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MSOs continue to grow, but industry opportunities remain

Wednesday, July 26, 2017 - 06:00
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CHICAGO — MSOs will continue to gain market share over the next four years, but a lot of the collision repair industry will still remain for smaller MSOs and independents to be successful.

Vincent Romans with The Romans Group presented his industry outlook at the 2017 MSO Symposium during NACE Automechanika in Chicago.

By 2021, Romans predicts the top four MSOs and those with revenue of $10 million or higher will continue to grow to encompass nearly 45 percent of the collision repair market. This equates to $16.7 billion of what will be an estimated $37.6 billion industry.

But this leaves 55 percent of the industry for other repairers. “There is still a lot of industry out there for many companies to be successful,” Romans said.

Seven years ago, Romans introduced four pillars impacting the industry: consolidation, contraction, convergence and constructive transformation. These pillars remain relevant, but have changed with the industry.

“We are now in the midst of another industry phase that continues to build off of these pillars,” Romans said.

Consolidation continues, but is slowing. Instead of continuing to buy smaller MSOs, MSOs are instead looking at strategic cluster purchases. In terms of contraction, the market is currently in a temporary equilibrium. “However, in another two to three years, we will see another aggressive contraction,” Romans said.

Convergence remains omnipresent. “It is everywhere and it is lightning speed. Innovation and disruptive technology are driving this,” Romans said.

Constructive transformation continues long-term, is multifaceted and has lead to both simple and complex partnerships and alliances and segment and market integration, he said.

The industry today — Romans estimated in 2016 14.8 million accidents leading to $35.7 billion in revenue — continues to change based on these four pillars, but other influences are leaving an impact.

Romans cited a host of market conditions that affect the industry: increased DRPs; Advanced Driver Assistance Systems and autonomous vehicles; private equity; telematics; supply chain consolidation; margin pressure; alternative appraising models; predictive analysis; photo estimating; OEMs; technology’s warp speed; demographics, urbanization and changing lifestyles, among others.

Private equity has also entered the PBE supply chain, with Romans referencing PNC RiverArch Capital acquiring Painter’s Supply, with 21 locations in Michigan, Ohio and Indiana, and Driven Brands working with numerous private equity groups to build out MSO groups within its broader Maaco and CARSTAR franchisee networks.

“Individually, these don’t have that much of an impact, but taken together they can be very powerful,” Romans said. He suggested owners ask themselves: “Am I looking at these proactively? Am I reacting? Am I giving up? And if so what does that mean for my business?”

Despite so many influencers driving change, there is good news, Romans said. The collision repair industry market size is growing; consolidation/contraction is slowing; accident frequency is increasing, along with claims, repairs and severity; new vehicle repairs remain strong; and OEMs are having a positive influence on certification and repair standards.

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