Consolidators: Classic Collision Adds Second Location in Las Vegas
Last month, we talked about surviving as an independent. This month, we’re talking about positioning your shop for sale – if that is your goal.
Consolidation in the auto body repair space has been a front-burner concern and worry for many shop owners, jobbers, parts vendors and anyone connected to our trade for over 10 years.
I vividly remember the day when the business development manager from my paint manufacturer came prancing into my shop telling me that consolidation was coming and I better make a game plan. I, like many of you, was worried about the big bad wolf coming to town. What were they going to do, huff and puff and blow my shop down? I think most of us feared that they would take our existing customers and work out of our shops. Fearmongering, gossip and the unknown did nothing to quell the anxiety that consolidation caused. In many cases, they made it a bigger deal than it actually is.
There is no doubt that shop owners need to be proactive and consider changing their business model to meet the changes that consolidation brings. Since consolidators have strong national agreements with most of the larger insurance carriers, as the consolidators grow, the larger insurance companies continue to align more with them because they can offer national coverage to their insureds. That’s why you may want to consider new, outside-the-box ways to get work in your door, rather than relying on existing and potentially short-term insurance business.
It is important to recognize or figure out what your niche in the market is or will be – that will be the key to survival.
The good news is surviving consolidation is not as bad as many have forecasted. There will always be a need and want for independent repairers. Most independent collision repairers already have a niche just like the consolidators do. It is important to recognize or figure out what your niche in the market is or will be – that will be the key to survival.
I think of consolidators as McDonald’s or Outback, two of my guilty pleasures – you know exactly what you’re going to get from them as far as customer service, food quality and cost. McDonald’s stores are always superbly located and deliver tasty burgers and amazing fries for under $10. McDonald’s is not known for amazing customer service, and I’m happy if my order is somewhat correct. Outback, on the other hand, has perfectly prepared steaks, fresh, yummy salads and some of the best coconut shrimp anywhere for about $30. Outback’s typical waitstaff are usually attentive, kind and fast. Both McDonald’s and Outback have created a niche you can’t duplicate anywhere else.
The Current Landscape
In my consulting business, I work closely with the consolidators and, as a consequence, feel I have a finger on the pulse of the current landscape and direction of consolidation.
I could never have predicted a year ago the changes that have taken place in the last 12 months. A year ago, consolidators were busy making hard business decisions related to COVID-19. Many of them were laying off staff, cutting pay, slashing rent payments and putting the brakes on any new acquisitions. Their actions were scary for many of us as we watched them play out. Also, shop owners were living their own personal hell trying to figure out their own survival.
During this time, a lot of things were taking place in the background that have put the consolidators in high gear buying shops again at an alarming rate. Just before and during COVID-19, several new consolidators formed and got significant backing from private equity funding. This was compounded by existing consolidators halting acquisitions for a year and acquiring additional private equity funding, creating a buying frenzy. Complementing this was collision repairers tired of fighting the fight of finding staffing, battling with insurers for payment on proper repairs and experiencing the lowest profit margins in the history of collision repair. All of these factors made it a ripe time for them to sell.
This has created a buyer’s and seller’s market at the same time – an extremely bizarre phenomenon because it normally is one or the other, not both. Some markets are even seeing a “round two” of consolidation racing through their area. If you’re thinking of selling your shop, the right time may be now or in the near future.
As a consequence of all the many changes in the landscape of auto body consolidation, collision repairers are seeing significantly higher shop valuations in today’s market.
I think the most elusive part of consolidation is the question around value. What is my shop worth? How is the value determined? What is the formula? That is a difficult question to quickly and concisely answer.
Many shop owners utilize their accountants and other professionals in different walks of business to assess their business value, but I’ve found that these valuations are not always accurate and often yield a lower-than-actual value. The unique thing about business valuations is they’re not all assessed in the same manner. Valuations for a dealership, fast food restaurant or body shop are determined by three different methods.
If you’re a current collision shop owner and are still in business, kudos to you! If you were the ostrich shop owner (the one who put your head in the sand and hoped consolidation would go away), I’m sad to report it has not! If you were the shop owner who realized you needed to reinvent yourself and find inventive ways to market your shop to realize a new outside-the-box solution to get work in your door, you’re probably ground zero and a direct target for the consolidators.
What Are They Looking For?
Many people ask me, “What can I do to make my shop more desirable to a consolidator?” Honestly, if you have not been in a state of constant improvement, the door to selling your shop to a consolidator may have diminished or even shut.
I believe consolidation in the collision space will be completed five years from now. At that point, the consolidators will have a very firm strong market footprint, which will make it easy for them to simply build and create new locations where they need them with instant brand recognition, the kind that McDonald’s and Outback do now. As a consequence, sellers may not realize the full value of any improvement or changes completed now due to time running out.
Another question repairers ask me is, “What are the elusive consolidators looking for?” and “What does an ideal collision shop that they seek look like?” Here’s a picture:
- Sales: $3 million annual sales or $2 million with space on the shop floor for growth.
- Size: 10,000 square feet; however, this varies for smaller markets.
- DRP: Prefer shops with existing DRPs.
- Certifications: OEM certifications a bonus. Shops with certifications for Jaguar, Range Rover, Mercedes, BMW, etc., are desired in high-end markets.
- I-CAR: Any level of certification is a plus.
- Equipment: Newer equipment is preferred, however this is not a deal-breaker.
- Other: Long-term, process-oriented employees, attractive curb appeal, well-maintained facilities and equipment, quality and focus on customer service.
Thinking of selling your business? The mere thought of selling your shop or shops can bring tears and a host of emotions. In most cases, the business becomes an extension of our family, somewhat like another child. We’ve loved, nurtured and had pretty much every emotion with the business that you mirror with a child. The thought of selling that child often is an unbearable emotional pain to even ponder, let alone act upon. Let’s face it, we spend more time in our shops as owners than we do with our families in most cases. The sacrifices of missed birthday parties, family events and family vacations are a reality to the success of a collision repair shop.
If you have not been in a state of constant improvement, the door to selling your shop to a consolidator maybe have diminished or even shut.
In every client I serve, I see the same stages of grief that are endured with a loss of a loved one play out in the process of selling their business. Many think in the early stages of selling their shop that it will be a simple business transaction, but it is far from that. It is an emotional journey that is very complex and, if you’re not familiar with mergers and acquisitions and the process, you most likely will need help and guidance. The transaction has extensive financial, legal and tax ramifications and consequences. The negotiation piece of the process can be overwhelming and leave you asking, “Can I get more?”
Let’s face it, you have one chance to sell your shop or shops. There are no do-overs. You have worked a good bit of your life and given endless blood, sweat and tears building your business, so the same level of focus needs to be given when thinking of or actually selling your business.