A Second Wave: Inside the Latest Consolidation Surge
If you’ve recently visited FenderBender’s website, it’s almost guaranteed that you’ve seen an iteration of this headline about another big acquisition.
Fill that blank with whomever you like—Caliber, Gerber, Service King, ABRA, Joe Hudson, Crash Champions, Classic Collision. It’s happening in every region of the country, and in almost every state.
Each week, press releases roll in from an assortment of consolidators announcing they’ve “further strengthened” their position in markets across the country with new acquisitions and shop openings.
And if it feels like it’s happening more often than you remember, you’re right.
“I don’t recall a time when there were more potential buyers and more potential sellers,” says David Roberts, Managing Director of Focus Advisors, a collision repair mergers and acquisitions advising company.
That has led many to refer to this influx of consolidation as “the second wave,” which has mirrored the immense consolidation growth that occurred during the early 2010s when Caliber, Gerber, ABRA and Service King rose to be known as the “Big 4.”
Now with the introduction of Crash Champions, Classic Collision and others, consolidation has reached another distinct level.
“It went from slowly cruisin down the street to a race. It’s almost like we’re in the Daytona 500,” says Laura Gay, a consolidation coach who helps independent shops sell their business and has worked with these consolidators first hand.
So what’s different about this wave? And what has caused it? Who are the new players? Will the established “Big 4” continue to dominate? And is there a breaking point? FenderBender sought the expertise of industry experts and the consolidators themselves to find out.
(Note: FenderBender requested to speak to executives from Caliber, Gerber, Service King, Crash Champions and Classic Collision. Crash Champions and Service King were the only two organizations that agreed to go on record to discuss the current state of consolidation and give insight into their company’s strategy.)
A Look at the Numbers
With acquisition news flowing in constantly, it can become difficult to understand the bigger picture, and where all the consolidators stack up against each other. So, for reference, here are the location counts for the top consolidators, as of February 14, 2022.
Service King: 336
Crash Champions: 175
Classic Collision: 174
Joe Hudson’s: 137
Caliber continues to have a massive lead on all the other consolidators. Focus Advisors estimates Caliber added 201 shops in 2021 alone and nearly 25 percent were either brown or greenfield locations. Roberts expects Caliber to continue to open more and more brown and greenfield locations as it gives a much higher return on investment rather than acquiring. But that will continue as well, Roberts says. Currently Caliber is in 40 states and 80 of the top 100 metro areas.
Gerber added 97 shops in the United States in 2021 and has created great distances between itself and Service King. Gerber’s biggest splash came with the acquisition of John Harris Body Shop, which had a total of 51 shops.
Service King has been the only major consolidator that has seen its footprint shrink. It entered 2022 with seven less locations than it started with in 2021. However, Service King CEO David Cush said the company’s plan is to start “ramping up growth” in the near future.
Then there’s the new guys: Crash Champions and Classic Collision. Sitting neck and neck with their growth, both grew by more than 300 percent in 2021, adding more than 100 shops. Each has made splashes acquiring several MSOs along with a steady stream of single-shops to establish themselves as major national players.
All in all, these top five consolidators account for roughly 31.3 percent of the industry’s market share in revenue, according to Focus Advisors. The consolidators hold an 8.8 percent market share of all locations.
So while the top consolidators make up only a small percentage of the physical locations, they are taking up more and more of the revenue. And it’s not just them.
Another top mergers and acquisitions firm, the Romans Group, forecasts that multi-location operators with over $10 million in annual revenue will represent at least 48 percent of the revenue market share by 2025 and it could get as high as 61 percent. Currently those businesses represent 43 percent of the market share.
Where they operate
Each consolidator has its “bread and butter” markets that it holds a dominant position in. Because of Caliber’s size it has several, like California and along the East Ccoast in the Virginia, Maryland area. They are also the only major consolidator in markets like the Twin Cities.
Gerber has a strong presence in the Great Lakes region, specifically Michigan and Wisconsin, that stretches into New York. It also has strong pockets in the upper Northwest and down in the Southeast. Service King’s presence remains heavily in the South with smaller pockets in the Midwest and Northeast.
Classic and Crash have taken different approaches to its growth. Classic has grown along much of the coast line, from Wasington and Oregon, to the Gulf of Mexico in Texas and on the eastern coast of Florida.
Classic is also heavily invested in Florida but has also had a major focus in the Midwest where the company was founded, and it is also establishing a presence in the crowded Northeast.
What Caused the ‘Second Wave?’
Much of what caused the first wave has continued to be a factor in the second wave. Top among them is insurance relationships. The insurers prefer to work with large corporations. It’s easier to work with one individual who is in charge of insurer relationships for 100 shops than it is to talk to 100 different shops about their individual situation, Gay says, and thus it drives volume. And most of the consolidators, like Crash Champions, are DRP friendly. Crash’s workload is “largely” DRP work and they have some form of partnership with all major insurance companies, says Rachel Rachel Hutfless, Crah’s Chief Client Officer.
Insurers are also benefiting from the growing number of national consolidators because it continues to create competition and lower prices.
The increasing complexity of vehicles is also a contributing factor, not because shops don’t want to learn, but because that learning comes with heavy costs. Investing in new equipment and technology is becoming vital to repairing new cars, says Matt Ebert, Crash Champions’ founder and CEO. And it can be easy to rack up several hundreds of thousands of dollars in new equipment, tools and facility modifications. Crash is committed to investing in those technologies, and it has the capital to do so. But for the average mom and pop, the money it takes to invest in ADAS, new scan tools, OEM certifications and other items is just not feasible.
Then add in many of the factors that COVID-19 caused, like an exacerbated labor shortage, particularly technicians, parts shortage, and tightened profit margins and it became harder to run a business. All those have increased the number of prospective sellers, Roberts says.
Ebert also believes the industry is reaching a point where many owners are getting older and naturally looking to sell their businesses. COVID-19 aided in that as well.
“When the big [consolidators] were starting it, they said no. Now [the shop owners] are older… they don’t see the same runway they had before.”
And while that has meant an all-time high supply of shops, there has also been an all-time high in demand. That means independent shops are getting really good deals on their businesses, especially smaller MSOs, Gay says. And that has caused other shops who were on the fence to jump at a good offer.
“If you want to sell, if it’s something that you’ve stuck your toe in the water on, you’d be a fool to not completely wrap your arms around how that could look for you,” Gay says.
And because there are new players trying to rapidly grow in size, like Classic and Crash, those companies have been willing to spend even more to secure high-quality shops and establish a footprint in a new market, Roberts says. Making it a very appealing proposition for independent shops.
Will it Slow Down Anytime Soon?
The short answer is no. At the 2021 MSO Symposium, Vincent Romans, managing partner at The Romans Group said consolidation is expected to increase at an “aggressive rate.”
With Crash Champions and Classic Collision both backed by private equity, he sees both continuing to expand rapidly. He also believes there are some slightly smaller MSOs that will become more mainstream, such as Collision Right, Kaizen Collision and Quality Collision, all of which have less of a footprint than Classic or Crash but have been growing at a similarly exponential rate. Caliber isn’t slowing down. And Gerber is in the midst of a five-year growth plan it started in 2021 to double the size of the business.
Another reason Roberts expects consolidation to keep its current pace is the experience that private equity now has in the industry. What has caused consolidators to falter in the past is private equity partners to push for growth too quickly. And both the private equity companies, and the executives working with the private equity firms have more experience in the industry.
“People that are growing rapidly make mistakes,” Roberts says. “And they don’t always know those mistakes till after they made them.”
That can be seen in both Crash and Classic. Crash has brought over several former executives from Service King and Classic has several former ABRA employees. Their experience has helped the company’s avoid mistakes that their previous companies made when they were first growing.
And from Roberts’ vantage point, all the current private equity backers are “sophisticated partners.”
“There’s nothing I see in any of these companies that appear to be mistakes,” Roberts says.
Ebert, Crash Champions’ CEO, admits the private equity relationship is a delicate balance. Investors have shorter horizons, they want to see quick results which don’t always coincide with long term strategies.
“Their timeline and the business’ timeline aren’t necessarily in unison.” Ebert says.
That’s the balance you sign up for, and it’s one Ebert needed to scale the business because he didn’t come from money. He has owned Crash Champions since 1999 and operated it as a neighborhood shop for 15 years before he decided to expand and eventually become a national MSO.
What does it all mean for the independent repairer?
Seeing acquisition after acquisition can be daunting for an independent repair owner, but it’s important to understand the context. There are more than 31,000 collision repair facilities and the top five consolidators operate less than 10 percent of them. Now that doesn’t tell the whole picture, because they occupy much more of the market revenue, roughly 31 percent and growing. But there is still a large piece of the pie for independent repairers.
Gay knows the angst that comes with seeing consolidation. She was “petrified” that the consolidators were going to put her out of business. She only decided to sell her shops to Caliber in 2015 to divert full attention to her husband at the time and son, who were dealing with health issues. It wasn’t because she couldn’t compete. Now a consultant in the industry, she hopes other shops don’t see an inevitable demise to the consolidators.
“When I sold it was absolutely the right time for me. But, I don’t want people to feel like they have to sell. That’s what breaks my heart,” she says.
That said, shops that want to stay independent will need to continue to reinvent themselves, she says. Trying to call plays from the same playbook that shops have been using for the last 20 years won’t. The industry is changing and shops’ habits and processes need to be changed and optimized.
Roberts agrees. Shops don’t need to sell out, but they need to understand the realities of the market. Under-performing shops are going to get swallowed up. And denying that consolidation is happening, won’t work. If a shop isn’t committed to reimaging itself and being open to change, it’s probably time to move on.
“Shops have been waiting for these consolidators to fall on their face and it hasn’t happened,” Roberts says. “What does it mean for the single shop operator? It means you have to get bigger and constantly be realistic about what you can do.”
For shops that are open to selling, getting bigger is still the best way to become attractive for the consolidators, Roberts says. The consolidators like the built-in network a multi-store operation can provide, especially when they are entering a market that is new to them. It also likely means the current owner isn’t overly involved in the day to day. That’s a key factor, Ebert says, because it’s an indicator the business can succeed without them.
“The hardest thing is when the owner was doing everything and without him nothing happens because he’s going to leave,” Ebert says.
They are also harder to come by. Many of the country’s MSOs were bought up during the first round of consolidation, and as this second wave has started, many of the MSOs that hung on have been acquired as well. The industry hasn’t done a good job of replenishing those MSOs, Gay says, so the shops that can offer that are very appealing.
What’s Happening with Service King?
The one outlier in the current landscape is Service King. As all the other consolidators continue to grow at a rapid pace, Service King has slowed and even begun to lose shops.
The company has been in the news in recent months as reports have surfaced about the company being “strapped for cash.”
In November 2021, Service King reported a loss of $6 million in adjusted earnings during the third quarter, more than the $5.4 million loss it reported in the same period in 2020 and far from the $27 million gain the company reported in 2019. The company also drew $72 million on its revolving credit and maxed out its borrowing availability. Since then, they have entered into discussions to restructure their debt.
That had led many to wonder, are they going to last?
“I think something will happen there at some point,” Roberts says, referring to a potential sale, adding “there are some organizations that they could fit inside of.”
Gay expects there is probably a move to be made between some of the top consolidators, with one of the top five consolidators acquiring the other. And she fully expects Service King to be a seller.
Even Service King’s CEO wouldn’t rule it out.
“We don’t really view ourselves as being for sale. We view ourselves as being in the growth mode going forward,” Service King CEO David Cush says, “But at the same we’re responsible stewards of our owner’s capital. If someone wants to write a big enough check, everyone's for sale… there’s always a price in the business world.”
This situation has played out in the past, one consolidator acquiring the other, with the Caliber and ABRA acquisition in 2019. Could Service King be one part of another blockbuster transaction? Only time will tell. The company’s language certainly is much more open than ABRA’s was. In 2016, ABRA’s then Vice President of Business Development Tim Adelmann told FenderBender he wouldn’t be surprised if one of the Big 4 acquired another but said “ABRA will not be that seller.” Three years later, they were.
Box Crash and Classic Well received
In general, the consolidators are not the most popular group in the collision repair industry, especially among independent repair shop owners. However, there appears to be more openness to the newer consolidators like Crash Champions and Classic Collision.
Ebert believes it’s due to fatigue with the older consolidators. Shops have spent many years considering those shops as the enemy, so Crash is benefiting from being new.
Ebert also credits the company’s willingness to bring former shop owners into the company with rolled equity. The business is majority owned by shop owners. And the message is much more positive between shop employees and the shop owner if they still have a stake in the business.
Gay has also foun shop owners have responded well to Classic. “They have been very well received.”