It’s August 2020 and we are more than halfway through a most extraordinary year. The Great Pause continues. What follows is our midyear update. As always please feel free to reach out to us anytime for information, advice, or just to share what you and we are seeing in our industry right now.OperationsAverage shop revenues are down 25-30% across the country although it varies by region and by the intensity of regional COVID cases. Most shops are slowly returning to higher volumes. The best news — many operators have figured out how to maintain close to normal margins on dramatically reduced revenues. The recession of 2009 taught operators how to both survive and then improve operations while under financial duress. Lessons well learned then are helping the best operators weather this even more extraordinary downturn.PPP loans have had a universally positive impact for those operators who were successful in their applications. The relaxation of repayment terms has been a positive development. Most loans are expected to be largely forgiven.An interesting side note: anecdotally, most of the MSOs and shops that received PPP loans during the first application period obtained those loans from small and local banks and credit unions. Evidently the big banks focused on their largest customers. During the second application period, more loans were obtained from some of the big banks but many MSOs not only didn’t get big bank loans but some never even heard back after their inquiries.M&A ActivityThe current level of mergers and acquisition activity keeps surprising us. Not surprisingly, the top two national consolidators continue to make offers and acquire independent shops and MSOs. But private equity firms have really stepped up their interest and investments. Five super regional MSOs are also in acquisition mode. Add to these numbers several dozen sub-regional MSOs that are continuing to make acquisitions largely using internal capital sources. Finally, Driven Brands now owns a 9 shop MSO and is pursuing more acquisitions. Private Equity Interest is Driving ActivityIndustry buyers have changed dramatically in five years. Five years ago, the most active buyers included the four big consolidators - ABRA, Caliber, Service King and Gerber - plus seven regional MSOs (Pacific Elite, Kadels, Cooks, Craftsman, Joe Hudson, Classic Collision and Car Care) and one PE firm, Carousel Capital, which owned Driven Brands.
In the years since, almost all of those firms have disappeared into larger firms.
- ABRA bought Cooks Collision then sold to Caliber
- ABRA bought Kadels
- Pacific Elite got bought by PE backed Crash Champions
- Car Care got bought by Service King
- Joe Hudson got bought by TSG Consumer private equity
- Carousel owned Driven Brands which it subsequently sold to Roark Capital
- Classic Collision was acquired by New Mountain Capital