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Midyear Updates 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 Activity The 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 nine-shop MSO and is pursuing more acquisitions. Private Equity Interest is Driving Activity Industry 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 PEbacked 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 We attribute the activity and the values to the number of new entrants into the collision space, mostly private equity firms—the highest we’ve seen in 20 years. New PE entrants have come flocking back to the market looking for opportunities that will benefit from increasing consolidation. Most see the stability and non-cyclical nature of collision repair as effective cash generators with modest risk. Some are looking to buy and then sell out to someone larger. And some are probably looking to coat-tail Caliber and Driven, if and when they have IPOs. PE firms come in lots of sizes and varieties. The new participants range from $350 million in assets to more than $16 billion. Some are inexperienced in the industry but anxious to learn. Some have hired CEOs who are highly skilled executives. Others have already found their platforms and are aggressively expanding. Ten are still looking for their first platform! All of them are looking for high quality large MSOs in major metro areas. Deal Terms and Structures Today Five years ago, structures involved a variety of cash, stock, debt and earnouts with most deals being done for cash. Some deals were done as stock purchases, though most were asset purchases. Multiples ranged from five to nine times reconstructed EBITDA, with some outliers for very large MSOs. Increasingly, deals are being measured on purchase price to revenues, with smaller shops in the 35% to 45% and medium size MSOs in the 65% to 90% of revenues, depending upon the strategic fit, EBITDA levels and ongoing management teams. Today, we see the same variety of consideration with most all deals still being done as asset purchases. During this time of COVID, many are structured with both cash and earnouts with performance hurdles— some EBITDA based and some revenue based. Some are structured to
share the risk between the sellers and the buyers. Multiples are trending lower for plain vanilla acquisitions but remain robust for quality platforms. OE certifications are driving increases in values—especially highend brands. National Consolidators Just Keep on Buying Assisted by an additional capital raise in the second quarter, Gerber has acquired more than two dozen shops so far in 2020, including nine in Southern California, as it enters the largest U.S. market for the first time. Caliber Collision added more debt capital and continues its growth even as its revenues have slowed. In late July, it acquired one of the premier MSOs in the Southeast, when it closed on Professional Collision of Mobile, AL. Multi-Regional MSOs Are Growing Most Rapidly Illinois-based Crash Champions, led by Matt Ebert, reached from Chicago across to Southern California to acquire 14-shop MSO Pacific Elite early this year using both equity and
debt capital. In February, Crash added three shops in Ohio, and is on the hunt for more. Former ABRA senior executives with the backing of a highly credible sponsor, New Mountain Capital, are deploying millions of new equity capital following their takeover of Classic Collision in Atlanta last year. Led by CEO Toan Nguyen, Classic expects to challenge Joe Hudson’s position as the fourth-largest operator in the U.S. Classic now has eight of its 37 locations in south Florida, including the acquisition of the former Carolina Auto Body. (Full disclosure: Focus Advisors represented Carolina Auto Body.) Joe Hudson’s continues to beef up its management ranks and consider additional acquisitions across its Sunbelt markets. Texas-based ProCare acquired six-shop Houston operator Hodges Collision to bring its total to 41 shops. Regional MSOs are Preparing for Growth Chilton Auto Body, a 12-shop MSO in the San Francisco Bay Area, reSee Midyear Updates, Page 44
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8 SEPTEMBER 2020 AUTOBODY NEWS / autobodynews.com
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