How private equity makes millions in collision repair

Jan. 13, 2015
Private equity groups often invest money on behalf of public institutions, and in the collision repair industry, they often mandate a focus on growth and expansion, leading to more profits and value.

We’ve talked a bit about the state of the industry and the Big 4, or the Big Boys as I sometimes call them (Boyd/Gerber, Caliber, Service King, ABRA). While they may be in the same business of fixing cars, the way they do things is systematically different from the way you and I do things.

Perhaps the least understood difference is at the core of their business – how they actually make money for their shareholders.

Some people believe they give heavy discounts and make it up in volume. Others believe they don’t actually make money, and are barely holding on. The reality is that these businesses are making millions upon millions of dollars. But not the way you may realize.

The Big 4 are owned by large Private Equity Groups (PEG’s). The PEG’s often invest money on behalf of public institutions (i.e. pension plans, insurance funds, etc.). They also have a slew of individuals with master degrees in Finance, Business, and Applied Mathematics. Unfortunately no one is I-CAR platinum. Why is this important?

You probably focus on running a great business that focuses on delivering a great product, done right and delivered on time, in a way that delights your customers while also generating healthy cash flow and strong profit margins.

For large institutional investors those things are nice but not always necessary. But growing a business and buying low and selling high is really exciting. Growth is exciting because of the whole is worth more than the sum of the parts adage. Or in other words, 2 + 2 = 5.

In the collision industry, the easiest way to get to 2 +2 = 5 is to expand the number of locations under management. Continue reading here.

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