Tag: debt

Will the Fed Raising Interest Rates Stop Industry Consolidation?

Posted on by Brad Mewes

It seems to be a forgone conclusion that the Federal Reserve will increase interest rates at their upcoming meeting. For years the Fed has repeatedly stated that they will likely raise rates in 2015. Now that December is upon us it appears the day of reckoning has arrived.

There is always a lot of consternation around rate changes, and this time around is no different. Effectively the Fed controls the price of money (interest rates) in an attempt to influence economic activity. The Fed lowers rates to spur economic activity and raises rates to slow it down. So a rate increase should be perceived as a generally positive event, an indication that economic activity is increasing. […]

Five Ways to Finance Growth

Posted on by Brad Mewes

Growth to multiple locations is one of the most effective ways to substantially increase the value of your business. A business with multiple locations improves your value proposition to referral partners, improves your ability to increase discounts with key vendors, makes you more attractive to other companies looking to grow via acquisition and when you reach an appropriate size, makes your business more attractive to private equity groups investing in the industry. But it is also risky and can be financially disastrous when done haphazardly (M2 is often cited as an example of a growth plan that failed spectacularly).

In order to create a business that builds generational wealth […]

The Boyd Group: Understanding the Balance Sheet

Posted on by Brad Mewes

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. […]

That’s WACC! Understanding how interest rates and the cost of capital impact the value of your business.

Posted on by Brad Mewes

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. […]

How Private Equity Makes Millions in the Collision Industry

Posted on by Brad Mewes

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. […]

What is this EBITDA thing?

Posted on by Brad Mewes

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.

[…]

What’s a Leveraged Buy Out (Should I even care????)

Posted on by Brad Mewes

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. […]

Profits Don’t Matter – Why it’s really all about cash flow.

Posted on by Brad Mewes

It’s all about profits, right? You can’t survive in this industry unless you mercilessly watch your profit margins. Parts margin, paint margin, labor margin, gross profit margin, overhead expenses, the list goes on and on.

But what if I told you that the big boys don’t care about their margins? […]