After crunching the numbers, Hank Nunn, who writes business articles for BodyShop Business and has offered training and consulting services to the collision repair industry since 1987, said the deal was a good one for both Cars and Boyd.

"This doesn't sound like it was a fire sale," Nunn said. "With Cars having 28 shops, that means the average annual sales per location based on $65 million in total sales is roughly $2.3 million. Assuming they had a net profit before interest and taxes (EBITDA) of 10 percent, that translates to $6.5 million in annual EBITDA. Shops sell at a multiple of EBITDA, so if the multiplier is 3.5, the sales price for the group would be $22,750,000. Move any of those numbers up or down a point, and the difference is pretty big. But it's still in the ballpark.

"Remember, EBITDA and the multiplier are negotiable. Boyd bought the whole group, so there would certainly be a discount for the bulk purchase. These rough numbers suggest a good deal for both sides. Now, if the real estate was tossed into the deal, I would probably change my mind on this."

A source close to the acquisition said real estate was not part of the deal, since Cars leased most of its properties and did not own them outright.

That same source told BSB that Cars had started looking attractive as an acquisition to several multiple-store operators over a year ago. In fact, one MSO put in a bid prior to Boyd but it was considered too low. Apparently, the leadership at Cars didn't feel like the company was going to grow much more and saw the challenges the company faced in trying to achieve the profit margins they desired – the kind that would convince them that moving forward and growing the company would be worth it.

"In the collision business, you have to sell your soul to the devil to make any money, and you don't make that much money," the source said.

Boyd plans on doing with Cars the same thing it did with True2Form, its last big acquisition, the source said: keeping the name intact and exploring synergies that exist that could result in a better overall business model for the entire organization.

Reaction by Cars' insurance partners was reportedly favorable. "They looked at it as more of a solution and something they wanted: a bigger footprint to draw from to service their policyholders," said the source.

Cars also had its own customized desk review system that was used to make sure each job file created for each insurer was in complete accordance with the insurer's guidelines: repair strategy, methodology, documentation, photos, etc. Apparently, that gave Cars a big competitive edge, with one insurer calling it a "game changer."

Insurers have a growing preference for doing business with collision repair facility operators like Boyd that have strong market presences, the ability to increase capacity and rigorous systems in place to ensure consistency, quality, speed and competitive price. Insurers say these shops offer consistent repair performance, brand recognition, nimbleness when it comes to adapting to market needs and the ability to handle claims processing, IT management and other administrative tasks that in the past have typically been relegated to them. This trend is causing some shop owners to contemplate whether expanding their operations or converting to a franchise is the right move for them.

"Insurers want to do business with MSOs because things can be done on a massive scale. There are things that can be offered from a customer service perspective that they can't get done across the board with mom-and-pop stores because they have to deal with so many different decision-makers," said the source. "I think that wholly owned organizations like Caliber and Service King will prevail. If Service King decides to flex its muscles outside of Texas, they could be a force in the U.S., too."

Some small single-store locations have criticized MSOs for setting labor rates artificially low because of the multiple DRP agreements they have, but the source said MSOs have a completely different business model than single-stores.

"When State Farm came out with its 'most favored nation' clause, Cars set out on an initiative to get everybody to higher levels, but Cars had some agreements with certain carriers that prevented it from raising rates with State Farm," the source said. "When you do the math, you just can't jeopardize millions of dollars of business for a $2 per hour increase."

The source predicted that the new company will be a "monster" in Chicago, and will put immediate attention to aggressively expanding its presence in Colorado.

The transaction is expected to be completed by July 1. 

Boyd Group Acquires Cars Collision for $21 Million

The Boyd Group

Cars Collision