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?
In 2012 I was at an invite-only conference consisting of collision repair executives of the large MSO’s along with private equity and investment banking professionals active in the industry. There was a question and answer session where a Managing Director of one of the large financial firms said that he felt the industry was still in the early stages of consolidation, but that the pace of consolidation would pick up rapidly.
His comment proved to be very prescient.
To give context, in mid to late 2012, ABRA and Caliber had just over 100 locations each. Service King only had about 50 locations and had just announced the Carlyle deal. Boyd/Gerber was the clear leader in the industry in terms of size with almost 200 locations in Canada and the U.S.
Fast forward 30 months. Boyd now operates 323 locations in 17 U.S states and five Canadian provinces. ABRA operates 265 locations in 20 states. Caliber operates 253 locations in 12 states. Service King operates 223 locations in 21 states. All four are in active negotiations with small and medium sized collision repair operators to acquire more locations that may be announced before this post is even published. (Editor’s note: less than 24 hours after this was published Service King announced the acquisition of 7 locations in Chicago).
The industry is changing rapidly – more rapidly than I ever anticipated a mere 30 months ago.
The way the Big 4 got to the top was almost exclusively a result of M&A, or buying other businesses. This has been a boon for owners of profitable collision repair businesses. While Wall Street investment has brought competition to the marketplace, it has also resulted in a significant price appreciation of collision repair businesses. As one investment banker confided to me, there may never be a better opportunity in our lifetimes than now to sell.
The industry will continue to consolidate, but in a different way than it has in the past. The past 30 months have seen the industry become increasing bifurcated. By the end of 2015 it is a certainty that at least one of the Big 4 will hit the $1 billion in sales mark (and most likely more than one). Collectively they account for about $3.5 billion in sales. The next 15 largest independently owned operators account for $50 – $100 million in sales each. The industry rapidly fragments in size outside of the top 20.
A successful collision repair operator thus has three choices. They can stand pat and continue to compete on a standalone basis, or with the help of a franchise (more on that in an upcoming article). They can grow and build scale and compete with a consolidator by becoming their own MSO. Or they can sell to a consolidator.
The reason I talk so much about buying and selling is because for the past 30 months, the big story in the industry has been about buying and selling collision repair businesses. As I have previously stated, Wall Street has entered the collision repair industry and is changing the dynamics of the industry. No longer is the collision repair industry just about fixing a car and minding your KPI’s. It is now also about minding your finances and being aware of your competitive environment.
Now may never be a better time to grow. But it may also never be a better time to sell. The options available to collision repair operators present unique risks and an interesting conundrum for the successful business owner. But I’ve already exceeded my word limit for the week. Next week I’ll break down the risk/reward profile of each one of those choices I mentioned above.
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