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Former MSO executives share insights into growing, selling a collision repair business

Sunday, October 1, 2017 - 07:00
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Who could better offer advice to MSO leaders that those with successful histories building – and selling – MSO collision repair businesses?

At this summer’s MSO Symposium, held in Chicago in conjunction with NACE Automechanika, three former MSO executives talking about the growth and sale of their businesses, sharing advice for those still in the trenches.

Pat James

Pat James, the retired CEO of AutoBody America, said he used an insurance settlement after his wife’s car accident in 1981 as seed money to launch the business in Tennessee. Over the decades that followed, he sold the company twice, later buying it back, before finally selling what had grown to a 20-shop chain to Service King at the end of 2012.

“So I have a little background in both buying and selling,” James said.

During the company’s first real stint of growth, between 1998 and 2006, James’ financial partners at that time believed in locations with “the shiniest building with the highest retail traffic per day.”

“The problem is when you do that, you end up having so much money invested in real estate…that you just can’t make the numbers work,” he said. “Our rent factors were always in the 10 percent to 11 percent rage. You just couldn’t outrun the debt.”

So from 2009 to 2012, during which the company added more than a dozen shops, James worked to ensure the company’s locations each had EBITDAR (earnings before interest, taxes, depreciation, amortization and rent) of 18 percent, including rents that were not more than 5 percent of sales.

The company used brownfields to grow in the markets where it had existing staff and business relationships, but acquisitions as it entered new markets (including in Mississippi and Arkansas) to take advantage of those companies’ employees and relationships. New shops were always within a 3-hour drive of either James or his business partner.

“So if something blew up on us, one of us could be there within three hours to make sure the wheels didn’t completely fall off,” he said.

James said starting in business at age 21 led him to learn quickly that he needed a lot of help. One mentor taught him, “Know what you know, and know what you don’t know.” That’s why within the business he focused on his passion as a former technician – namely, improving the production process ­­­­– while bringing in others to focus on the financial end.

“You should not feel threatened by finding people who are smarter than you are,” James recommended. “Find people who have complimentary skills that kind of cover up your soft spots. I had a lot of soft spots. We surrounded ourselves with very energetic, passionate high-performers.”

He said the company also worked to reward and retain those people.

“Once a location hit the 18 percent EBITDAR, we gave back to the store manager 7 percent of everything above that number,” James said, noting the managers could share that bonus among the locations’ staff how they best saw fit. “We knew we would be sustainable if we hit our 18 percent. We knew we could open the next store and the next store and we’d be putting cash back. So we wanted everybody within the organization to feel like owners.”

AJ Leone

As a real estate developer, AJ Leone didn't ever expect to enter the collision repair industry, but over a dozen years acquired three brownfield locations for Charleston Collision in South Carolina, selling the business in 2015 to Caliber Collision. Always thinking about what future real estate investors would be looking for, Leone chose convenient, accessible locations on busy stretches of road.

His key piece of advice for MSO leaders: Have an exit plan.

“As entrepreneurs, you spend a lot of time putting your blood, sweat and tears into the business, and in my opinion, that’s only half of the equation,” he said. “Anyone who is in a for-profit entity needs at some point in time to think about the next step, the exit.”

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