Recently, I have had multiple conversations with a number of very intelligent people about ADAS – Advanced Driver Assistance Systems, and the impact the automotive aftermarket industry. Each of these conversations have been interesting, and while opinions have varied, one thing is certain – the role of technology in the automotive aftermarket is only increasing. Some are very concerned about the impact of ADAS on the automotive aftermarket, and others appear ambivalent about the technology. The more conversations I have, the more I realize that there is much uncertainty on ADAS impact on the automotive aftermarket.
Last week I was in Chicago for NACE Automechanika. NACE is one of the largest trade shows dedicated to the collision, mechanical and automotive service industries in North America. It is a great show to connect with leaders in the industry, and as is normally the case, my day was filled to the brim with[…]
PRESS RELEASE Supplement Announces New Retained Agreement with APEX Automotive Paint Exchange Irvine, CA – August 14, 2017 – Supplement, a strategic and financial advisory firm, announced a new retained engagement with the APEX Automotive Paint Exchange (“APEX”). APEX is a business performance group (i.e. “20 Group”) comprised exclusively of independent multi-location automotive paint distributors.[…]
Acquisitions get a bad rap. Acquisitions are described as risky. Acquiring companies are portrayed as evil raiders and titans. Tales of high stake chest thumping negotiations between power brokers fill our conversations. Stories of lay-offs, firings, law suits and forced relocations ensue. But even with all of the negative, I know that acquisitions are good for business.
With two well-funded private equity backed companies, in addition to the existing large strategic players in the industry, the number and pace of transactions will increase. So too will the competitive dynamics of the industry. Paint distribution is a much smaller in industry than collision repair and will likely consolidate at a pace measured in months, rather than years.
Last week was a busy week for acquisitions in the aftermarket. The Boyd Group acquired the largest collision repairer in Canada, Uni-Select (parent company of FinishMaster) expanded into the UK with the acquisition of The Parts Alliance, and Carl Icahn announced the acquisition of Precision Auto, adding 250 service, lube and carwash locations to his[…]
A common retort to the question of EBITDA multiples is often “multiple of what”. Sometimes people interpret that to infer “multiple of sales, multiple of net, multiple of EBITDA, etc.” But what the question really driving at is “How was EBITDA calculated?” or “What is and is not included in these EBITDA multiples?” Here are a few items that are often missing from EBITDA multiples.
The challenge with EBITDA multiples is they are general in nature, and almost always contain a myriad of assumptions. Furthermore, they can be easily manipulated to suit the party using the multiple. I think Warren Buffett says it best, “People who use EBITDA are either trying to…
Most acquisitions fail. The stark truth is that 70% to 90% of acquisitions fail to deliver the value the buyer anticipated. Yet, the data shows it is nearly impossible to build a world class company on organic growth alone. And most of the largest companies in the world were built on at least one, if not multiple deals.
When operating a business, there are effectively four simple ways to grow a business. Beware, while these approaches may be simple, that does not mean they are easy. But the most successful companies…
If your business does something better than most of its competitors, perhaps it is time to “Buy the Firm!” and implement a buy-side M&A strategy. When I was in business school I had a professor that was fond of exclaiming “Buy the Firm!”. In fact, his solution to many business problems or questions that arose[…]
Mergers and acquisitions in automotive paint distribution are heating up. After years of aggressive consolidation in the collision repair customer base of paint distributors, it is logical to see consolidation take hold downstream. Paint is a small but critical component of the $30 billion North American collision repair market. A year and a half ago[…]
After a relatively quiet 2016 where few equity transactions were announced, 2017 is off to a rapid start. Just weeks ago I predicted exactly this – that we would see additional consolidation at the highest levels, additional investors (i.e. private equity) doing deals, and a focus on large deals in 2017. Here are three…
As I’ve been preparing for my meetings this week, I have found myself contemplating my role in the process, and specifically the value-add an M&A advisor brings to a business. More specifically, for whom and when does it make sense to bring on an outside advisor. Because to be frank, an M&A advisor is not right for everyone.
Economies of scale is a term that is thrown out quite a bit in the business world. On the west coast where I’m from, scale is a favorite term of tech entrepreneurs. Management and executives talk about leveraging scale. Investors seek out scalable companies. Every first-year business school student is familiar with the term. What[…]
This is the time of year that everyone makes predictions for the coming year. So I’ll join in. My prediction for 2017: nothing will change. Last year I made three predictions for 2016. Consolidation would continue. Technology will continue to impact the industry. Interest rates will rise. My predictions for 2017? Consolidation would continue. Technology[…]
The foundation of my business is to increase the value your business. It is the reason I write a weekly note about using strategy and finance to increase the value of your business. The reason I speak at so many industry events. The reason I spend time helping you understand finance as a driver to[…]
The story of industry consolidation is generally one of larger companies acquiring smaller companies, especially in the earlier stages of industry consolidation. But I’ve found that some business owners are surprised when …
Throughout all these meetings a common question I received was “Brad, how can we work together.” After answering that question about 30 different times, I thought it may be useful to tell you here.
Supplement is an advisory firm focused on increasing the value of your business. We do that through three main pillars:
Sell-Side M&A Advisory
Buy-Side M&A Advisory
Strategic, CFO and Capital Advisory
I’m back from SEMA AAPEX and wow, what a show. Las Vegas never disappoints, and this year was no different. I had back to back meetings the entire time with large multi-national companies, individual business owners, and numerous of investors. My presentation Tuesday afternoon on growing in a consolidating industry was received with much fanfare.[…]
I’m on my way to Las Vegas for SEMA AAPEX 2016 right now. Super excited as always for these industry events. Are you in town? If so, please join me and scores of other industry insiders Thursday afternoon at the Westgate for Happy Hour. It’s all very casual, but a great opportunity to gather around,[…]
I’m busy prepping for my presentation next week in Las Vegas at SEMA AAPEX titled “Competing with Consolidation: 5 ways to make more money and outmaneuver your biggest competitors in 2017”. How successful companies grow is on my mind at present. What is the best way to grow? How fast is too fast to grow?[…]
One of the most common questions I receive is what is the average auto body shop selling multiple? Multiples are on everyone’s mind. Sellers want a quick an easy way to understand what their business is worth. Buyers want a way to know they are not over paying for a business. Even banks and financing[…]
I’m writing this on my way back from Vancouver, Canada. I spent the past few days on site with a client focused on developing administrative SOPs to drive consistency in financial reporting. Then a quick meeting with an investment bank involved in the industry. I even took a sea plane over the harbor and got[…]
I’m on a plane back from Atlanta to Orange County, California as I write this. I spent the past few days in Atlanta with AkzoNobel talking to distributors, jobbers, shop owners, and senior execs across North America about business growth, strategy and finance. We talked about ways to grow your business in a consolidating industry.[…]
I speak at a fair number of events across the world. It is one of the more enjoyable parts of my job. I speak about the intersection of finance and strategy and how that influences consolidation in the automotive aftermarket. Because both finance and strategy are so future focused, I’m often asked my views of[…]
I spent last week at NACE in Anaheim California. For those of you unfamiliar with NACE, it is the only US industry trade show dedicated to the collision repair industry. In the past I have done video updates from the floor during the week, but this year I was so busy that I just couldn’t find[…]
Many business owners that I speak with are oftentimes surprised when a buyer of their business is not interested in the accompanied real estate the business sits on. For many business owners who own the both property and business, the relationship between the operating business and the real estate has been very profitable and mutually[…]
There is a trend I have begun to notice recently. The Canadians dominate the collision repair world. Dominate may be a bit of an overstretch, but Canadian firms own, operate or control some of the biggest names in the industry. Canadians also have more analysts covering the collision repair sector than any other country. Quick personal[…]
Recently Caliber made a big acquisition in Philadelphia of a multi-store location. Seven locations to be exact. It was described as a major platform acquisition. But what is a platform acquisition and how is it different from a regular acquisition? Note: Are you headed to NACE this year? It’s only a few weeks away and[…]
An interesting thing happened in the North American collision repair market. While the four largest collision repairers have for some time stopped announcing even the largest recent acquisitions, the pace of consolidation has continued at a rabid pace. Since the beginning of 2012, the four largest operators have more than tripled the number of locations[…]
One of the great parts about my job is that I get to work with really intelligent people in really interesting places. I just got back from 5 days of client meetings in New York. It really fires me up to work with such motivated passionate people in the industry. During our meetings, one of[…]
I talk with a lot of business owners every day. A common question I’m asked is “What do I need to do now to be ready to sell my business?” Here are 4 things to do now to increase business value in a sale, whether that is in 6 months or 6 years. But first[…]
One of my favorite management truisms is “what is measured gets managed”. In our industry, it seems that daily there is a new metric to be managed. Whether it is cycle time, rental days, repair vs replace, severity, or refinish hours, this is an industry dominated by operational metrics. But for all of our focus[…]
I’m back from Barcelona, having presented at IBIS (International Bodyshop Industry Symposium) on consolidation trends. IBIS is one of the marquee organizations, the only I know of that looks at the collision industry globally. It was a true honor to get in front of this group. So many fascinating presentations – email me to discuss[…]
Next week I’ll get back to my review if the Boyd Group’s financial statements. But I wanted to discuss something that has been on my mind lately. I’ll be travelling quite a bit in the coming weeks so if you are in the area shoot me an email and let’s meet up! This Saturday May[…]
Warning: there are some serious accounting terms in this post! But they are terms that every business owner needs to know. When I work with clients as an outsourced CFO, I tend to spend a bit of time working through the balance sheet. A poorly managed balance sheet has the tendency to burn up cash,[…]
While earning my MBA and while working as an equity analyst, I learned that to better understand the strength of a company, as well as the motivations of management, it is always best to look directly at the statement of cash flows. The cash flow statement tells the reader exactly how much money the business generates and exactly how management is investing and spending the money they make.
At present, Boyd is the only publicly traded company collision repair company in North America. The other three major consolidators are privately held, owned by various private equity groups. The company trades as a unit trust on the Toronto Stock Exchange and has a market capitalization of well over a $1 billion – $1.33 billion[…]
In the past I have discussed the importance of developing a strategy and the implications consolidation has on your business. A big part of strategy, whether it is stand pat, buy or sell to understand what your competitors are up to. For this reason I am also often asked to present to industry groups about[…]
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[…]
Previously I discussed the 2 questions I ask clients when helping them grow or sell –what is your timeline and what is your walk away price. Then I discussed 3 surprising things that you have little control over that can influence when to grow or when to sell. At the end of the note I[…]
I’m in Florida this week presenting to a performance group on how to compete in a consolidating market. I’m curious – do you attend 20 groups? Why or why not? Simply reply to the email to tell me. Tell me about the industry groups you’re involved with and why you choose to associate with them.[…]
The past four years have seen an unprecedented level of buy/sell activity in the industry. Mergers and acquisitions have dominated the industry. Private equity groups have invested heavily in the largest companies in the industry, further increasing consolidation. Consolidation will continue, but it will be different than it has been in the past. As a[…]
That is right, I am headed to Spain. I’ll be presenting at the IBIS 2016 conference May 23rd to the 25th in Barcelona, Spain. I will be talking about consolidation trends in the industry – not just collision, but the entire automotive aftermarket. Across the entire industry every segment is facing pressure from consolidation. Parts[…]
There are many other important factors to consider when negotiating a business purchase or sale. Price is just one. These are four of the more common ones we see when helping clients manage transactions in the collision repair industry.
When using comps to determine your valuation there are two pieces of data needed – your financials (i.e. profitability) and the multiple, or comp. Discover 5 simple ways to maximize your financials and increase your valuation.
Discover a simple way to determine the value of your business. Recognize common pitfalls. Avoid costly and risky mistakes when valuing your business.
Increasing vehicle complexity and OEM involvement are increasing the cost of doing business in the collision industry. Capital requirements are increasing. More training, more tooling, and more equipment is needed to compete in today’s environment. The result is lower margins. Decreasing profitability is a trend that has been taking place for some time in the[…]
Increasing vehicle complexity creates additional capital costs. Margins will continue to be compressed. Discover what your business needs to do to compete.
When helping clients with mergers and acquisitions, we spend a lot of time identifying and quantifying synergies. Synergies are advantages that come about through the integration of two companies that, individually, the two companies would be unable to achieve. If you are considering growth by acquisitions or evaluating a sale, understanding the role synergies play[…]
What will happen in the collision industry in 2016? Is now the right time to sell or to grow? Here are 3 predictions that may influence your decision.
The industry is consolidating. That statement probably comes as little surprise. The entire automotive aftermarket is consolidating. New car dealers, tire vendors, parts distributors, paint distributors, software providers, and collision repair shops are all consolidating. But were you aware that industries tend to follow a predictable path of consolidation, referred to as the consolidation curve?[…]
There is common phrase thrown around in business: If you aren’t growing you’re dying. In business there are two types of growth, organic and inorganic. Organic growth refers to increasing sales internally, generating more revenues with your existing business assets. Inorganic growth refers to growing sales by expanding to new locations, acquiring other businesses in the industry, and sometimes even expanding outside of your industry.
A common misconception is that organic growth is less risky and less costly than inorganic growth. But as humans we are actually inherently bad at assessing risk. Referred to as probability neglect, we assume that common activities we engage in are inherently safer and less risky than less uncommon activities. […]
Last week we spoke about the impact of interest rates on consolidation. While a low rate environment certainly provides incentive to companies to grow through mergers and acquisitions, good deals are good deals in both high and low interest rate environments. There is a financial component that drives consolidation but there is a strategic component[…]
It seems to be a forgone conclusion that the Federal Reserve will increase interest rates at their upcoming meeting. For years the Fed has repeatedly stated that they will likely raise rates in 2015. Now that December is upon us it appears the day of reckoning has arrived.
There is always a lot of consternation around rate changes, and this time around is no different. Effectively the Fed controls the price of money (interest rates) in an attempt to influence economic activity. The Fed lowers rates to spur economic activity and raises rates to slow it down. So a rate increase should be perceived as a generally positive event, an indication that economic activity is increasing. […]
I just wrapped up a week in Detroit where I presented at an industry event organized by a major paint manufacturer. I discussed growth strategies in a consolidating industry. We talked about industry evolution and ways to increase the value of your business by taking advantage of the same trends and using the same corporate[…]
The last four full weeks of the year are upon us. Only 33 days full working days left this year (or less depending on your holiday schedule). I hate to be the bearer of bad news, but if you have not already started to set your business plans in place for 2016 you are behind[…]
I’m at SEMA AAPEX this week. I have had the fantastic opportunity to meet with a huge diversity of businesses, ranging from the single location operator to multi billion dollar international organizations. Throughout the course of the entire week a common question I receive is “Brad, how can you you help increase the value of[…]
Pursuing acquisitions to fuel growth is an attractive way to grow a company. But business acquisitions can appear risky, especially if you have never completed one before. Acquisitions often require a business owner to take on substantial debt. An acquisition-based business strategy also requires a higher level of financial discipline. For unaccustomed businesses this can[…]
You want to grow your company. Often the best way to grow is by acquiring another business in your industry. This is often referred to as inorganic growth or an acquisition strategy. An acquisition based growth strategy is an effective way to significantly grow your business. It also is a generally low risk strategy because you are investing in an industry that you have intimate knowledge. It also presents opportunities to build economies of scale leverage cost synergies. Here are five strategies for successful acquisitions. […]
Imagine this scenario. You receive a call on your cell phone from someone who says he works for one of the big consolidators. He has heard a lot of good things about your shop and he wants to talk. His company is very interested in expanding in your area, and his company only partners with[…]
The end of the year is almost upon us. Only 9 full weeks left in 2015. The last quarter of the year always goes fast. There are simply more holidays and outside demands in the last three months of the year.
I wanted to take a break from big, high-level industry analysis for a moment and drill down into the nuts and bolts of financial management. As the year begins to draw to a close it is a good time to take stock of the current state of business. Here are six simple financial KPIs to look at every month to increase the value of your business.
Many of these financial KPIs are similar to metrics that the large consolidators use to evaluate individual locations across their networks. While there are many more complex metrics that are important to evaluate regularly, this is a list of what I consider to be simple financial KPIs that a business owner ought to be looking at on a monthly basis, if not more frequently. […]
Consolidation has been going on in the industry in the U.S. since the 90s. There have been some major successes as well as some spectacular failures. The collision industry, and the entire automotive industry in general, is not the first industry to ever undergo consolidation. And it certainly will not be the last.
Consolidation has taken place for nearly two decades now. Nearly every current business owner in the collision industry “lived through” the first round of consolidation. Because of this “survivor bias” some feel that the current round of consolidation is destined to fail the way they believe the prior round did. […]
The industry is consolidating. That statement probably comes as little surprise. The entire automotive aftermarket is consolidating. Dealers, tire vendors, parts distributors, paint distributors, software providers are all consolidating. But were you aware that industries tend to follow a predictable path of consolidation, referred to as the consolidation curve?
Big companies are acquiring smaller companies using affordable capital to grow. This growth creates economies of scale. And economies of scale allow larger companies to provide goods and services relatively more efficiently and at a lower cost than their smaller competitors.
Consolidation will continue because it is a virtuous cycle where success attracts additional investment that generates further business advantage. A growing consolidator will continue to acquire for two main reasons. […]
According to some, 2015 has been a slow year for collision industry consolidation. Of course, 2014 was a landmark year for consolidation. So far in 2015 consolidation has continued, but at a slightly slower pace. With only 12 full weeks left until the end of the year, […]
Talk of large consolidators buying collision repair businesses continues to dominate the press. But even as large consolidators continue to gobble up smaller regional MSOs many potential sellers face difficulties in completing a sale transaction. In fact, by some estimates, only 10%-20% of private companies that are listed for sale will successfully sell (and some experts predict even numbers as low as 5%).[i] To ensure that your business does not become one of these unsellable companies, […]
Growth to multiple locations is one of the most effective ways to substantially increase the value of your business. A business with multiple locations improves your value proposition to referral partners, improves your ability to increase discounts with key vendors, makes you more attractive to other companies looking to grow via acquisition and when you reach an appropriate size, makes your business more attractive to private equity groups investing in the industry. But it is also risky and can be financially disastrous when done haphazardly (M2 is often cited as an example of a growth plan that failed spectacularly).
In order to create a business that builds generational wealth […]
Consolidation is significantly changing the landscape of the collision industry. But it is not just the collision industry that is consolidating rapidly. Throughout the entire automotive aftermarket there are examples of consolidating industries. Paint distribution, first consolidated in the late ‘80s and early ‘90s is undergoing a second round of consolidation. LKQ and aftermarket parts distribution, consolidated once already by LKQ is in the very early stages of a second round of significant consolidation. Aftermarket mechanical parts distribution already dominated by behemoths such as NAPA (Genuine Parts Co.), O’Reilly and AutoZone, and are seeing continued consolidation activity. Even automotive retail and new car dealership industry, once a paragon of the family-held small business, is undergoing consolidation at the hands of AutoNation, Sonic, and Warrant Buffett’s Berkshire Hathaway Automotive Group. It begs the question, why is consolidation such a popular business strategy? […]
Previously we spoke about how the CFO drives growth, and three main areas the CFO adds value: historical financial and vendor analysis, current working capital and cash management, and future budgeting and investment analysis, including acquisitions. One area in particular that we did not discuss, however, was the benefit the CFO brings to the table as an outside strategist and leader responsible for setting and implementing strategy in conjunction with other senior managers within the company. As the primary individual responsible analyzing past and current financial data, as well as budgeting for future growth, the CFO has a unique perspective on the operations of the company. […]
Recently I was at NACE in Detroit. NACE brings together leaders in collision repair, automotive service, and the multitude of stakeholders in insurance, parts, paint, and technology industries. It was a fantastic event full of great networking and educational seminars.
I had the opportunity to sit down with a lot of business owners in the industry who were incredibly optimistic about their future. They clearly recognize the challenges facing their business but are actively engaging in strategies to mitigate their risk while growing and thriving.
Consistent throughout many of my discussions, however, was the concern of managing the financial risks that often accompany growth. The lessons of M2 and other failed bids at rapid growth are still fresh in the minds of many in the industry. While these business owners are excited about the growth opportunities available to them they recognize that growth will bring additional financial pressures and challenges. In light of these concerns, our conversations naturally shifted to the role of the Chief Financial Officer (CFO) and how a company manages the financial risks growth entails. […]
Private equity firms are very active in the collision repair market, and the automotive aftermarket in general. The rapid growth of the large consolidators has resulted in very attractive investment returns for these groups, further increasing the interest of other private equity investors hoping to invest in the industry. Of the “Big Four” consolidators, ABRA, Caliber, and Service King are all majority owned by global private equity groups. Boyd is publicly traded and not private equity backed, but the President of a Canadian private equity firm sits on Boyd’s board of trustees. CARSTAR also is backed by private equity, as is MAACO. Fix Auto recently received debt funding from a large Canadian investment fund that is active in private company investments. Kadel’s, the Pacific Northwest MSO recently acquired by ABRA, was backed by a smaller private equity group. Joe Hudson’s in the Southeast recently brought on a private equity partner as well. Yet for as active as private equity groups are in the industry, these groups are not well understood. […]
Editor’s Note: Brad is at NACE this week. This is an excerpt of his article originally published in Aftermarket Business World. Next week Brad will return to discuss the role of private equity in the collision industry.
The paint jobber industry is undergoing significant change. Increasing customer concentration in the collision industry is putting pricing pressure on the entire refinish materials supply chain.
A second round of jobber consolidation is now underway adding competitive pressure within the industry. Adding to these pressures, paint manufacturers are placing ever more start up, technical and back office requirements on jobbers in an attempt to drive efficiency and lower costs. Combined, the result is a jobber industry that is undergoing and will continue to undergo significant change.
In conversations I have with business owners throughout the industry I often notice a negative view expressed toward the large consolidators, specifically that the large consolidators could never produce the same quality of product or service as a smaller privately held business. While there may be some truth to this (studies looking at franchises have shown that owner operated franchises tend to perform at a higher level relative to corporate owned stores), there is much to be learned from the success of these larger organizations.
In the past few years, these large MSOs have grown at a rate that have left even the most well-informed and well-connected individuals shocked at the pace of industry consolidation. […]
For the past few weeks we have been analyzing the results of the Boyd Group Income Fund (Boyd). Boyd is the largest operator of collision repair facilities in the world by number of locations, and one of the top four in terms of revenues. Boyd is also a serial acquirer of other collision and glass services businesses. Founded in 1990 as a single location in Winnipeg, Canada, Boyd has grown to be the largest provider of collision repair services almost exclusively via acquisition, or buying other collision repair businesses.
Previously I spoke about the importance of developing new core competencies to compete in the new era of collision repair. We also discussed at length how a business owner can leverage the tools of corporate finance to drive systematic growth. Boyd is an example of a company that has effectively done both to become a world leader in collision repair and glass repair services.
The price and terms of acquisitions are always a hotly discussed topic in any industry, collision repair is no exception. […]
Over the past few weeks we have taken an in-depth look at the Boyd Group Income Fund (Boyd) income statement, cash flow statement, and balance sheet. The purpose of this was to understand how a large MSO uses corporate finance to drive growth and to also explain how a company that reports a net loss in the millions of dollars actually generates millions of dollars of cash for shareholders (or, in Boyd’s case, the “unitholders”). We also discussed how Boyd is leveraging scale to drive increased profitability and sales growth.
This week, rather than just reviewing the financial statements as they are, we are going to complete a bit of financial analysis to derive certain KPIs that tell us more about how Boyd operates. I will keep the analysis straightforward – no derivative equations I promise! […]
[Editor’s Note: Sign up link follows at the end of this article.] I want to take a brief break from discussing the finances of The Boyd Group to ask all of you a serious question. Are you attending NACE this year? If you are not, you should be. The success of your business and investments[…]
For the past few weeks we have been talking about The Boyd Group (“Boyd”), one of the largest collision and glass repair business in the world. Headquartered in Winnipeg, Canada, Boyd operates under three main trademarks; Boyd Auto Body and Glass in Canada, Gerber Collision and Glass in the U.S. and Gerber National Glass Services, a network of over 3,000 independently owned glass repair and replacement businesses across the U.S. Boyd is the largest pure-play collision repair business in the world by number of locations, and one of the largest in terms of sales.
This week we are going to look at Boyd’s fiscal year 2014 Balance Sheet, or more formally the Consolidated Statement of Financial Position. The balance sheet, unfortunately, is one of the more overlooked financial statements in the industry. For many, it is a statement relegated to year-end tax planning and rarely, if ever, analyzed throughout the year. But understanding and managing a balance sheet is one of the core tenets of corporate finance.
Regardless if your goal is to grow, sell, or stand pat, balance sheet management is critical to your business. […]
Last week we discussed the Boyd Group Income Fund (“Boyd”), specifically the Fiscal Year 2014 Income Statement, and how it is both similar and different to the income statements of other operators in the industry. In 2014 Boyd generated an impressive $844 million in sales but reported a net loss of over $15 million. Many in the industry mistakenly assume that because the company operates at a net loss it is only able to remain in business through the benevolence of Wall Street banks. The reality is that Boyd, while operating at a net loss, generates substantial cash for shareholders. And when adjusting for certain accounting idiosyncrasies unique to the legal structure and location of the firm, the company generates a respectable profit. To understand how this is possible is to understand the difference between cash and accrual accounting*, and more generally, how to use corporate finance to drive systemic growth.
*See the footnote at the end of this article for a further explanation of cash vs. accrual accounting.
While Boyd generated a significant net loss on an annual basis, it also generated substantial cash from collision and glass operations. […]
Over the next few weeks we will be discussing the Boyd Group Income Fund (“Boyd”), one of the world’s largest collision repair operators. As of the date I’m writing this, Boyd owns and operates 340 collision repair facilities in North America under the names Boyd Autobody & Glass in Canada and Gerber Collision & Glass in the U.S. (amongst other co-branded names such as Champ’s Collision Centers and Craftmaster Auto Body). Boyd also has a significant retail auto glass operation in the U.S. The company trades as a unit trust on the Toronto Stock Exchange and has an enterprise value of over a $1 billion (all values are in Canadian dollars unless otherwise indicated). Enterprise value is the total value of the company, including net debt (total debt – cash) and equity.
Because Boyd is publicly traded, it is required to file quarterly and annual reports outlining the financial performance of the company. Every three months the company files a report that includes an income statement (also called a Statement of Profit/Loss or a profit and loss statement), a balance sheet (also called a Statement of Financial Position), and a statement of cash flows. It also includes a rather lengthy section of Notes to Consolidated Financial Statements where management discusses the results along with numerous footnotes further explaining the results from operations. You can access Boyd’s recent financial reports on their investor relations website.
Recently we discussed the importance of developing a strategy and the implications consolidation has on your business. A big part of developing a strategy, whether it is stand pat, buy or sell is understanding what your competitors are up to in the marketplace. I am often asked about the goings on of other large players in the industry. It is good business to be aware of the goings on of key competitors in your marketplace. But many owners do not realize that much of this competitive intelligence they seek out is at their fingertips if they know where to look. For the next few weeks I will share one of my favorite sources of publicly available competitive intelligence with you.
Acquisitions, who acquired whom and the price paid for such acquisitions is always a topic of much speculation. […]
I talk a lot about finance. After all, I have a Master’s in Business Administration (MBA) with a specialization in finance and M&A. I think telling the story of a business through numbers and being able to interpret a business through financial reporting is pretty neat.
But more than just being neat, it is incredibly important and valuable. It is so important that in some Fortune 500 companies the CFO is as valuable as the CEO (in fact, a common way to become a CEO is by first becoming CFO). Sitting in on Wall Street earnings calls, often it is the CFO doing most the talking while the CEO can take a bit of a back seat. The large consolidators actively recruit seasoned CFOs that have experience in consolidating industries.
But this is less the case in the rest of the collision industry. […]
I’m excited to present a slightly different style of article this week that I present at the end of this post. I’ll be doing more of these articles in the future and hope they prove to be a useful way to exchange information.
There has never been a greater need to develop a business strategy to determine the best path forward than now in the collision repair industry. The entrance of Wall Street money in the industry is causing rapid structural change. No longer is the collision industry just about fixing cars and minding your KPI’s.
The industry is maturing. As a result, business models are changing too. […]
Real estate plays an important role in any business. As a significant long term asset, real estate represents a major financial investment. Whether it is owned or leased, real estate is one of the largest fixed expenses for many businesses.
Unfortunately many owners do not give enough thought to the role that real estate plays in their business strategy. Whether your plan is to stand pat, buy, or sell, the financial management of real estate plays a significant part in that strategy.
But many owners do not understand how outside parties view real estate and the implications that may have financially and strategically. […]
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. […]
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. […]
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. […]
Previously I spoke about how collision repair operators will have to develop new core competencies in order to compete against the increasing competitive pressures as a result of industry consolidation. As we saw last week, consolidation is a trend that is not going away, and most likely will continue in frequency and intensity. Collision repair is no longer just about fixing cars and minding KPI’s.
In business school we talked a lot about core competencies. The most basic definition of a core competency is something a business is really good at. In collision repair, most operators would have a core competency in vehicle repair and customer service.
In fact, we may actually be too good at those things. […]
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. […]
For the past few weeks we have been speaking about the options that are available to a collision repair operator: stand pat, grow, or sell.
I spoke at some length about the risks involved in each strategy. Standing pat is a risky strategy due to the concentration of risk into a single business in a single city / region.
Growing is risky because it involves developing a new set of core competencies built around high level financial management as well as acquisition and integration competencies. Most collision repair businesses have not developed these competencies; and those that have developed those competencies now compete for deals against other large MSO’s with extensive experience sourcing, closing and integrating acquisitions. (Editor’s Note: Keep an eye out for an upcoming article about how the franchise model plays a role in growth.)
Selling is similarly risky as there is almost a certainty that a buyer will have vastly more experience in a business transaction, leaving you and your business vulnerable. Buyers will pay a premium for a well-documented, well-run business but most collision repair businesses have little experience presenting financial information in a usable format to a multi-million dollar institution.
Those are the risks. But I promised an article about opportunities! […]
Last week we spoke about the conundrum that collision repair operators currently face. Because of the influx of Wall Street money and rapid consolidation, owners have essentially three choices when looking towards the future. They can:
- Stay small and continue to compete on a standalone basis, or with the help of a franchise (more on the franchise approach in future articles);
- Build scale, acquire competitors, open brownfields and compete with large MSO’s by becoming a small MSO;
- Sell to a regional or Big 4 consolidator.
Each of these three strategies carries inherent risk, as well as potential rewards. This article will break down each of these three key strategies to help better explain the specific risks and rewards implicit in each. […]
Long time readers of my posts notice two main themes running through my writings. The first is a focus on corporate finance and how to apply those topics to a collision repair business to better manage a business. The second is a focus on M&A (Mergers and Acquisitions) and how to be prepared to buy or sell a business.
Many readers inherently see the logic of the first topic. Understanding the tools mid to large sized business use to manage their business allows the reader to better manage their business, and be more successful as a result.
The second topic is sometimes met with less clarity. It often begs the question: why so much talk about buying and selling a business? […]
Working Capital is something that is scrutinized by almost every company but rarely talked about in the collision industry.
But I guarantee every large MSO in your marketplace is actively managing Working Capital.
It is also something that major vendors will consider if you are negotiating for a pre-bate or other consideration for purchasing their product.
Banks look at it too. If you want to borrow money to grow, they will scrutinize Working Capital to ensure that you can afford the loan.
If you ever sell your business, it will be a hotly negotiated topic as well.
Most business owners do not look at working capital until one of the above situations forces a working capital negotiation. But that is the wrong time to start managing working capital. It is like going on a diet the week before your annual doctor checkup. […]
The collision industry is a $30 billion market in the U.S. But not a single company accounts for even $1 billion in sales. There is a race to get to the $1 billion in sales mark. (Editor’s note: keep an eye out for our upcoming article on what is driving this race to $1 billion).
The quickest way to get to the $1 billion mark is to acquire other businesses that already generate a few million dollars in sales. So the consolidators need you – but they are also afraid of you.
They are afraid of you because you lack experience.
The large consolidators by their very nature are incredibly cautious. They are backed by some of the largest financial institutions in the world and are stewards for hundreds of millions of investment dollars. They unfortunately cannot just “take your word for it”.
Sure you have been in business for years. You have long term employees. You have long term referral accounts via DRP’s or dealer referrals and repeat business.
But you are inexperienced in their world. […]
Many owners I interact with still run their business the same as the day they started. They are the first one there in the morning and the last one to leave. They know what is going on with every file. They are the only ones allowed to make decisions.
This level of dedication is admirable. Unfortunately while it can feel profitable and even feed our own ego, it often gets in the way of maximizing the value of your business. You want your business to run better today and be better positioned for tomorrow – even if you are not planning on selling any time soon.
In order to maximize the value of your business you have to view your business from the outside in. Or, as a good friend of mine once told me, work on your business not in your business. […]
Previously we talked about valuation methods. Valuation is great, but like any tool, only as good as the person using it.
Anyone can tell you that your business is worth $10 million. But if you can’t find a buyer at that price, is it really worth that much? An investment banker once told me that a business is only worth what a buyer is willing to pay for it…PERIOD.
In order to maximize what a potential investor or buyer is willing to pay for your business you must be able to demonstrate the value of your business to them.
Understanding valuation methods is important (common valuation models are discussed in this article).
You also need to pay attention to recent comps. Know what other businesses in your industry sell for. If possible, know the profitability and size of those businesses so you can compare them to your own business.
But in addition to the above, here are six more ways to maximize the value of your business: […]
A colleague of mine was recently approached by one of the Big 4 inquiring about his business. After a few brief conversations around his financials they came back to him and offered him a very specific number to buy his business.
He remarked to me, “They knew more about my business and what it was worth than I did. I had no idea.”
Ask 5 business brokers what your business is worth and you’ll get 5 responses. Ask 5 investment bankers and you will get 25 responses.
How do the MSO’s know exactly what your business is worth? How do you value a business?
There are three common ways I see collision businesses valued: by discounted cash flow (DCF), the multiple method, or by asset value.
Let’s break each one down. […]
I wanted to take a break from talking about finance and the collision industry and spend a bit of time discussing the importance of employee alignment and engagement.
Normally we talk about growth and how to finance and account for that growth. But what gets lost in that narrative is that growth is impossible without a group of people working towards a common goal.
In corporate management speak, that is called “employee alignment”.
What is employee alignment? In its shortest form, alignment is about getting employees to think like owners. […]
Previously we spoke a bit about maximizing enterprise value vs. maximizing profit margins.
Many people in business fail to realize the distinction between the two concepts. If you maximize profitability, you maximize the value of your business, right?
Not always. In business everything is always a trade off. […]
We’ve talked a bit about the state of the industry and the Big 4, or the Big Boys as I sometimes call them (Boyd/Gerber, Caliber, Service King, ABRA). While they may be in the same business of fixing cars, the way they do things is systematically different.
(Editor’s Note: Keep an eye out for our upcoming article on the role of franchise based MSO’s and their impact on the industry.)
Perhaps the least understood difference is at the core of their business – how they actually make money for their shareholders.
Some people believe they give heavy discounts and make it up in volume. Others believe they don’t actually make money, and are barely holding on.
The reality is that these businesses are making millions upon millions of dollars. But not the way you may realize. […]