Post-Sale Business Opportunities: What’s Next?

Selling your collision repair business may only happen once in your life. It’s an opportunity many business owners don’t get — and a chance to reap the benefits after years of hard work and dedication. 

As the collision repair industry’s leading mergers and acquisitions advisory firm, the team at Focus Advisors has had the privilege of guiding more than 40 clients through the process of selling their enterprises. They understand not only the intricacies of selling a business but also the profound impact it has on an owner’s life — both during and well after the transaction.

Many of Focus Advisors’ successful clients chose a variety of options post-sale that may or may not fit your situation. Either way, they just may offer a path forward for the next chapter of your life.

Option 1: Enjoy Retirement and Collect Rent from Your Owned Real Estate

Selling your collision repair business to a strategic buyer, such as a regional or national consolidator, can provide immediate relief from the day-to-day responsibilities of running the business.

The transition typically allows for a swift exit, giving owners the freedom to retire on their own terms. Occasionally, owners will need to stay on for a short time to help transition operations or assist in finding and training a suitable replacement manager.

Sellers who own their real estate can establish a long-term lease with the acquirer. Most leases are triple-net (NNN) and have initial terms of 10 years, with some extension options for an additional five or 10 years. Entering into a long-term NNN lease with the new owner of the business can enable sellers to redirect their time and energy to new ventures and interests during their next chapter — and many former owners appreciate this “mailbox money.”

As an added benefit, establishing a long-term lease with a well-capitalized buyer can significantly increase the real estate’s value. With a creditworthy tenant, the risk of missed payments and default is lowered significantly. This improved lease profile translates into a better capitalization rate for the property, increasing its market value often by hundreds of thousands of dollars. The strength and stability of the new occupying business raise the price an investor would pay for the real estate itself. This value creation happens immediately as the business changes hands and that lease is signed, so many owners decide to sell their businesses and real estate in quick succession for maximum value and financial flexibility.

A good advisory firm will spend the time up front negotiating leases that are structured in a way that maximizes your real estate value. It’s an important piece of your wealth portfolio’s value — sometimes even greater than the business itself.

Option 2: Join the Acquirer’s Company in a New Role

Many collision repair buyers value the local market expertise and industry knowledge that former owners bring to the table. Transitioning to a role within the acquiring company can offer a new avenue for professional growth without the burdens of ownership.

Focus Advisors has seen several previous owners find themselves in more attractive roles with increased responsibilities, competitive salaries, bonuses and even stock options. This remains true for any family members involved in the business and provides a career path with upward mobility under the acquirer’s umbrella. 

And the role you choose to take may not be operational. Many have enjoyed regional management roles, while others have enjoyed joining the corporate team to assist with new acquisitions.

One of Focus Advisors’ clients joined the acquiring company after it purchased his collision repair shop a few years ago. He now serves as a well-compensated regional director with a competitive salary, bonus incentives and stock options. He is a highly valued member of the consolidator and gets the opportunity to work with shop owners and their operations throughout the states in his region. The acquiring company has grown rapidly since then, offering the former client a second chance to share in its success. He loves being engaged in the thriving industry, leveraging his veteran expertise while also looking forward to a potential future liquidity event. If the acquiring company executes a recapitalization down the road, our client could see another lucrative payout from his stock holdings. 

For him, selling his shop provided not just a payoff for his life’s work but also the opportunity for a second bite at the apple, thanks to his acquiring company’s impressive growth trajectory after acquisition.

Option 3: Focus on Developing a Real Estate Portfolio

The sale of your business can serve as a springboard to diversify and expand your real estate investments. Whether focusing on commercial properties or exploring new markets, real estate remains a robust avenue for wealth building.

Consider the timing of your investments and the potential to maximize returns by diversifying your real estate holdings. A strategic approach might involve selling collision repair real estate at peak value to reinvest in properties with higher growth potential.

Many former clients have successfully leveraged their sale proceeds to grow their portfolios, sometimes through strategic moves like a 1031 exchange. A 1031 exchange is a maneuver for real estate investors that allows them to defer capital gains taxes by reinvesting the proceeds from a sold property into a new one. It’s a beneficial strategy sanctioned by the IRS that offers investors the opportunity to reinvest their full proceeds, thereby fostering further investment in the real estate sector.

A client last year decided to go back and work with the commercial real estate development company his dad started. Another is managing his portfolio that includes properties his acquirer is leasing and is building another facility for that acquirer with the lease terms and commitment already in place.

Option 4: Pursue Entrepreneurial Ventures While Respecting Non-Compete Agreements

The freedom from daily business operations opens doors to new ventures. You now have the time, resources and freedom to explore new opportunities. However, it’s essential to navigate non-compete agreements carefully, ensuring your new business endeavors don’t conflict with the terms. This is also an area of the deal that you and your sell-side advisor should strongly consider negotiating with a potential acquirer, because the non-compete can significantly affect your career options post-sale. 

Exploring industries unrelated to collision repair can offer fresh challenges and opportunities. Whether it’s starting a venture in a completely different sector or relocating to bypass non-compete restrictions, the key is to leverage your entrepreneurial spirit within the bounds of your agreement.

When checking out new business opportunities, you need to remember any non-compete agreements you signed during the sale. These agreements typically prohibit previous owners from owning or even joining ventures that are related to collision repair for five years, which could affect the kinds of new businesses you can consider. In some cases, owners choose to relocate to a new state or region not considered in the non-compete and start another body shop from scratch.

Option 5: Negotiate to Continue Operating a Separate Sublet Business

If you operate a separate sublet business, such as towing, mechanical service, glass repair or calibration services, you may be able to negotiate to retain ownership and continue operating it independently after the sale.

You can maintain control and autonomy over these aspects of the existing business by keeping the sublet business separate from the collision repair transaction and carving out that business from your non-compete agreement. Continuing to operate the sublet business allows you to leverage your existing expertise and infrastructure in a complementary vertical.

The growth of the collision repair business under the acquirer’s ownership may create new opportunities and demand for your sublet services as they acquire and grow more in your region. By aligning with the acquirer’s growth strategy, you can position your sublet business for increased profitability and success in the evolving market landscape.

For example, a former client started a mobile calibration business and decided not to include it in the sale of his collision business. He says it has grown so quickly he was able to hire someone else to run it so he could focus on expanding it to service half of the state.

Option 6: Partner with a Private Equity Firm and Continue to Grow the Business Under Your Direction

In recent years, private equity (PE) firms have shown increasing interest in partnering with seasoned collision repair operators to build new, fast-growing multi-shop operators (MSOs). Whereas these partnerships were once reserved for large platform companies, PE backing is now viable for businesses of varying sizes, including sizable single-location operations.

By partnering with the right PE firm — one that aligns with your vision for expansion and culture — you can leverage their capital resources and expertise in areas like mergers and acquisitions, efficient scaling, and implementing processes to catalyze innovation and growth. An experienced advisor can introduce you to firms that match your goals. As an experienced operator, you bring invaluable regional market knowledge and proven leadership managing day-to-day operations.  

Here’s a high-level overview: The PE firm acquires your business, and you reinvest a portion of proceeds back into the business and retain an ownership stake as you work alongside the PE partner to rapidly expand over the next few years before selling to a strategic buyer. This path allows you to realize some liquidity now while still having skin in the game to expand what you’ve built so far. With an experienced PE backer providing strategic guidance and capital, you’re well-positioned to quickly scale ahead of an exit. While the financial rewards can be great with PE backing, it is no walk in the park. PE capital is selective in the kinds of leaders it backs in this industry, and the PE firms have very high growth aspirations to achieve within just a few years.

Charting the Course Ahead

Navigating life post-sale presents a range of opportunities and challenges. By carefully considering your options and aligning them with your personal and professional goals, you can embark on a rewarding new chapter. 

Whether you choose to enjoy a well-earned retirement, dive into new ventures or continue to grow your business in partnership with others, the possibilities are right in front of you. The key is to approach this transition with a clear vision and an open mind and to leverage the resources and expertise available to you. 

With strategic planning and the right partnerships, the next phase of your career can be as fulfilling, if not more so, than the last. Embrace the change and look forward to the new opportunities that await beyond the sale of your collision repair business.

Investment Banking Services and Securities offered through Independent Investment Bankers Corp. a broker-dealer, Member FINRA/SIPC. Focus Advisors is not affiliated with Independent Investment Bankers Corp.

This article by Madeleine Roberts Rich was originally published in Body Shop Business on May 30, 2024. Here is the link for that article. 

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