When the news broke on June 20 that The Boyd Group
(Boyd Autobody & Glass, Gerber Collision & Glass, True2Form Collision & Glass) signed an agreement to buy Cars Collision, the
industry was naturally curious as to whether the $21 million Boyd was set to
pay was the right price.
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.
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