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Focus Advisors: Private equity sees ‘blistering’ purchase growth, ‘Big Five’ still closing most M&As

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Market Trends
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While half of the collision industry’s merger and acquisition (M&A) deal volume was completed in 2023 by the “Big Five” consolidators, private equity-backed “Accelerators” aren’t far behind, according to Focus Advisors.

Senior Associate Raul Salinas wrote in his “Year in Review” report that the “Big Five” — Caliber Collision, The Boyd Group/Gerber Collision, Crash Champions, Classic Collision, and Joe Hudson — opened a combined total of 278 shops; some new from the ground up on brownfield and greenfield sites.

But the largest development was made by the PE Accelerators, which grew their number of locations by a “blistering” 50% with 101 additional locations, according to Salinas.

PE investors typically target platforms with $30 million or more in revenue and $5 million or more in EBITDA, so while that leaves limited options, investors are still finding attractive deals, Salinas wrote.

Salinas listed the key factors “driving positive PE sentiment:”

    • “Steady revenue growth driven by consistent parts/labor inflation;
    • “Resilient through economic cycles with third-party insurance payors delivering sustainable cash flows;
    • “Potential for an umbrella valuation event if/when sector leader Caliber Collision goes public; and
    • “Highly fragmented industry.”

More than 550 independent shops were acquired by the “Big Five,” seven private-equity-backed “Accelerators,” and dozens of independent multi-store operations (MSOs) in 2023, according to Focus Advisors.

“By zeroing in on attractive markets and securing leading positions regionally, the ‘Big Five’ aim to capture insurer volume through scale, density, and performance,” Salinas wrote. “Their unrelenting acquisition pace spotlights an enduring consolidation trend as major Consolidators jockey for position in the still-fragmented collision repair landscape.”

Independent MSOs and dealers opened a “largely unnoticed” 173 locations last year, either bought or opened new, according to Focus Advisors.

“Capital has been abundantly available for most of these acquirers,” Salinas wrote. “Independent MSOs and dealers seem to find other sources of capital that has allowed their growth to accelerate as well. This ready access to capital confirms that private equity investors continue to gain confidence that consolidation will continue for years into the future.”

However, Salinas noted, “Buyers today display less tolerance for potential business vulnerabilities during due diligence like questionable quality of earnings, staff turnover, DRP loss risk, or real estate problems.”

Top 10 core-based statistical areas (CBSAs) in which acquisitions took place in 2023:

    1. New York-Newark-Jersey City, NY-NJ-PA — eight transactions
    2. San Francisco-Oakland-Hayward, CA — seven transactions
    3. Seattle-Tacoma-Bellevue, WA— seven transactions
    4. Washington-Arlington-Alexandria, DC-VA-MD-WV — seven transactions
    5. Dallas-Fort Worth-Arlington, TX — six transactions
    6. Sacramento-Roseville-Arden-Arcade, CA — six transactions
    7. Denver-Aurora-Lakewood, CO — five transactions
    8. Houston-The Woodlands-Sugar Land, TX — five transactions
    9. Memphis, TN-MS-AR — five transactions
    10. Minneapolis-St. Paul-Bloomington, MN-WI — five transactions

The wrap-up is similar to what Focus Advisors Automotive CEO and Managing Director David Roberts surmised in October, “What we’re looking at is this phenomenal growth fueled by the PE [private equity] folks for the ones that are going to get into the industry. They start out looking at a platform-centric acquisition.”

Salinas noted in his Jan. 24 report that the current highly competitive market shows no signs of slowing consolidation momentum going into 2024 — also predicted in October by Opus IVS ADAS Solutions Vice President Frank Terlep and, separately in December, by The Romans Group.

Terlep previously said there are 17 PE organizations already funding M&As and another 12-15 “waiting on the sidelines.” He predicted that the bigger MSOs will continue to diversify their business operations and that a big tech company, such as Google, Apple, or Microsoft, will find its way into the collision industry — possibly through acquisition.

Romans found in its research that many consolidators continue to pursue new and existing market growth through single and multiple-location acquisitions.

“Industry growth and expansion creates the opportunity for an inevitable change and shift among MSOs, insurers, and OEMs in the balance-of-power dynamics, especially in many of the more consolidated markets such as Dallas, Chicago, Los Angeles, and Philadelphia,” Romans wrote. “The industry is one step closer to a tipping point where the consolidated MSOs’ revenue outnumbers the remaining independent and dealer consolidated revenue and industry scale.”

In his Jan. 24 report, Salinas wrote this year is “shaping up as a potentially massive year for the ‘Big Five,'” according to Salinas.

As interest rates normalize, more deals could take place industrywide and several PE-backed platforms may recapitalize or sell, Salinas wrote. More PE investors will likely enter the industry as well while the Big Five and the Accelerators could combine, he added.

Independent MSOs will continue to grow, and Focus Advisors expects more will grow beyond $50 million in revenue.

The full report can be read here.


Featured image credit: Tippapatt/iStock

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