What Private Equity Firms Should Look for in a Platform Acquisition
In a recent conversation with a large private equity firm, we were asked to give some advice about how they might build a substantial consolidator from scratch. This particular firm had identified a very accomplished executive in the automotive space, but not specifically in the collision repair space. They wanted us to help vet the candidate and give them general advice about how to identify and acquire a platform. We frequently receive these calls because we have represented many MSOs that have been sold to consolidators and private equity firms.
In reviewing our advice, we recognized that the most important considerations would be useful to independent MSOs that may be considering their growth and exit opportunities – including selling as a “platform” to a private equity firm.
Our Advice
The most important consideration is buying a superb platform with a great operating team that doesn’t need to sell. Many MSO platforms doing $15-$50 million in annual sales are rightly confident that they can grow in control under their own leadership with their own assets in their own markets.
The operating executives responsible for the platform and its future growth are critical. A track record of success in building the independent MSO, hiring and training the tech workforce, acquiring and developing new locations and success in creating excellent relationships with insurers and dealers are the demonstrated accomplishments for an ideal executive team. We emphasize “team” because acquirers don’t particularly value a Lone Ranger, do-it-all executive. Effective growth requires empowered and integrated teams of executives committed to accelerating growth with new capital.
A second consideration is to understand the platform’s technician workforce – from recruitment to training to retention and advancement. A platform with a high rate of technician turnover probably has trouble creating high EBITDA. In any event, high technician and manager turnover is a warning sign not just for the buyer, but also a problem that the platform should be working really hard to solve on its own.
Insurance company relationships are also very important and the most important relationships, in no particular order, are GEICO, Progressive, State Farm, Nationwide and USAA. These are the most advanced and demanding DRPs in the industry. And they provide the most volume! While almost all strategic acquirers already have arrangements with insurers that will allow them to add volume to existing shops in the acquired MSO, private equity acquirers will have to depend on the platform executive to establish, continue and grow those relationships.
OE certifications continue to grow in importance. The commitment of the target platform to training and certification is important because it improves the value of the platform, especially if the certifications are for high-end vehicles. Over time, access to parts from various OEs will become more restricted unless a shop has been certified.
Facilities sufficient to provide ample room for growth are likewise important. A highly profitable 10-shop platform with shops averaging 10,000 square feet may be very attractive from an EBITDA point of view but not from a growth point of view. Shops with 15,000-25,000 square feet have far more growth potential.
A track record of growth in revenues, EBITDA and number of shops is important as well. Investors that are willing to pay a premium for a platform want to see recent revenues and EBITDA that are improving with a strong likelihood of sustainable performance. A track record of growing the number of locations by greenfielding or acquiring gives the investor more confidence that the platform team understands the dynamics and challenges of unit growth.
Superb accounting and control systems that paint an accurate picture of the platform’s financial condition and management’s understanding of the true drivers of their business success are table stakes when independent MSOs look for capital. No investor wants to spend time reconfiguring a platform’s inadequate financial control systems.
Private equity investors are demanding, detail-oriented and performance-focused. Great platforms receive great values when they can meet and exceed the investors’ expectations!
Every independent MSO that is considering its growth and exit opportunities can benefit from measuring their own profile against these criteria.
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.
