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Consolidators Aren’t The Enemy

With consolidation comes change and a chance to learn new ways to improve your business — or sell your business, if that’s what you’re looking to do.

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The collision industry reached new levels during 1998, with several consolidating companies becoming major players in the collision repair business. And many single repair facilities, multiple-shop owners and franchise-type businesses have shifted to consolidation — creating industry buzz words such as acquisitions, mergers and consolidation.

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Although multiple-shop ownership is all over the marketplace in various forms, it’s not to be feared. Rather, there’s an opportunity available to better understand what consolidators and multiple-shop owners gain in the form of service. It’s apparent some have learned how to grow their margins by capitalizing on the synergies of large volume and multiple locations. In addition, they may use the opportunity to find best practices and implement them in multiple locations.

At this stage, there’s really no secret to the method used by these consolidators. They consistently practice good business skills and carefully monitor their day-to-day businesses.

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What factors do consolidators consider before buying a business?

  1. Cash flow — earnings before taxes and depreciation.
  2. Sales volume and market share.
  3. Current business relationships.
  4. People — the quality of employees.
  5. Company ethics — ethical business practices with consumers, insurers and employees.
  6. Quality of work.

Other factors sometimes considered:

  1. Location.
  2. Appearance of facility.
  3. Ability to expand capacity.
  4. Source of work — diversified referral base.

How are proposed acquisitions valued? Most businesses, no matter what type, would be valued by reconstructing the last 12 months’ financials to model the business more like the consolidator would run it. Then a factor or multiplier would be used on the reconstructed last 12 months’ EBITDA (earnings before interest, taxes, depreciation and amortization). Adjustments to the factor/multiplier and other considerations would be made based on how a specific business would fit into the strategic market plan of the consolidator.

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In reality, though, the value of anything is only worth what someone is willing to pay.

What does this mean to you? From a positive perspective, I’d say that our industry is now considered a hot industry — one worthy of investment. And that’s great, considering that many of us have invested in this industry for so many years. It’s nice to see it’s finally worth something to others.

Shop owners who do everything possible to build strong businesses that look appealing and offer potential to consolidators may be rewarded with financial security, a great exit strategy and, in some cases, an early retirement. Even if you don’t plan to sell, consolidate or merge, you could practice and improve those items listed above. Least of all, you’ll build value to your business.

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As long as you continue to offer high-quality service, competitive pricing and high operational standards, consolidators and other strong competition will not likely harm your business.

Just remember, consolidators aren’t the enemy. They’re simply another form of shop ownership.

Writer Joe Sanders recently sold his shops in Fort Worth, Texas, and Colleyville, Texas, to Caliber Collision Centers and is now the vice president of corporate development for Caliber Collision Centers. This article is reprinted courtesy of the Automotive Service Association (ASA).

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