I have previously talked about the conundrum that collision repair operators currently face. Because of the influx of Wall Street money and rapid consolidation, owners have essentially three choices when looking towards the future. They can:
- Stay small and continue to compete on a standalone basis, or with the help of a franchise (more on the franchise approach in future articles);
- Build scale, acquire competitors, open brownfields and compete with large MSO’s by becoming a small MSO;
- Sell to a regional or Big 4 consolidator.
Each of these three strategies carries inherent risk, as well as potential rewards. This article will break down each of these three key strategies to help better explain the specific risks and rewards implicit in each.
Stay small
Rapid consolidation notwithstanding, many owners with whom I interact consider both growth and a potential sale incredibly risky and would rather keep doing what they have always done. Often these owners express a desire to return to the way things used to be when the industry was much more simple, margins were better, and there were less outside demands on any individual business.
The perceived risk by those in this group is misplaced. Staying small carries with it a host of risks. For most owners, their business and/or associated real estate is the largest financial asset they own. Their risks are incredibly concentrated in one industry, one business, one city, one street, and one building.
Many of these owners have only a handful of key referral accounts, whether those be dealer or insurance based. There is no guarantee that these accounts will exist in perpetuity. There is also no guarantee that these accounts will maintain similar levels of profitability as they have in the past. As the industry matures and consolidation takes over more markets, these risks will become more acute. Continue reading here.
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