Merger, acquisition experts share advice for shops looking to expand or sell

Oct. 21, 2014
The Big 4 MSOs combined have fewer than 1,000 shops, leaving 30,000-plus shops that might want to grow their business or exit smart.

The “Big 4” MSOs combined have fewer than 1,000 shops. That leaves 30,000-plus shops that might want to “grow smart or exit smart” in terms of adding locations or selling their business.

It was those shops that were the focus of one of the presentations at the “Collision Repairer Executive Symposium,” at this year’s NACE. The day-long conference, previously called the “MSO Symposium” and open only to MSOs, was opened up this year to include single-location collision repair representatives with interest in becoming an MSO – or potentially selling their business to one.

More than 300 people attended the event, which included four sessions. One focused on the impact of changing vehicle design. Another included a panel of MSOs discussing “maximizing capacity utilization” – ways to get the most out of your shop facilities. But wrapping up the day was a session led by industry consultant Marcy Tieger of Symphony Advisors, whose clients have been involved in both sides of shop buy-sell agreements. Tieger asked two other acquisition veterans to step into the roles of buyer or seller in order to offer advice to symposium attendees about what to think about during the acquisition process.

Will Johnston and John Walcher

Playing the role as a “buyer” was Will Johnston, vice president of acquisitions for the Texas-based Service King collision repair chain. Johnston helped Tennessee-based Autobody America grow from five locations to 20 over six years before it was acquired by (and he joined) Service King in 2012.

Johnston said that although the largest chains making acquisitions get the most attention in the industry, sellers should not overlook that many smaller MSOs are interested in acquiring shops. It can be personally (as well as financially) rewarding, he said, for someone with an operation with good processes in place to replicate and grow that. There are advantages to that increased scale in terms of relationships with vendors and sources of referrals. And employees, he said, get a sense of excitement and pride being part of something that’s growing.

But Johnston said there can be a “defensive” element to acquisitions for buyers as well, acknowledging that a number of Autobody America shop acquisitions fell into that category.

“Every time there’s a willing seller in your market, if you pass on that, you don’t know who is going to take that shop over,” Johnston said. “Is it someone who can put twice the volume into that shop, or maybe expands that shop? Maybe someone who will use it as a foothold to grow within your market. So there’s somewhat of a defensive strategy to growth as well.”

But whatever motivation is behind the growth, he said. a buyer must become adept at integration.

“There does need to be a team of people who go in to help integrate that new shop or shops into your culture and process,” he said.

Tieger pointed out that while a company the size of Service King may have that kind of team, a shop with two locations adding a third does not. Johnston said in that case your existing employees will need to step up help bring the newly-acquired shop’s people on board.

“It’s really putting people shoulder to shoulder with those who do the same work,” he said.

Johnston said another key to successful growth is to become a trusted buyer, with a good reputation as a fair player among those businesses you’ve acquired.

“The deals you leave in your wake will speak loudly as to whether you will be the partner of choice for someone considering (a sale),” Johnston said.

He recommends that those considering a sale, even if not imminently, attend industry events and talk to past sellers to get a sense of how various potential buyers are regarded in the industry.

Playing the role as a “seller” at the symposium was John Walcher of Veritas Advisors. Before forming his own mergers-and-acquisitions consulting firm in 2009, Walcher spent seven years with Caliber Collision, helping that Texas-based company double its shop count.

Walcher said he’s seen many reasons why shop owners have decided to sell, ranging from financial distress, to boredom or exhaustion after running a business for 20 or 30 years. Some, he said, look at the consolidation happening in the industry in some markets and are afraid of what potentially lies ahead.

“If you look around, there’s some very good examples of people who are in some of those markets who are doing just fine,” Walcher said. “So in some cases, the fear is not necessarily justified.”

Walcher said timing of a sale can be critical in order for a seller to maximize the value of his or her business. The current influx of private equity into the industry, for example, can make this an attractive time to sell. But it’s just as important, he said, that the timing work for your personal and professional goals, and that it ideally happens when your business is “hitting on all cylinders.”

“That doesn’t necessarily mean you want to be at full capacity, because then the buyer doesn’t have any way to add value,” Walcher said.

Upward trending and good margins are generally better for a seller than maxed-out sales, he said.

Johnston agreed, saying even a shop looking to sell may still want to be working on growing their business; deals can be structured, he said, so that the seller gets some of the benefits to recent improvements to the business that may not yet be fully reflected in the company’s current financial performance.

Walcher said shops can begin planning for an exit years or even decades in advance, through establishment of a good corporate structure, good financial bookkeeping and “thinking like a buyer” in terms of developing a strong management team and good dealership or insurance relationships that will appeal to a buyer. Closer to a sale, he said, a seller will likely want to develop incentive plans to retain its management team through the sales process and beyond. Some buyers, he said, may be willing to help a seller with those incentive plans.

Walcher said he has seen business owners negotiate good sales agreements on their own (with help only from their CPA or attorney), but given that it is often the largest financial transaction they will experience in their lifetime, some seek the help of outside advisors to help locate interested buyers and negotiate on the seller’s behalf. Sellers may choose to focus on a particular potential buyer, he said. but are more likely to maximize value through more of an “auction” process involving multiple potential buyers.

But Tieger said in her experience, many in this industry who are committed to their employees and management team – or who may have children still involved in the business – are willing to forego some money in order to sell to someone “who they want to do business with.”

Johnston agreed, saying that again raises the importance as a buyer to becoming the “buyer of choice.” Whether or not a non-disclosure agreement is involved, he cited as one example, “the damage you would do (to your reputation as a buyer) by breaching a confidence far outweighs the enforceability of a non-disclosure agreement.”

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