Top MSOs selling out to Big Four consolidators

March 24, 2015
The composition of the industry’s top MSOs is quickly transforming as more and more are acquired by the Big Four consolidators, according to research by Focus Investment Bankers.

The composition of the industry’s top MSOs is quickly transforming as more and more are acquired by the Big Four Consolidators according to research conducted by Focus Investment Bankers, a leading investment bank to the industry.  At the beginning of 2014 there were 40 large MSOs with total estimated revenues of about $1.5 billion. The Big Four Consolidators acquired more than $800 million in total revenues during the year.  Almost $700 million came from these Top 40 MSOs.

As the Big Four are accelerating their growth, the remaining large MSOs continue growing as well.  But activity by the Big Four has thinned their ranks and highlighted the growing scarcity of platforms for further acquisitions.  At the beginning of 2015, there are an estimated 25 MSOs remaining in this elite group with approximately $850 million in estimated sales.

The year of the platform acquisition
The most obvious characteristic of the large MSO transactions in 2014 is the platform potential of each one – excepting Sterling.  A platform acquisition is more than just a lot of shops on a map.  The most valuable MSO platforms have serious penetration with multiple shops in a particular region.  They have capable, adaptable management teams that created and are expected to continue to operate these MSOs post acquisition.  In almost every transaction in 2014, the acquirers gained a market leader, deeply engaged with DRP programs as well as the locations to offer insurance friendly solutions across a wider region than almost any competitor.

The Sterling acquisition was the exception.  Its 62 locations were scattered across 15 states without deep penetration in any specific region.  However, in addition to a core of well-aligned managers with common practices and culture, many of the locations provided key leaders, market knowledge and presence in regions where Service King plans to expand.

Large MSO transactions in 2014
Of the top 40 MSOs at the beginning of 2014, fourteen were acquired during the year (not including the Private Equity investments in ABRA and Service King).  These included top MSOs such as Wilburn’s, Joe Hudson’s, Kirmac and Car West, to name but a few of the platform MSOs acquired during the year.  By far the largest of these acquisitions was Sterling (acquired by Service King).

Rank 2014 Largest MSOs Acquirer Date Acquired
1 Sterling Auto Body Service King June 2014
5 Collision Revision Gerber April 2014
6 Wilburn's Auto Body ABRA March 2014
7 Collex Collision Gerber June 2014
8 Joe Hudson's Collision Carousel Capital October 2014
10 Car West Auto Body Service King November 2014
11 Collision Centers of America ABRA April 2014
12 Pohanka Collision Caliber December 2014
14 Craftsman Collision Caliber December 2014
18 Kirmac Collision Service King December 2014
21 Champs Collision Center Gerber September 2014
25 Marco Collision Centers Service King September 2014
26 Collision Authority Service King January 2014
31 True Quality Collision Centers ABRA July 2014

Most active acquirers of large MSOs
Among the Big Four, Service King was the most aggressive acquirer in terms of both total volume of revenues, total shops and total number of transactions among large MSOs.  Focus Investment Bankers estimates their five transactions included more than $325 mm in revenue.  A distant second was Gerber with three transactions totaling 48 shops and estimated revenue of $130 million, followed by ABRA with three acquisitions with an estimated $125 million in revenue and 49 shops and then Caliber with two large acquisitions totaling 25 shops with estimated revenues of under $100 million.

Acquirer Target Region Shops
Service King Sterling Auto Body 15 states 62
Service King Car West Auto Body San Francisco East Bay 7
Service King Kirmac Collision Seattle, Wash. 12
Service King Marco Collision Centers Los Angeles, Calif. 7
Service King Collision Authority Las Vegas, Nev. 6
Gerber Collision Revision Chicago area 25
Gerber Collex Collision Michicagn, Florida 16
Gerber Champs Collision Center Louisiana 7
ABRA Wilburn's Auto Body Charlotte, NC 13
ABRA Collision Centers of America Chicago area 24
ABRA True Quality Collision Centers Indiana, Ohio 12
Caliber Pohanka Collision Maryland, Virginia 12
Caliber Craftsman Collision Northern Virginia 13
Carousel Capital Joe Hudson Collision Alabama, Florida 23

Additional activity by Big Four
Each of the Big Four also continued to acquire smaller MSOs, single shops and open brownfield and greenfield shops.  Total US acquisitions and new shop openings for the Big Four during 2014 totaled in excess of 314 shops, as estimated by FOCUS.  The Big Four ended the year with a combined total of more than 930 shops, an increase of more than 50% over their 2013 year end total of 614 shops.

Consolidator (US only shops Year End 2012 Year End 2013 2013 Additional Shops 2013 % Growth Year End 2014 2014 Additional Shops 2014 % Growth
ABRA 81 132 51 63% 205 73 55%
Boyd 180 220 40 22% 282 62 28%
Caliber 112 158 46 41% 232 74 47%
Service King 63 104 41 65% 211 107 103%
Total 436 614 178 41% 930 316 51%

Expect more large MSO transactions in 2015
For the remaining large MSOs, Focus expects the opportunities to sell will continue to be robust and that competition among acquirers will be fierce.  Expect more and more sellers to engage in an auction process where multiple bidders compete for the fewer remaining large MSOs.

For those large MSOs that decide to continue their own growth, they will find themselves competing for acquisitions with the Big Four as well as with other large MSOs.  And for every acquirer, the focus will continue to be on targets that exhibit these key criteria including:

·      Total revenue and number of production locations

·      Reconstructed EBITDA as a % of total revenue

·      Geographic market size and attractiveness

·      Market share of target MSO

·      Strength of management team

·      Capacity for additional growth in target MSO's shops

About Focus Investment Banking: FOCUS Investment Banking is a leading mergers and acquisition investment banking firm in the Automotive Services Industry with a special expertise in representing collision repair MSOs.  

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