Recently, I was working with a client. The purpose of the project was to evaluate the business, and some recent investments the client made. On the surface, the investments appeared to be highly profitable. They were yielding very strong EBITDA margins. So strong in fact, the analysis seemed almost after the fact. With such strong[…]
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…
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 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 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. […]
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.
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. […]
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 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. […]
EBIT…Huh? What the heck is that?
Say it out loud with me: Eeee – bit – dah.
One more time out loud.
EEEE – bit – daaaah.
Did your co-workers just look at you funny? Good.
EBITDA is short for Earnings Before Interest Taxes Depreciation and Amortization. It is a shortcut to estimate cash flow to the firm. It’s also one of the more common financial measurements used to value firms.
EBITDA approximates the cash the business is generating for all stakeholders (owners, investors, debt provides, etc.).
That is important for an investor to know. When someone invests in your business, they want to know what they are getting in return. EBITDA is a good way to measure that.
Previously we talked about the state of the industry. Wall Street has arrived in the collision industry. And Wall Street doesn’t play nice when it comes to money.
The insurance companies we do business with every day are some of the most powerful financial institutions in the world. Even the small ones wield huge influence. Their campaign contribution dollars get favorable politicians elected. Their lobby dollars get favorable laws passed (Obamacare anyone?)
In other words, they get a great return on their investment. […]