State of Play in the Collision Repair Industry January 2020
David Roberts, Managing Director of FOCUS Advisors (focusadvisors.com), comments on the year just ended and expectations for the current year. Originally a co-founder of Caliber Collision, Roberts has led multiple MSO and paint distribution transactions including last years’ sales of Price’s Collision and Herb’s Paint & Body. He can be contacted at [email protected], 510 444-1173.
Looking back at 2019
What was the largest transaction in the MSO universe in 2019? No, it wasn’t Caliber buying ABRA. That was at the end of 2018!
It was Gerber’s acquisition of 19 Carubba’s shops in upstate NY, followed by their acquisition of neighboring Nu-Look Collision with 16 shops. With nearly $75 million in total sales between the two enterprises, Gerber firmly established itself as the leading provider in NY State.
Caliber wasn’t left behind by much. Their two largest deals totaled only 18 shops with combined revenue in the $70 mm range. Price’s Collision 10 shops combined with the existing 8 ABRA shops give Caliber true market dominance in Nashville. The subsequent acquisition of 8 Herbs shops in northeast Dallas further solidified their influence on the DFW market – now with more than 54 shops and $200+ million in revenue.
Even though Caliber just missed on the largest deal size, it nevertheless finished the year with 1121 shops and more than $4 billion in revenue. Gerber ended with 551 US shops and an estimated $1.8 billion in revenue.
Service King made almost no acquisitions during the year and finished with 345 shops and an estimated $1.29 billion in revenue.
Joe Hudson began the year with 78 shops and added 28. Along the way its private equity backer, Carousel Capital based in Charlotte NC, sold most of its interest to the much larger TPG Consumer Partners, a San Francisco based private equity firm with more than $9 billion under management.
Crash Champions, a Chicago area MSO attracted multiple private equity bidders and joined up with A&M Capital to finance its growth strategy, ending the year with 11 total locations. A&M Capital manages more than $3 billion and focuses on middle market manufacturing, retail and service companies.
Classic Collision, a 34 location MSO based in Atlanta, has raised an undisclosed amount of capital from New Mountain Capital LLC, a new private equity entrant into collision repair. Classic, which recently acquired Carolina Auto Body in South Florida, appears to be joining the race to grow into the next national consolidator. New Mountain, a NY City based investment firm with $20 billion in assets invests between $100 to $500 million in growth-oriented companies. Last year they Invested in Horizon Services, a regional HVAC consolidator of HVAC services in the Northeast and Mid-Atlantic region. The Classic investment is their first foray into the collision repair industry.
Texas based ProCare backed by PE firm Kinderhook, slowed down in 2019 after merging with Austin Motor Mile in 2018. Finishing the year with 33 shops, ProCare added 4 locations during the year. Kinderhook is also an investor in asTech, the diagnostic and calibration equipment and services provider.
Collision Works of Oklahoma City with backing from the Bank of Oklahoma opened 4 new shops. They also acquired 8 shop MSO Autocraft plus another 2 shops with Flair Collision bringing its total shop count to 31.
Other fast-growing MSOs included Signature Collision of Annapolis, MD, which finished the year with 24 shops.
Industry Conferences are Changing
As the composition of the industry to evolve, its marketing dynamics continue to change as well. NACE and AutoMechanika are on hiatus. The MSO Symposium continues, now in conjunction with SEMA rather than NACE. CIC continues to meet quarterly while the ratio of vendors to buyers continues to rise.
Looking Ahead in 2020
Caliber’s body language is increasingly IPO. A “unicorn” several times over, many industry financial observers expect the IPO to occur in the second quarter of 2020. While planning an aggressive shop opening goal of up to 200 shops in 2020, Caliber continues to diversify with rapid growth through its Service One retail operations, targeting off-lease and non-dealer tied vehicles. In addition, its Protech diagnostic and calibration company continues to grab an increasing number of customers as asTech and other competitors continue their own rapid growth. In 2020, Caliber is likely to increase its streamlining of parts procurement, dealer relationships and aggressive engagement with insurers.
Gerber’s parent company completed its transition from an Income Fund to a Canadian stock corporation called Boyd Group Services, Inc. As the holding company for The Boyd Group, Inc. (collision shops in Canada) and Gerber Collision and Glass, Inc. (collision shops, glass and third-party administrator in the US), Boyd Group Services operates in a more conventional corporate form.
Gerber’s strategy of relentless acquisitions is beginning to be enhanced by more brown and greenfield openings as well as increasing its dealer relationships. Perhaps its most significant strategic endeavor will be its entry into the gigantic California market. In just the first few weeks of the year, Gerber acquired Center Pointe Collisions’ 3 shops north of LA as well as 6 International Auto Crafters shops in the Inland Empire east of LA. We expect they will make other significant acquisitions in the Southern California region during the year.
Service King’s future is ambivalent. It has multiple opportunities to divide itself into parts and focus only on its core markets. Or it could sell off all of its parts to other operators or private equity firms. What seems clear is that its momentum has stalled for more than 2 years.
New PE Investors
New PE firms have entered the fray with others likely to follow. While Carousel, Leonard Green and OMERS have largely exited, the largest players remain including Blackstone with Service King, Hellman & Friedman with Caliber and Roark with Driven Brands. As noted above A&M, Bank of Oklahoma, Kinderhook and now New Mountain are staking out positions with high growth MSOs. 2020 should bring other private equity firms into the field as well.
Franchisors and Banners
Carstar, FixAuto and CCG all made significant advances during 2019. Carstar’s growth in both the US and Canada is being “driven” by Driven Brands. This Roark sponsored automotive services holding company now owns CARSTAR, MAACO, Meineke, 1-800-radiator, and now the ABRA franchise system which it acquired in late 2019.
Carstar US achieved more than $700 mm in sales with more than 350 US shops while FIXAuto US totals 156 US shops with approximately $375 mm in revenue. Banner group Certified Collision Group (CCG) is believed to have more than 450 affiliated shops with more than $1.5 billion in total revenue. For independent single shops and MSOs seeking the safest port in the consolidation storm, this segment of the industry is creating an increasingly attractive alternative to going it alone.
Insurers are Evolving – And It’s Painful for Some MSOs!
State Farm’s “reset” in 2019 hit the DRP referral volumes to many MSOs, both large and small, for up to 2 quarters as the volume referrals shifted, first to the consolidators and then back to include all the best performers in each market. Many operators took the “hit” to refocus on other DRP relationships. The shift has enabled many MSOs to actually increase overall sales going forward.
GEICO’s evolution is hitting many GEICO-centric operators hard. As the ARX model gives way to GEICO 2.0, the MSOs that grew revenues on GEICO relationships are finding their shares diluted as GEICO moves to change their fundamental model. Disruption in management and processes continue to challenge operators but are expected to become more settled during 2020.
Progressive continues to increase its market share, making it probably the fastest growing DRP for many MSOs. Smaller insurers are becoming less and less relevant to most MSOs.
Changes in Paint Manufacturing and Distribution
PPG may buy AXALTA in a strange but probably predictable convergence of manufacturers. For many MSOs that adhere to the axiom that “paint is paint,” the choice between the two will be determined primarily by pricing and service.
For most MSOs with true scale as well as the consolidators, price and gross profit are key to their purchase choices. Their painters’ preferences are of diminishing consideration. For distributors, the bad year of 2019 promises to be an awful year of 2020. FinishMaster continues to struggle. Distributor margins continue to shrink. The base of shops isn’t growing while the number of decision-makers is shrinking.
Perhaps a merger will bring the end to great paint deals – except for BASF’s continued aggressive expansion. Solo operators and small MSOs continue to find great deals with them. One unanswered question: “Where does that leave AKZO?”
Valuations continue to decline for some
Sellers of all sizes still seem to overvalue their operations while buyers are less and less inclined to pay up for anything. As Caliber and Gerber ramp up their development capabilities, they have relatively less demand for single shop acquisitions. Premier platforms still command the highest values which range from 75-100% of revenues but with each of the big players more focused on ‘accretive’ acquisitions, the gap between seller and buyer expectations continues to widen.
Mid-size MSOs with $15-30 million in revenues have transacted at lower premiums ranging from 55-85% of revenues. Small MSOs have been trading at significantly lower values from 45-60% of revenues while single shops are more and more frequently finding it difficult to find buyers. Some single shop sales have occurred at asset value. A few fortunate ones have traded up to 50% of revenues.
Smaller MSOs and single shops seeking to expand are taking advantage of the reduced appetites of the big guys and finding very attractive deals as their competitors accelerate their exits from the industry.
Why a multiple of EBITDA is becoming less important as a metric
The five most important criteria for acquirers are still: total sales, EBITDA, production capacity, DRPs and management. However, both Gerber and Caliber and other strong regional players know that the value they bring to acquisitions through their insurance company relationships and scale advantages make the EBITDA multiple less important than in the past. Having insurance companies and paint and parts distributor commitments for volume and pricing, allows these scale players to better understand their risks and rewards in acquisitions.
- The two industry giants will continue to gain ground on everyone.
- Robust regional MSOs will find new capital, grow rapidly – and some will endure growing pains as their appetites outrun their infrastructure and management.
- Franchisors will gain more and more members.
- Fewer and fewer strong independents will remain.
Focus Advisors (focusadvisors.com) is a full-service FINRA-registered M&A advisory firm serving collision repair entrepreneurs looking for advice about their future possibilities. Focus is one of the most successful M&A advisory firms in the automotive aftermarket, having completed more than 20 collision and paint distribution transactions in the last 5 years including selling large MSOs such as Price’s Collision in Nashville, Herb’s Body and Paint in Dallas and Keenan’s Auto Body in Pennsylvania.
Please email or call us to schedule a confidential conversation about your market, your business, and the industry in general. We meet regularly with all the participants in the collision ecosystem with no obligation or agenda other than to exchange information and be better informed about our industry. If you would like to set one up please email or call me directly, my contact information is below.
Managing Director, Focus Advisors
Learn about us at: focusadvisors.com