Recently I decided to take a closer look at consolidation in the industry since late 2012. It goes without saying that consolidation is a hot topic in the industry. We talk about it almost every week here. It also seems that every week a new mega deal is announced where one company buys another company.
Whenever rapid change hits an industry it often causes an emotional reaction. Some argue passionately against consolidation. Others strongly believe consolidation brings much needed improvement. Still others shrug it off with ambivalence.
My opinion of the consolidation trend is agnostic. I attempt to not attach a value judgment to it by labeling it either good or bad. Whether you feel something is inherently good or bad often depends on your position relative to the event. Rather I recognize consolidation is something that is happening. As prudent business people there are lessons to be gathered by analyzing firms who are successfully operating in such an environment.
I prefer to be data driven rather than event driven. So I took a data driven approach to analyzing industry consolidation since late 2012. We analyzed the top 4 consolidators in the industry for a simple reason – their acquisition history is publicly listed on their websites. While we would have preferred to look at the top 10 unfortunately such data is not as easy to come by. Click to play the video below – you may be surprised at what you see.
While this info-graphic is far from complete (I am still building in pre-existing locations into the model and the Service King Sterling acquisition poses some technical/data challenges) there are a few high level insights that I think are important to share as the model is developed.
First, if we look at the path of consolidation in the industry, consolidation has taken place in relatively large metropolitan areas. This probably comes as little surprise to most, as the more people there are in a given market, the more cars there are to fix.
Second, consolidator on consolidator competition is still relatively rare on a nationwide basis. However, upon closer analysis an astute analyst may note that the trend is for more rather than less competition between the big players. This means not only more operational competition, but also more competition for access to M&A opportunities. Whether your plan is to grow, sell or stand pat, have you thought through the implications of such?
Third, there are significant swaths of the country that still are relatively unaffected by consolidation. This may come as a surprise to some who operate in highly competitive and consolidated markets. Knowing there are significant areas that still have not consolidated, what does that mean for your business in the future?
Fourth, the majority of deals still involve single or dual location businesses. While the big multi-shop multi-state deals make headlines, industry consolidation is still dominated by single or dual location acquisitions. This trend may or may not continue and therefore may be an opportunity to thrive or a threat to your business or perhaps both. It depends on your proximity to the event.
Finally, to a lesser extent, brownfields and greenfields are becoming more prevalent form of growth. As large consolidators develop a geographic market it often becomes more cost effective to build an operation from the ground up. This is true in every industry, not just collision (think CVS and Walgreens, Home Depot and Lowes, AMC and Regal). As the market matures and a brand name and operating history is established there is less need to pay a premium to acquire an existing operator.
Knowing these things what is a business to do? Well that of course depends on your exact situation and your exact goals. You can grow, you can sell, you can brownfield, you can greenfield, you can compete head to head, you can partner, you can seek out a financial partner, you can buy then sell, you can sell then buy, you can develop new markets, new clients or new revenue streams. The point is the opportunities are endless.
It has never been more important than now to understand the competitive environment and the trends that impacting the industry. It has also never been more important to understand the financial structure of your business from the inside out so that you can position yourself for success in this new environment. While we do not know exactly what will happen in the next 12 months, I can state with certainty the business landscape will be very different 12 months from now. Regardless of your plan developing a better understanding of the financial structure of your business will always leave you better off and more flexible.
Whatever option you feel is best for you – standing pat, growing, or selling, it is important that your business is set up to appropriately manage the risks and take advantage of the opportunities as the business changes. In an upcoming article I will talk about the key core competency that will be required to survive in this rapidly changing industry. As always, if you would like to discuss in more depth please feel free to send me a note on my contact page. I find all of this fascinating. All communication is kept extremely confidential.
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Until next week.