Following up on the FOCUS Automotive Services Group midyear consolidation report, we have updated the numbers for the end of the third quarter 2014. At the end of May 2014, consolidators had acquired or opened 163 shops year to date. Since then through the end of September, they have added another 82 shops. Consolidators now own 859 shops with estimated revenues of $2.5 billion! 245 additional shops added in just nine months!
| Consolidator | Corp. Units Year End |
Unit Growth 2013 |
Unit Growth 2014 |
Total US Owned Shops |
Growth % from Year End 2012 |
| ABRA | 92 | 51 | 63 | 195 | 124% |
| Boyd Group | 180 | 40 | 55 | 275 | 53% |
| Caliber | 112 | 46 | 40 | 198 | 77% |
| Service King | 63 | 41 | 87 | 191 | 203% |
| Total | 447 | 178 | 245 | 859 | 95% |
And it’s not over yet! Rumors abound that several more blockbuster transactions will be concluded by year-end. Our view is that acquisitions and openings for 2014 may well top 300 shops and more than $1 billion in revenue!
Valuations are climbing
In our survey of private and public transactions in the industry, the platform MSO acquisitions values are continuing at very robust levels. The most prominent examples are the two publicly disclosed transactions by The Boyd Group for Collex in Michigan and Champs in Louisiana which yielded prices equal to nearly 1x sales. We make no assumptions about multiples of EBITDA for these transactions but given the very strong footprint of these platforms, our belief that quality platforms command a premium in the market is reinforced. While the other 3 consolidators do not disclose transaction details, it would stand to reason, they are not far behind in the race for the best MSOs.
Some of the largest MSOs have been sold
Among the 25 largest MSOs in the US as of the end of 2013, 8 have been sold this year!
- Sterling
- Collision Revision
- Collex
- Car West
- Collision Centers of America
- Wilburn
- Champs
- Marco’s
Why?
Sellers are seizing the moment to achieve a liquidity event that is unparalleled in the history of the industry. The sellers are exiting both the business and the industry with only a couple exceptions.
Driven by their new owners, cheap capital and willing sellers, the buyers are seizing the opportunity to dramatically increase their scale and national footprints.
The consolidators are changing reality for the entire industry
For years, non-consolidator MSOs and independent shops have been focused on growing their businesses within the geographic confines of individual markets. Only MSOs like Cooks and Sterling operated in multiple large geographic markets. The rap on the consolidators was they couldn’t really outperform smaller MSOs and owner operated independent shops who were focused on these narrower markets. Sooner or later the insurers would clip their wings and slow down their referral volumes.
The new reality is scale is what is being rewarded. And those with the largest scale are getting the most rewards. It’s what some call a “virtuous circle.” Consolidators with scale have a buying advantage, a referral advantage and smoother flows of repairs so they experience less variability in their operations. All that translates into higher EBITDA. Higher EBITDA allows them to deliver more value to insurers. Higher EBITDA allows them to access more capital and make more acquisitions.
Insurers benefit from the performance standards and self-management requirements they negotiate with the consolidators. This lowers their loss adjustment expenses (LAE). With lower costs and better performance from the consolidators, insurers improve their own financial performance so they are incented to keep sending more cars to the consolidators. More referrals, more EBITDA, more acquisitions, more scale.
The investors in the consolidators are also enjoying huge success. The Boyd Group keeps refinancing their debt – and buying more shops. Carlyle (Service King), Palladium (ABRA) and ONCAP (Caliber) have already cashed out and moved on to new endeavors while their successors Blackstone, Hellman&Friedman and OMERS seem to be encouraging their management teams to double down in anticipation of even higher values to come.
And consumers seem to like the arrangement as well. They like the faster repairs, they like not having to search out qualified shops to do the repairs and they like shopping on websites for the best insurance deal they can find.
So the new reality is “scale drives success.” If a shop or MSO doesn’t have scale - or a solid plan to achieve scale – it’s in for some pain.
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