Dealers, Is It Time to Sell Your Body Shop? Market Insights and Considerations

Is it time to sell your body shop?

July 11th, 2024 – As private equity investments surge, many dealers are weighing the pros and cons of selling their collision centers. The decision is not a simple one, but if done right, it could unlock immediate and long-term value for your dealership by freeing up cash, enhancing the real estate, providing better lifetime service for your customers, and greater parts volume. 

David Roberts, Founder and Managing Director, and Madeleine Roberts Rich, Senior Associate of Focus Advisors, M&A advisory firm in the collision industry, joined us in a discussion about the pros and cons of potentially selling your body shop and equipped us with the knowledge and strategies for an informed assessment. 

The takeaways from this workshop are: 

• A higher-level view of consolidation in the industry 
• Headwinds, tailwinds, and opportunities in the collision industry 
• Real-life examples of recent successful body shop sales by dealers 
• A Mid-Year review of the notable transactions and players 

 Industry Overview 

The collision repair industry, with over $45 billion in annual revenues, is growing due to higher repair costs and labor rates. Significant consolidation has occurred, with 35-40% of shops under larger networks. Major players like Caliber Collision and Gerber/Boyd dominate through economies of scale and strategic acquisitions. Challenges include technician shortages and increasing vehicle complexity. 

Dealer vs. Scaled Shops 

The comparative analysis between dealer and scaled shops reveals significant advantages for scaled operations, including larger facilities, higher revenue, and shorter repair cycles. Scaled shops, often part of multi-shop operators (MSOs), benefit from direct repair programs, private equity investment, and geographic coverage. They attract more insurance referrals due to efficiency and reliability, reducing insurance overhead costs. 

Is It Time to Sell? 

Selling a body shop can streamline operations and provide financial benefits for dealership owners. Key advantages include reduced complexity, higher standards for technician training, market rent from leasing the facility, increased parts sales, and liquidity for reinvestment. Challenges include finding the right buyers, maintaining service quality, and ensuring continued customer relationships. Dealers may face issues like determining true EBITDA and negotiating terms. Using investment banks like Focus Advisors helps navigate the sale process, ensuring confidentiality, accurate financial analysis, and effective negotiation, allowing dealers to focus on core operations while achieving strategic objectives and maintaining high customer service standards. 

 Case Studies 

David and Madeleine discussed two case studies to illustrate how the process works. 

Industry Composition 

With annual revenues exceeding $45 billion, inclusive of glass and calibration services, the collision repair industry is a significant and growing sector. With more than 40,000 collision repair shops across the United States, including approximately 6,000 dealer shops bolstered by increasing repair costs, higher labor rates, and the complexity of modern vehicles. The industry has seen substantial consolidation, with 35% to 40% of collision repair shops now under consolidated operations. 

The industry is experiencing growing revenues, with higher revenue per repair due to rising repair costs. For example, the average cost of a repair in 2023 was $4,550, marking a 6.5% increase from 2022. Insurers have increased labor rates, benefiting repair shops financially. An increase in the number of vehicle miles traveled leads to a higher incidence of accidents, boosting the demand for repair services. Electric vehicles (EVs) and luxury cars are more expensive to repair, further increasing industry revenues. Advanced Driver Assistance Systems (ADAS) and calibration services are creating new revenue streams. 

However, the collision sector faces significant challenges. As the case for much of the automotive industry, technicians are in short supply. As the backlog from the pandemic clears, sales growth is starting to slow. Higher repair costs are leading insurance companies to total more vehicles rather than repairing them. The increasing complexity of vehicles necessitates costly equipment and extensive training for technicians. Repair shops struggle to influence the assignment of vehicles for repairs, often dictated by insurance companies. Insurers are operating with stretched staff, making it challenging for repair shops to manage claims efficiently. While ADAS technologies create new revenue streams, they also reduce the overall number of accidents, potentially impacting long-term repair volumes. 

Industry Consolidation: The Big Five 

The collision repair industry is defined by a clear divide between large consolidators/MSOs and smaller dealer-affiliated shops. The major players, often referred to as “The Big Five,” dominate the market through extensive networks, strategic acquisitions, and economies of scale and are owned by private equity firms. As of 2023 Year End, consolidators numbered 3,702 shops and accounted for 31.55% of the revenue. 

Caliber Collision is one of the largest collision repair companies in the U.S. with over 1,700 locations nationwide. Caliber’s extensive network and private equity backing provide it with significant purchasing power and operational efficiencies. They have been actively acquiring smaller shops and dealer shops to expand their footprint. 

Gerber/Boyd, operating as Boyd Group in Canada and Gerber Collision & Glass in the U.S., has over 1,000 locations. Gerber/Boyd has a strong presence in North America, leveraging its extensive network to offer comprehensive collision repair services. They are known for their aggressive expansion through acquisitions. 

Crash Champions is a rapidly growing MSO with a national footprint, focusing on delivering high-quality repairs and customer service. Their growth strategy includes acquiring established collision repair shops and integrating them into their network, providing centralized management and resources. 

Classic Collision has a significant presence with a network of locations across the U.S., supported by private equity investment. They focus on operational excellence and customer satisfaction, expanding their reach through strategic acquisitions and partnerships. 

Joe Hudson’s Collision Centers operate primarily in the southeastern U.S., with plans for further expansion. Known for their regional focus, Joe Hudson’s has been expanding their market presence by acquiring smaller shops and enhancing their service offerings. 

Drivers of Consolidation 

The consolidation of the collision repair industry is driven by key factors, such as scale efficiencies, access to repairable vehicles, geographic coverage, the capability to reduce insurance company overhead costs, and substantial private equity investment. These drivers enable large MSOs to operate more efficiently, attract more business, and expand their market presence, making them dominant players in the industry. 

• Operations: Large consolidators and MSOs can implement standardized processes across their locations, leading to higher efficiency and lower costs per repair. This includes better utilization of labor, streamlined workflows, and advanced scheduling systems. 
• Purchasing: Consolidators benefit from bulk purchasing, which reduces the cost of parts, materials, and equipment. They can negotiate better deals with suppliers due to their higher volume of purchases, resulting in significant cost savings. 
• Managerial Talent: Larger organizations can attract and retain top managerial talent by offering more competitive salaries, benefits, and career advancement opportunities. This talent pool ensures better overall management and operational efficiency. 
• Financials: Consolidators have better access to capital, allowing them to invest in the latest technologies, training, and facilities. Their larger scale provides financial stability and the ability to weather economic downturns more effectively. 

Dealer Shops vs. Scaled Shops 

The comparative analysis between dealer shops and scaled shops highlights significant advantages for scaled operations in terms of size, revenue, cycle times, and parts usage. Dealer shops, while numerous, generally operate on a smaller scale with a shop size around 6,000 square feet, although some can be much larger. In contrast, scale shops operated by MSOs average over 12,000 square feet, with many exceeding 20,000 square feet. 

Dealer shops average about $1.25 million in revenue per year, indicating that collision repair is often a secondary focus versus scale shops which approach $4 million in revenue per shop annually. Cycle times, which measure the duration of repairs, at 15-22 days are generally longer in dealer shops which tend to use OE (Original Equipment) only. Scale shops use OE and alternative parts and benefit from more streamlined processes and higher efficiency, resulting in shorter cycle times between 11-16 days. 

Scale is Rewarded 

The trend toward consolidation is making operations capable of operating at scale, attracting both consumers and insurers. 

Access to Repairable Vehicles 

Scaled shops benefit significantly from DRPs (Direct Repair Programs), with 80% of all repair assignments coming from these programs. This steady influx of work ensures consistent revenue streams and keeps shop utilization high. Scaled shops often have established relationships with insurance companies, who trust them to handle claims efficiently, leading to a higher number of referrals and more repairable vehicles being directed to these shops. Insurers are increasingly relying on scaled providers to handle claims management due to their efficiency and reliability. This shift allows insurers to reduce their overhead costs and streamline their operations. 

Geographic Coverage 

Major players like Caliber Collision, Gerber/Boyd, and Crash Champions have a national presence, allowing them to serve customers across the country. Companies like Joe Hudson’s Collision Centers focus on specific regions, ensuring they dominate their local markets. This regional focus allows them to tailor their services to local needs and build strong community relationships. This wide coverage is attractive to insurance companies looking for consistent service standards. With multiple locations, scaled shops offer consumers more options for where to have their vehicles repaired. This geographic coverage is attractive to both consumers and insurers. The ability to distribute work across multiple locations helps scaled shops manage their workload more effectively, reducing bottlenecks and ensuring timely repairs. 

Capability to Reduce Insurance Company Overhead Costs 

Consolidators have the resources to invest in technology to standardize procedures and streamline claims processing. By operating at scale, consolidators can complete repairs more quickly and cost-effectively, reducing the overall cost to insurance companies. This efficiency makes them preferred partners for insurers. Scaled shops offer a SPC (single point of contact), simplifying the claims management process for insurers and reducing their administrative burden. 

Private Equity Investment 

Private equity firms are attracted to the collision repair industry by its consistent and predictable cash flows and resilience to economic fluctuations. Private equity investment fuels the growth of consolidators through funding for acquisitions and expansions. Firms like TPG (Texas Pacific Group) and Hellman & Friedman invest heavily in MSOs, enabling rapid scaling. Private equity-backed consolidators can strategically acquire smaller shops and other MSOs, integrating them into their operations to increase market share and operational efficiency. 

Better Performance and Staff Retention 

Access to capital allows scaled shops to invest in state-of-the-art facilities, equipment, and technologies. This not only improves repair quality but also enhances operational efficiency. The high volume of repairs allows scaled shops to optimize their operations and improve performance metrics such as shorter cycle times and higher customer satisfaction scores. Scaled shops invest heavily in training their technicians to stay current with the latest repair techniques and technologies. This ensures high-quality repairs and compliance with manufacturer standards, and technicians are more likely to stay with a company that provides stable employment and growth opportunities. Scaled shops can offer more hours, better benefits, and career advancement opportunities, leading to higher staff retention rates. 

Is It Time to Sell Your Body Shop? 

There are people buying body shops, and selling one can bring significant operational and financial benefits to dealership owners, but it also presents some challenges. By leveraging the expertise of firms like Focus Advisors, dealers can navigate the complexities of the sale process, find the right buyers, and achieve their strategic objectives while maintaining high standards of customer service and operational efficiency. 

Examples of MSO Activity 

Caliber bought 17 Auto Nation shops in 2021 and continues to buy single shops from dealers. Almost all consolidators have bought dealer body shops by now – generally just one-offs. Some dealership transactions include the spin-off of the body shop as a separate deal either before or after the dealership is sold.  

So, why might a dealer sell their body shop? 

Removal of Pain Points 

• Adjuster Shortages: With fewer insurance adjusters available, getting timely approvals and managing claims has become increasingly challenging. 
• Single Location Challenges: Dealer shops often operate from a single location, making it hard to achieve economies of scale and to manage fluctuating workloads effectively. 
• Retention Issues: Attracting and retaining skilled technicians is a major challenge. Larger MSOs often lure away experienced staff with better compensation and benefits.
• Experience Gaps: Management turnover and lack of redundancy in key roles can disrupt operations and affect repair quality.
• High Expectations: Insurers have high KPI expectations for cycle times, repair quality, and customer satisfaction, which can be difficult to meet for smaller, dealer-affiliated shops. 
• Limited Resources: Smaller shops struggle with the costs of ongoing training and equipment upgrades necessary to keep up with industry standards.  
• Inconsistent Workloads: Dealer shops often face periods of both overwork and underutilization, making it hard to maintain a stable and satisfied workforce.
• Different Incentives: The financial metrics and incentives for dealership operations can conflict with those for body shop operations, leading to suboptimal performance for both. 

Benefits From Selling Can Be Substantial 

• Operational Benefits: Selling the body shop can streamline dealership operations, reducing complexity and allowing focus on core activities. The buyer typically takes on the responsibility for hiring and training, alleviating this burden from the dealer. Larger MSOs often bring higher standards for technician certification and training. Scale operators generally achieve shorter cycle times and higher customer satisfaction due to their more efficient operations. 
• Financial Benefits: Dealers can earn market rent by leasing the body shop facility to the buyer. Repurposing body shop space for service bays can yield higher gross margins. Partnering with a large MSO can lead to higher parts sales due to the increased volume of repairs. Selling a body shop provides liquidity that can be reinvested in other parts of the dealership or other business opportunities. Dealers are less constrained by OEM warranty labor time standards and rates. 

 Dealer Concerns 

Dealers worry about maintaining the same level of repair quality once they no longer control the body shop. Concerns about whether the same level of parts sales will continue under new ownership. Ensuring that customer relationships are maintained and that customers continue to receive high-quality service. Ensuring the ability to sell new or used vehicles to customers post-repair or when totaled. Buyers almost uniformly want to have a good relationship with the dealer and go out of their way to ensure a win for all parties. 

Goals of the Seller 

So, why would a dealer want to sell their body shop? 

• Cutting Loose of a Painful Problem: Eliminating the challenges associated with running a body shop. 
• Simplification of Fixed Operations: Streamlining dealership operations by removing the body shop component. 
• Establishing Trusted Referral Partnerships: Creating strong referral partnerships with the body shop buyer to ensure continued business.
• Ensuring Priority Repairs: Negotiating priority repair agreements for dealership customers.
• Continuing Parts Sales: Maintaining or increasing parts sales through the new owner. 

 Issues in Selling 

What are some of the issues that arise when selling your body shop? 

• Determining True EBITDA: Accurately determining the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) for the body shop requires detailed extraction of data from the Dealer Management System. 

About Focus Advisors, Inc. 

Focus Advisors (www.focusadvisors.com) is the collision industry’s leading M&A advisory firm, partnering with MSOs between $10-100M in annual revenue, helping owners achieve maximum value through strategic growth and exits. Unlike traditional business brokers or large investment banks, Focus Advisors specializes exclusively in collision repair — giving owners unparalleled insight into value, interest, and opportunity timing. With over 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 325 collision repair shops, including Pride Auto Body, Quanz Auto Body, Mills Body Shops, and Master Collision Group. 

Investment Banking Services and Securities offered through Independent Investment Bankers Corp,  a broker-dealer, member FINRA, SIPC. Focus Advisors Automotive M&A is not affiliated with Independent Investment Bankers Corp.