The Golden Age of Collision

I am going to start off with a bold statement: There has never been a better time to own a collision repair business.

I’ll follow that up with another statement that may catch many readers off guard: There has never been a more profitable time to own a collision repair business.

The industry is changing rapidly due to the influx of massive amounts of Wall Street investment in the industry. There is no doubt that consolidation in the industry has put substantial pressures on margins, increased the administrative workload repair facilities are expected to administer, and generally increased competition across the board.

Now I’m not one to get up here and blithely parrot the oft repeated phrase “competition is good”. Competition is painful and difficult. It creates some winners and often many losers and is not always fair. For the unprepared increased competition can be disastrous.

Yet the result of this increasing level of competition is that there has never been a more profitable time to be in the collision repair industry. […]

That’s WACC! Understanding how interest rates and the cost of capital impact the value of your business.

Recently I discussed the financial themes that I believe are driving consolidation in the industry. Specifically I discussed why a low cost of capital combined with multiple arbitrage is driving investment and consolidation in the collision industry. (Editor’s note: It is not only the collision industry undergoing profound transformation. Keep an eye out for upcoming articles discussing other adjacent industries that are undergoing rapid consolidation as well).

This week I thought it was important to spend some time explaining the financial mechanics of the cost of capital, and how a low rate environment impacts the entire financial ecosystem. Be warned, this delves into the realm of financial geekdom but has significant implications for your business which we will discuss later in the article. […]

What is Driving the Consolidation Wave

Writing about finance in the collision repair industry, naturally we speak quite a lot about business valuation and maximizing the value of your business. Buying or selling businesses are currently very prevalent activities in the industry. In financial terms, buying is often called an “acquisition” while selling your business may be referred to as a “liquidity event”.

There is a lot of industry chatter around these events. It seems that every week there is a new breaking story where one of the large consolidators acquires another group of repair facilities. By the end of 2015 it is a near certainty that at least one if not two companies will reach $1 billion in revenues with even more growth coming.

I often focus on the tactical, i.e. how to best position yourself to buy, sell or hold. But it is also important to take a step back from time to time to look at the overall picture. What is driving this change in the industry? Often we hear that the increasing technological complexity of repairing a vehicle drives consolidation. We also hear a lot about the benefits of scale, or how having a large nationwide footprint results in a competitive advantage in the result of increased revenue opportunities, a decreased cost structure, or perhaps improved operations. These are all valid reasons for growth but not necessarily the primary drivers of consolidation. […]