I’m writing this on my way back from Vancouver, Canada. I spent the past few days on site with a client focused on developing administrative SOPs to drive consistency in financial reporting. Then a quick meeting with an investment bank involved in the industry. I even took a sea plane over the harbor and got my picture with the AkzoNobel McLaren F1 and posed next to a Canadian Black Bear (pictures here). We then wrapped it up at CCIF – the Canadian Collision Industry Foundation. I was very impressed by the collegiality and diversity of the attendees. Large consolidators, regional MSOs, franchise groups, insurance companies, training and service providers with very diverse, and sometimes very opposing agendas, all in one room operating in an environment of respect and professionalism. Truly inspiring. Which of course got me thinking about Collision M&A Consolidation Trends.
In the first 9 months of 2016 the largest 4 collision repair consolidators have collectively added 177 locations in North America, for a total of 1486 collision repair locations. As in previous quarters and years, the vast majority of these additional locations thus far are a result of acquisitions, or the purchase of an existing business. To a lesser extent, some of the consolidators are building and developing new locations.
An interesting collision M&A consolidation trend has developed, however, in the past few months. Increasingly some companies have continued to grow aggressively, while others have pulled away from expansion. Interestingly as well, the way in which the leading companies are expanding is changing as well. Partnerships with REITs, or Real Estate Investment Trusts is becoming more common, both in acquisitions as well as in new location development or re-developments.
Drilling down specifically to a company by company basis, a number of unique collision M&A consolidation trends emerge. First, Caliber continues its aggressive growth strategy across the U.S. In Q3 the company added 31 locations, more than any other consolidator and more than any quarter in 2016. Growth has been predominately acquisitions, but new developments and re-developments are an increasingly important part of the company’s growth strategy. Cumulatively for the year the company has added 85 locations and appears to be on target to possibly have another record year in terms of additional locations added.
Boyd, which operates as Gerber in the U.S., continues its rather measured and consistent growth. The company added 18 locations Q3, more than any other quarter this year. Growth has been predominately in the form of acquisitions, however the company has completed some re-developments. Management continues to re-iterate they are well positioned to take advantage of additional large acquisition opportunities, and a quick review of the balance sheet shows they have the capacity to do so (more on that in a future post). Depending on what transpires in the next 3 months, the company may be on target to have another record year, exceeding the 2014 record of adding 61 additional locations.
Since the first quarter of the 2016, Service King has been relatively quiet on the expansion front. The company announced four additional locations in Q3 – two separate acquisitions in Texas, an acquisition in Atlanta, and a 70,000 square foot greenfield development in the San Francisco Bay area last quarter. The company only added two locations the previous quarter. While growth in total locations continues to be dominated by acquisitions, new developments continue to play an important role in the company’s growth strategy.
For the past six months, ABRA has not made a single acquisition. In fact, for the first time in recent memory, one of the large consolidators decreased in size over the quarter. At the end of Q3 ABRA operated 356 locations, two locations fewer than the previous two quarters. ABRA has grown aggressively over the past 3 years and it appears that the company has temporarily slowed its growth plans. Even with the recent slow down, ABRA increased the number of locations by an impressive compounded annual growth rate (CAGR) of 27.6% over the past 19 quarters.
Where do we go from here?
A few key collision M&A consolidation trends continue to catch my attention. First, some companies have slowed down on growth. Whether this is a strategic pause after years of aggressive growth, or something else is yet to be determined. Regardless of the reason, it is an important consideration for the owner of a collision repair business contemplating a sale of their business. Generally speaking, the greater the number of willing and able buyers, the better the outcomes for the seller. Competition is good, especially when selling a business. If buyers exit the market this can have a negative impact on valuations.
The second key trend to catch my attention is the continued use of brownfield and greenfield developments (i.e. redevelopment or new developments). Of the 3 companies that increased the number of locations in Q3, all of them have opened locations as a result of a new development or redevelopment in the last 12 months. Again, from an M&A standpoint, this is an important consideration as brownfield and greenfields can often have a negative impact on valuations as well (these developments act as substitutes for acquisitions – why pay a premium to acquire a business when you can build one from scratch?).
