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Chris Abraham

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A new era has begun for Service King Collision Repair Centers. In July, the large multiple-shop operator (MSO) announced that global alternative asset manager The Carlyle Group would acquire majority ownership in the company.

Service King announced in April that it was looking for a private investment firm to fund a national expansion effort. After seeing major growth in Texas from 2009 to 2012, the company decided to expand across the country, says Chris Abraham, who became CEO when Carlyle acquired Service King.

In 2009, Service King’s revenue was more than $100 million. By the end of 2012, he  expects the company to generate about $250 million in revenue.

And because of the Carlyle acquisition, they expect to again double revenue in the next two to three years, he says.

Abraham recently spoke with FenderBender to discuss the company’s expansion plans, the recent acquisition, and what this kind of consolidation means for the industry.

 

Talk a bit about Service King’s history. What was the mission when the company started?

In 1976, Eddie Lennox, our founder, formed the company in Dallas. He had a passion for cars. He was a hot rod guy, took a body shop class in high school, and with the help of a neighbor who admired his passion, that neighbor gave Eddie a $10,000 loan to open the first Service King location.
Eddie inherited the Service King name; there was no big marketing blitz behind that. With a $10,000 investment from a neighbor that saw a vision in Eddie, the goal was just to put food on the table for his family at the time. He didn’t realize what he was about to embark on. And then through the success that he had with that one location, he was able to grow the business into what we are today.

It really was Dallas-based for the first 33 years of existence. And then it grew to 23 locations in the Dallas-Forth Worth area. We ventured outside the Dallas-Forth worth area three years ago into the Houston market, which is where I went from my role as customer service director to vice president of our Houston market. We took advantage of that opportunity to expand our reach. Within three years, we grew to 12 locations in Houston.

The success of Houston spurred us to look into other markets in Texas and round out our footprint here, which led us into San Antonio with the acquisition of Alamo Body and Paint. That was in the spring of 2011. And then the success there led us into Austin, with the acquisition of B&B Body and Paint in the fall of 2011.

 

And then from there, the company decided to expand nationally. Tell us about those efforts.

Our success in Texas led us to really feel like there was an opportunity to expand our brand across the country. Eddie Lennox, having funded Service King’s growth for 37 years, recognized that to grow to the level that we want to grow, we needed to take on a financial partner.

Over the winter we began the process of really getting a game plan together to take on a financial partner. It was going to be a traditional search, culminating in an auction process with a group of private equity firms. We hired a financial services firm to begin putting together a book about Service King—our history, what has made us successful, our financials and everything—to present to financial investors in the auction process.

But we never had to go through the auction process, because The Carlyle Group approached us. They heard we were looking for a partner, and they wanted to get ahead of the game. They wanted to understand our company, what our plans were and how they might be able to participate. So my assumption is that they liked what they saw, and wanted to move right toward an offer.

We’ve been very fortunate for them to approach us, and to not have to go through the auction process. They are one of the largest private equity groups in the world, so we are also fortunate that they can provide us with the capital for our future growth.

 

What are the biggest benefits of working with Carlyle?

Their team aligns so well with ours. Their goals and aspirations align extremely well with ours, too. We have very like-minded team members.

There were a couple things we really wanted. First of all, we wanted the capital commitment to work toward growth. We wanted to make sure there were the resources to carry out our goal of growth.

There’s a commitment there. And secondly, probably the biggest ingredient in our secret sauce, is that they recognize the value of our shareholder plan. They were willing to keep that plan in place, and offer that to the new leadership as we grow to be part of that plan.

There was a third layer, as well: They were willing to maintain our existing management team. We have a very highly tenured management team that is responsible for a lot of our growth the last few years. They believe in that team and are keeping it intact.

It’s really business as usual for us. There are no sweeping changes. Even our owner, Eddie Lennox, will remain a large shareholder in the new venture.

 

So in what markets or what ways are you looking to expand?

Our goal is very broad. That is to be the largest and the premiere collision repair provider in the United States. A major goal of ours is to become the first United States publicly traded collision repair company.

 

Would you do that in 2013?

There is no time frame here, but that is a goal of ours. I think there’s certainly a market for that, to provide us with the certainty and the capital for our continued growth.

It’s really amazing the story of our last three years. We have doubled our size in revenue. We’ve more than doubled our number of locations from 23 to 57 locations. And we’ve doubled our teammate count from around 700 to around 1,500.

We hope to double that again in the next two to three years.

 

What areas of the country will you be expanding in this year and next year?

Our philosophy is—and this mainly relates to Texas because it’s what we know—we like to go to large metro markets and partner with the A player in that market.

Also, we go where there is a need. There may be some gaps in coverage for our insurance partners that we can grow into.

We don’t have specific cities, regions or states at this point. There’s a lot of evaluation as to where we’re going to go.

 

What types of shops are you looking for when you’re looking to acquire?

Being family- and employee-owned and operated for 37 years, we have a specific culture within the Service King organization.

There needs to be a great culture fit, leadership fit, and a lot of the leadership need to want to be part of the opportunity.

The opportunity is to become a stakeholder in our initiative to grow. It is of extreme value to them. So there’s opportunity out there for everyone.

 

Do you think the collision industry will see more consolidation, perhaps with larger entities acquiring more MSOs?

I would agree that the industry certainly is going through another round of consolidation. But just as we started off as a mom-and-pop operation, we cannot fix all the cars, and neither can the other large multi-shop operators.

There’s still a great demand, and a great need, for the mom-and-pop operators. And they’ve got loyal, dedicated customers.

But for those who have built a great business—and there are a lot of great businesses—some of them might use this as an opportunity of maybe an exit plan. Or to be part of something on a grander scale, and maybe be part of Service King as we expand across the country.

Just as we can’t fix all the cars, we also need good teammates. We don’t have the pool of talent in other markets. We need them. We need the leadership that’s in place there. We need their teams to continue to perform at a very high level.

 

What do you think the collision industry is going to look like in five to 10 years?

I think for major operators, it is the great land grab right now. I think certainly the industry will be consolidated to a point where there’s a different appearance.

Another thing is that the demands from our insurance partners today make it prohibitive for some of our smaller operators to be as profitable as they need to be.

The capital investment, and the administrative investment, is a lot different than it was five to seven years ago. It takes a lot to operate a shop. I think that trend is only going to continue.

Technology is definitely improving the way we do things. We have the ability to take advantage of that technology, and to improve efficiencies.

But there’s a cost to that as well. To take advantage of the opportunity, you’ve got to be willing to make the investment in technology.

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