And when it shifts, you know, they throw a bunch of retarded in the ignition and it blast out the exhaust, but it’s a ball. And you know, then I love classic vehicles. And I’ll try to keep this high level, but you know, muscle cars. Camaro’s, Mustangs, Challengers. I love restomod because we’re applying modern technology again to make those cars fun to drive. And then, so I’ve got some older sports cars and then, you know, I don’t know what it is about old pickups, but I love old pickups too. So that’s the most concise answer I can give.


Julian Klymochko: No doubt. Those were all great picks and certainly tough to choose between those. Now were can investors find out more about Holley?


Tom Tomlinson: Well, what I would say is go to holley.com and that’s a great place to start. And you know, I’m assured there will be other ways over time and you know, maybe we can check in with ICR for some more information on that.


Julian Klymochko: Okay, great. Well Tom, like to thank you for coming on The Absolute Return Podcast, a real blast, having you on the show and learning about Holley business and your background and future growth opportunities. And we wish you the best of luck. Once you complete this merger with Empower and become a newly minted public company. So exciting stuff, certainly.


Tom Tomlinson: Absolutely. Thank you, guys. It’s been a pleasure. I always love to get the chance to talk about cars and about Holley. 


Julian Klymochko: All right. Well, thank you very much, and we’ll wish you the best of luck.

Take care. 


Tom Tomlinson: Thanks guys.


Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.  


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