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Morris: Consolidation Trends in 2022

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Consolidation

Now that 2021 is past and in the rearview mirror, I thought it would be fun to do some prognostication about this year, 2022. 2021 was an interesting year for consolidation in the collision repair space. Dave Roberts, Managing Director of Focus Advisors, noted in his annual review that the largest consolidators, Caliber and Gerber, have gotten much bigger, while two relative newcomers to the consolidation field, Crash Champions and Classic Collision, grew at a remarkable pace as well. Crash Champions tripled in size last year, ending up with 175 shops under its banner. Classic Collision also nearly tripled in size, ending the year with 174 locations across four different time zones. 

Joe Hudson’s expansion was steady, adding 23 shops. Upstarts Collision Right, Quality Collision Centers and Kaizen Collision all gobbled up shops in a hurry last year, totaling 50 acquisitions between the three. Driven Brands, Certified Collision Group, Fix Network World and 1Collision also added affiliate shops at a rapid pace. These franchisors and affiliate groups now boast nearly 1,000 shops between them in their respective folds.

This is crazy growth to be sure, but what will happen in 2022? Some of my thoughts revolve around a wild card that I haven’t mentioned yet and that is the pause on growth experienced by Service King. One possibility is that Service King will look to be acquired by another private equity group, perhaps one that owns Collision Right or Quality Collision Centers. To me, this seems doubtful. I think the private equity group that currently owns Service King has a huge investment pool (in the billions) and may be inclined to merge Service King with another consolidator. That might look something like the ABRA/Caliber merger years ago where ABRA’s owner “acquired” Caliber but decided to retain the Caliber brand instead of the ABRA brand. Could one of the fast-growing consolidators like Classic Collision or Crash Champions be part of a deal to acquire Service King? 

Or could the owners of Service King acquire Classic Collision or Crash Champions and retain the name and leadership team of the acquired company? In this scenario, either Classic or Crash would go from 175 shops to nearly 500 and the current investment group that owns either of these companies will likely have a nice return on their investment. Just a reminder, I do not have a single snippet of insider knowledge, but my best guess is we will see Service King get folded into an existing consolidator.

Another scenario I have been thinking about is what will happen to Caliber. They continue to grow in the collision repair space, but they have expanded into the mechanical service and maintenance arena, the glass replacement business, as well as the diagnostics, electronics and calibration field. Also of note is Caliber’s acquisition of 17 body shops previously owned by car dealer AutoNation. Will the acquisition of dealer-owned body shops become a trend? This begs the question of whether or not single-shop independents and small MSOs should be talking to dealers in their markets about taking over the body shop operation of the dealers. 

Think about this for a minute: What is going to happen over time to dealership service departments when there are fewer internal combustion engine vehicles on the road requiring oil changes and other mechanical service work? What will dealers do to supplement the potential loss in revenue because of the prevalence of low maintenance electric vehicles? Will dealers look to partner with shop operators to manage the body shop while retaining 51 percent ownership of the shop to meet OEM requirements? I believe this is one area that shops today need to take a hard look at with an eye toward partnering with dealers to own and/or operate collision repair facilities. I predict there will be a wave of acquisitions and partnering going on in 2022.

And finally, what of Caliber in 2022? They certainly have scale, a proven track record of growth and the ability to operate their acquisitions. With operations in 40 states and no sign of slowing down their growth, one still wonders if there is an exit strategy in the works for the stakeholders at Caliber. I have watched the maneuvering of executive leadership moving into different roles and titles at Caliber. Some of the moves look to me like a precursor to meet regulatory requirements of the Securities Exchange Commission in preparation for an Initial Public Offering on one of the U.S. stock markets. Short of that, an event involving a SPAC could possibly be in play soon. In general, private equity groups do not hold onto their individual assets forever, so it is possible Caliber is positioning itself to go public this year. 

No crystal ball exists that can accurately predict what will happen in 2022, so take my predictions with a grain of salt and let’s see how this year unfolds.   

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