Collision Industry Consolidation Trends: Q1 2016

Consolidation in the collision industry continues to march forward at an astounding pace. The largest companies in the industry continue to aggressively grow through acquisitions, or by buying existing collision repair operators. And as these companies continue to aggressively expand we see continued consolidation in adjacent segments that sell into the industry, especially in paint distribution and parts distribution.

On April 13th and 14th I’ll be in Minneapolis to give a presentation on how to grow in a consolidating industry. If you’re in the area email me to schedule a time to meet up. And be sure to sign up for AASP’s annual leadership event. There are a number of events I’ll be presenting at in the coming weeks so be sure to check out my speaking page.

Fenix Auto Parts is an example of ongoing consolidation. Fenix, a publicly company listed on the NYSE, was recently taken public by executives from medical supply recycler Stericycle with the explicit goal of consolidating the fragmented automotive recycling segment through acquisitions. Carl Icahn, the multi-billionaire activist investor recently acquired Pep Boys after besting Bridgestone Tire in a billion dollar deal. Mr. Icahn also owns Federal-Mogul (maker of suspension and powertrain components) and Auto Plus, a retailer and distributor of aftermarket parts, until recently owned by FinishMaster’s parent company Uni-Select. Uni-Select themselves see opportunity in growing both their parts and paint businesses through acquisitions. Warren Buffet recently acquired the Van Tuyl Group, the 5th largest dealership group in North America, also with the objective to grow through acquisitions. Icahn is also rumored to be eying a move into the automotive dealerships space as well. Consolidation is taking place across the automotive segment.

Collision Industry Consolidation: 2012 to 2015

In North America, collision industry consolidation continues on pace. But whereas 2013, 2014 and 2015 could be described as raucous a very notable shift has taken place in 2016. While the overall pace of acquisitions has not slowed, the clamor surrounding them certainly has.

While the narrative may be more measured, the growth is anything but. Each of the four largest companies in the industry have realized a 5 year compounded annual growth rate in excess of 20%. In other words, each has more than doubled in size over the past 5 years. In fact, the fastest growing of the group, Service King, has increased the number of locations six fold since the beginning of 2012 through the end of 2015.

Location Count

Collision Industry Consolidation: Q1 2016

In the first quarter of 2016 all four consolidators continued to grow aggressively. In the first quarter of 2016 The Boyd Group has already added more locations than they added in all of 2015. And while growth was tepid in 2015 relative to the other large players, Brock Bulbuck, CEO of The Boyd Group, believes his company is well positioned to grow at an average rate of 15% a year, or doubling in size again within 5 years (or possibly sooner if the company completes any number of large acquisitions). The other 3 companies also appear to be growing at a similar pace to previous years. In the first 3 months of 2016 the four largest consolidators added 92 locations collectively, nearly as many locations as they did combined in all of 2012. To give that context, the next largest pure play collision repair operator in the U.S. (i.e. non-franchise, non-dealer) operates 37 locations.

New Locations

Market Concentration

In a $36 billion industry, the 4 largest consolidators account for about $4.5 billion in revenues, or about 13% of total market share. Multi location MSOs with greater than $20 million in revenue account for another 6% of market share, including multi location dealer groups. Overall, the dealer segment accounts for about 23% market share spread across 6,700 dealer points. All in all, the largest consolidators and dealerships account for 36% of total market share. The industry, while consolidating, still remains highly fragmented. But while the industry is fragmented, it is increasingly bifurcated into very large and very small.

Continued Consolidation?

It is a near certainty that consolidation will continue in collision repair, as well as the sectors surrounding collision repair. Growth by acquisition will continue to make sense for a number of reasons. Organic growth is tepid, and claims frequency is generally flat to declining. Acquiring growth is often faster and more cost effective than growing internally (although both are important). Industries also naturally consolidate over time. The automotive aftermarket, including collision repair, paint and parts is still highly fragmented, creating inefficiencies in the supply chain. A large number of small business owners are approaching retirement and there are a number of well capitalized savvy and sophisticated buyers eager to acquire these baby boomer businesses.

With the first quarter behind us now is a great time to refocus on the financial side of the business. Over the next few weeks we will look at Boyd’s annual reports. The purpose of this exercise is to understand how a the financials of a company leading consolidation and compare how your business stacks up. We will look at the P&L, the Balance Sheet, and the Statement of Cash Flows. When working with clients I do the same – compare your performance to industry averages and identify areas to improve. My role is to help you navigate this industry – to provide a roadmap. Strategic advisory incorporate speak. In short, I want to help your business become more valuable.

As always, you can contact me directly through my contact page. All communication is completely confidential. And if you’re looking for a cost effective way to get improve your financials be sure to check out the Simple Dashboard I developed. It is a low cost tool to help increase your profits and maximize your cash flow (all for less than you spend a day at lunch). While the industry is changing, there is still a lot of opportunity in the industry to build a very attractive business in the coming years.

Until next week!

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