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.
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
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[…]
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[…]
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[…]
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[…]
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[…]
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 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[…]
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[…]
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[…]
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. […]
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. […]
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, […]
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. […]
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. […]
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? […]
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. […]
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. […]