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 under management, increasing to 1,435locations from only 420. But something odd just happened.
Note: I’m presenting at NACE this year. How to Grow in a Consolidating Industry. You can free tickets and reserve a spot using this link. I’m pretty excited about it and hope you can make time in your schedule to attend. I’ll also be carving out time for confidential meeting requests. These are always popular sessions, so be sure to get your request in early. And for those of you who are subscribers, you know I’m planning a super secret event. If you’re not a subscriber or you have no idea what I’m talking about, now would be a great time to sign up for updates.
Last quarter two of the four largest consolidators stopped expanding. But while two took a step back from the aggressive expansion, the other two continued on pace, possibly for record years. Based off of publicly available data, in Q2 2016 ABRA did not complete any acquisitions and Service King only expanded by 2 locations. On the other hand Caliber continued to expand aggressively, adding 26 additional locations and Boyd completed multiple single store acquisitions adding 8 locations in the U.S. and Canada.
Only a few weeks ago while I was presenting at IBIS, Caliber made the bold prediction that they would hit $6 billion in sales by 2020. With average per store revenues of $4 million, that implies a total footprint of about 1500 stores. Put differently, Caliber would have to nearly quadruple the number of stores under management to hit that target, or add about 1,100 stores from a current base of just over 400. While that target is rather aggressive, based on the numbers, it appears management is aggressively pursuing multiple opportunities to expand the business – including an aggressive use of real estate partners in identifying and building to spec new locations.
But the numbers demonstrate another more subtle phenomenon that may have a larger impact on mergers and acquisitions in the automotive aftermarket, and in particular, the price of your business. Buyers can exit the market as quickly as they entered the market. Prices can go down as quick as prices have increased over the past few years. As a business owner, it is prudent to always be thinking of ways to maximize the value of your business. When two of the largest buyers decide to take a less active role in the market, and a third begins to demonstrate a preference for new site development over acquisitions, what are the implications that may have on the overall price of your business?
When it comes to mergers and acquisitions, buying or selling a business, there are often many factors that influence the price of the business that are outside of your control. When working with the “buy-side” (i.e. helping them buy other companies) we often remind them to be patient, as ultimately the deal is never really in the buyers control since the decision to sell will always rest in the hands of a seller. But for sellers, there are many market dynamics outside of the seller’s control that determine what a buyer can or is willing to pay for your business.
For some time, I’ve been saying that I see many more factors that can have a negative impact on the price of your business than a positive one in today’s current economic climate. While the slowdown in acquisitions and expansion may be a short term quarterly blip, it may also be a sign of things to come. It is one of many data points I continually look at to provide my clients with the best business planning advisory possible.
If you would like to discuss how buy/sell activity and other economic trends may impact your business please reach out to me using my contact page (subscribers, email me). All of my conversations with you are extremely confidential. I don’t share your information with others.
Until next week!