Aside from catching their collective breath after a frenzied wave of shutdowns late last year, there is no single explanation for the slowdown, but the general industry conditions experienced by each operator have further put the emphasis on current production rather than the future. growth.
Extreme parts shortages resulting in dramatically longer cycle times, an even more severe shortage of qualified technicians to perform the job, and the growing imbalance between insurance reimbursement rates and operator costs, have forced every organization to scramble , to improvise and struggle to meet current demand.
Consolidators
COVID hasn’t slowed down Caliber down. With more than 130 acquisitions and 72 brownfield and brownfield openings during the same period, Caliber has developed more than 200 locations in the first six months of 2022. The company continues to focus on expanding into the brownfield and brownfield openings. Of their total expansion efforts in 2022, we expect more than half will be acquisitions.
Gerber (Boyd Services Group) slowed its pace quite dramatically in the first half, with fewer than 14 new sites, compared to 48 in the first half of 2021. Combined with disappointing financial performance which impacted Boyd Services Group’s share price, Gerber moved more cautiously in 2022.
Service King—the recap of Clearlake Capital
Service King opened two new sites—one in the Chicago area and the other in San Antonio—but made no new acquisitions.
The continuing saga of Service King’s financial troubles has finally come to an end—or at least an interim conclusion. Under terms of an agreement announced in June, Service King will receive $200 million in new capital and reduce debt by more than $500 million while extending the remaining maturities of its existing funded debt through June 2027. Once the deal is done, the full equity and debt positions of the parties will be more visible, but the new controlling entity is clearly Clearlake.
Hold the presses—Crash Champions merges with Service King. The agreement should be concluded at the beginning of August with Clearlake Capital Group as investor.
The 336 Service King slots will be combined with 225 Crash Champions slots. Their combined store footprint will establish strong market shares in Texas, the Pacific Northwest, Florida, Washington, DC, Philadelphia and Chicago, forming the third largest US consolidator. We will publish a separate, full report with more details and analysis of the transaction.
The biggest transactions
Crash Champions continued its blistering pace of acquisitions with the recently announced acquisition of Mike’s Bodyone of the largest remaining independent MSOs in the United States With 17 locations in the San Francisco Bay Area, Mike’s Auto Body is a key platform for Crash’s continued penetration into the California market.
This acquisition follows more than 30 transactions by Crash in the first six months of the year. As of June 30, Crash appeared to operate over 203 stores.
In another notable transaction in early 2022, Mahnke bodywork with its eight locations in Colorado joined Kaizen Collision, which now operates 15 locations in that state. CEO Sam Mahnke was appointed Regional Director of Operations. Kaizen continues its rapid expansion with a technician-centric approach to operations. Its total number of stores at the end of June was 51 stores.
Classic Collision
Classic continued its steady growth with 16 additional stores in the first half, including Professional-Grade Collision in Florida and Crystal Lake Automotive, each with two stores.
CollisionRight
At the end of 2020, the Dallas-based private equity group CenterOak form CollisionLaw. Since its inception under the leadership of the CEO Rich Harrison, the company has been on an acquisition tear. In the first half of 2022, they acquired Select the collision group, which operates four stores in Pennsylvania. CollisionRight now operates at least 62 stores in the Northeast and Midwest states.
New players
VIVE Collisionformed by the old H&V Collision CEO Vartan Jerian and former private equity investors Scott Leffler and Phil Taubacquired in the Northeastern United States with two significant transactions in 2021: Crown collisiona three-store MSO in Rhode Island, and POC Collision Repair Centers, a four-workshop MSO in Maine. So far, VIVE has acquired four stores in 2022 and expects to end the year with more than 20 stores in total.
California growth vehicles
After strengthening its management team and studying multiple targets, Chilton CARSTAR now operates 15 total locations in the San Francisco Bay Area, as well as one in the Los Angeles Basin.
G&C bodyworkthe largest independent MSO based in Northern California, acquired four new locations in the first half of 2022 and now operates a total of 26 locations with announced plans for three additional openings in the third quarter.
under the radar
Three new groups backed by private equity are in the process of acquiring their first platforms. They will be disclosed after the closing of their acquisitions. We expect more new entrants to enter the industry over the remainder of the year as the appetite for resilient, cash flow-generating businesses grows.
Why are private equity firms so interested in the collision repair industry?
While there are multiple reasons why large pools of institutional capital are attracted to the collision repair industry, the overriding reason is sustainable cash flow. In good times and bad, companies with historically positive cash flows are attractive to large pools of capital whose primary focus is more predictable returns and lower risk.
The Ubers, Airbnb and other tech darlings whose shares have fallen over the past three months aren’t generating cash; they burn money—billions of dollars of cash. Investors in these types of companies are not looking for stability. They seek hypergrowth and for much of the past decade, the focus on revenue growth and market share gains among tech darlings has propelled these stocks to extraordinary values.
In markets where the wind is blowing at your back, these types of investments do extraordinarily well. But when the tide turns as it has over the past three months and the economy slows, the focus is more on companies with more stable cash flows.
Whether or not we are currently in a recession, expectations for dramatic growth opportunities in tech or crypto-finance or other sexy investment opportunities have diminished. This puts relatively more emphasis on cash-generating and defensive industries like auto body repair.
Institutions with large pools of uninvested cash are constantly looking for the right balance between risk and reward. How much risk should I take for how much reward? Over the past five years, with Treasuries at very low rates, many value-oriented investors have been willing to accept relatively modest returns from companies that generate more stable cash flows. Bodybuilders have decades of stable cash flow, even as investment needs gradually increase and the number of participants decreases.
So, with such strong demand from consolidators old and new, now is the time for body repairers to find sponsors to help capitalize on their future growth or to consider pulling out as demand for acquisitions continues to be robust.
Source: Focus Advisors
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