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 Read more about I attended the MSO Symposium at NACE Automechanika and this is what I learned[…]
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 Read more about Consolidation Trends Update: Q2 2016 – What Happened?[…]
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 Read more about $6 Billion by 2020. Is that even possible???[…]
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 Read more about Lean Will Save the Industry…Or Will It?[…]
Increasing vehicle complexity creates additional capital costs. Margins will continue to be compressed. Discover what your business needs to do to compete.
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 Read more about 2015 Acquisition Trends Update: The Floodgates Open[…]
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, […]
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. […]
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 Read more about NACE 2015[…]
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. […]
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’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. […]
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. […]
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. […]
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. […]