For an increasing number of single shops and small MSO operators, the frequent and emphatic conclusion is “I’m done. I’m getting out.”
Why now? What’s happening? Is it an age thing? Is it the never-ending stress of responding to insurance company demands or of trying to adequately staff and retain employees? Is it dealing with parts restrictions, increased competition from the big guys or is it something else? After two years of COVID and the ensuing two years of staffing and parts shortages, there seems to be a convergence of all the above driving this conclusion for many smaller operators.
In a recent discussion with a very successful operator of a large, well-certified, and fully staffed shop, that same conclusion was echoed by the owner and his family, several members of whom are deeply involved in the business. “Life is just too short to continue living in this incredibly competitive, stressful environment. We are getting out.” Fortunately for this owner, he owns the real estate and the business. He has an excellent chance of selling to the right buyer, entering a great lease, and then selling the real estate for a low cap rate.
Another client of ours here at Focus Advisors described how different his work life is today compared to 30 years ago when he entered the business. “When I got in the business, I wanted to take something broken and make it whole again. Back then at the end of each job I felt more than just satisfaction. I felt accomplishment and even joy.” Regardless of his passion for his business, this owner went on to describe his professional life for the last 10 years as “documentation, negotiation, recruiting, documentation, training, unceasing pressure.“
For many operators with whom we have discussions about their future, fewer and fewer have family members that want to take over the business. Some tried to bring a relative into the business and it just didn’t take. “My kids are grateful for the life our shop provided but they have other priorities.“ Another client described his next endeavor as running a chain of hot yoga studios, or doggy day spas. “No more insurance company BS.“ Another owner told us that “all those hours arguing with and explaining things to the insurance companies – those are just so many hours of your life you can never get back.”
Sometimes it’s a single event that tips the scale. “My GM just left and I’m not replacing him. I’ll run the place myself until it sells.” Waking up one morning, one owner decided to sell immediately. “I just knew. I had been thinking about it for years and I just decided that today was the day.”
Even among small MSOs with two to four shops, many have a clear objective to grow the business and then exit. At Focus Advisors, we currently tracks more than 600 of these small MSOs. Increasingly, we are seeing more inbound inquiries from folks who are three decades or more into their careers. While they are making really good incomes, they feel like the money is no longer worth it. Every one of them still feels great pride in their shops. They feel great loyalty and gratitude towards their employees. And almost every one of them is confident that a buyer should pay them a premium for what they’ve built.
Some of our hardest conversations are helping them understand that it’s no longer a sellers’ market for smaller operators. When we provide a range of estimates for their value, point out to them the most likely buyers, and estimate the value of their real estate, we often hear the response, “but I can’t retire on that! I take out $250,000 a year and you mean to tell me I’m going to get $2-$3 million all in?” It’s not easy to deliver the news that values, although still very good, are flat or down from the highs of the last couple of years. That selling their business, even with assistance from experienced professionals like us, involves careful preparation, research to identify the right buyers and making sure they stand out from the many others who may be selling in their markets.
Acquisition executives at the largest consolidators report that more potential sellers than ever before are contacting them directly and – in the words on of one of those executives, “we have more than we can possibly buy so we are being very selective.” One disappointed seller reported “I talked to Crash and Caliber, and they just weren’t interested in my shop because they have too many locations close to me. No one else is even buying in my market so I don’t know what I’m going to do.”
When looking to sell your business, there will always be hard conversations and hard conclusions, but with the right preparation and the right representation, there is almost always an acceptable solution. Our advice is to prepare yourself to get the best offer. Get your house in order. Having accurate and complete financial statements with documentation and backup is crucial. We often work with clients for more than a year to help them prepare, mostly to make sure that buyers can confidently identify and rely on their financials. And the twelve months of your income statement leading up to going to market are what potential acquirers look at. That means hire (or retain) a good bookkeeper, economize your expenses, and try to grow your income in those critical months leading to a transaction. In other words, prepare to finish strong!
The concerns and frustrations are somewhat different among the larger MSOs. Currently, Focus Advisors tracks a total of 145 MSOs with five or more shops. Many of these operators have reached a level of revenue and profits that has allowed them to invest more in systems, management, equipment, and software that has shifted their day-to-day concerns. Interestingly many of these larger entrepreneurs began their careers working for insurance companies or paint manufacturers. Many entered the front of the shop, working directly with customers and insurance companies. They never worked on the shop floor. Consequently, many have focused their efforts on training, hiring and empowering shop managers while focusing their executive efforts more on growing the business.
Among the largest 40 independent MSOs, there is much more professional satisfaction and enthusiasm for continuing to grow their businesses and further repeat the benefits that come with scale. Almost all of them have professional accounting and HR staff. Many have their own training departments, call centers, calibration subsidiaries and integration specialists to support their expansion. With revenues from $30 million to more than $100 million, they occupy a much more sustainable position in the industry. Some realize EBITDA margins of 15% or more, growth rates of 15-25% annually and enjoy the freedom of opportunity that comes with excess cash flow.
Even among these top 40 MSOs, many are building to sell. They recognize their value as “platforms” for the more than 25 private equity firms seeking to enter the industry. Others have no intention of selling but are accessing multiple capital opportunities to fund their growth – and diversifying their investments.
With the twelve public and private equity backed consolidators now controlling more than 3,700 shops and more than 35% of the industry’s total revenues, the competition continues to increase for the smaller shops and operators. But it’s also important to remember that all the MSOs with 2 or more shops total more than 2,000 with collective revenues exceeding $7 billion so the consolidation game isn’t over – not by a long shot. Whether you’re looking to exit immediately or to expand your footprint with an exit strategy in mind, the key is to plan well and finish strong.
About Focus Advisors:
Focus Advisors is the collision industry’s leading M&A firm representing MSOs and single shops. We help entrepreneurs create and realize equity value by advising, raising capital, and helping them sell their businesses. With 25 years in the industry, Managing Director David Roberts has led more than 40 transactions totaling over $500 million in transaction value and more than 300 collision repair shops, including Parsons/Middleton CARSTAR, Quanz Auto Body, Mills Body Shops, and Fix Auto USA.
