During the presentation, "The Art of the Deal – Acquiring and Developing New Locations," Walcher covered the basics of acquiring other collision repair shops, as well as developing greenfield/brownfield locations.
Acquiring a second location is an attractive option for shop owners who want to expand. Interest rates are low, and there are plenty of owners either reaching retirement age or looking to move out of the industry because of the increased competitive pressure and glut of repair capacity in many markets.
But getting a loan through a traditional bank has been challenging the past few years, because many banks have tightened their lending criteria in the wake of the financial crisis. Walcher, however, says that shops should "avoid bank financing as much as possible, and have the seller finance as much of the purchase price as possible."
This seller financing structure can work out well for both parties, since it provides steady cash flow to the seller over time, and is easier to obtain for the buyer.
"The reason this works is that if the seller is loaning the buyer money to purchase the company, then seller and buyer interests are more closely aligned," Walcher said. "The seller wants to be sure the buyer is successful, so they the seller will receive their money."
He recommends that brownfield or greenfield development be financed through cash on hand or vendor financing.
For shop owners who want to expand, but are unsure whether an acquisition or brownfield project would be the best path forward, Walcher said that the economic basics of each type of transaction will guide shop owners when trying to decide if one deal might make more sense than the other.
An operator who already has a diversified business might favor building rather than acquiring, since they don't necessarily need to pay for the types of new relationships that come with purchasing an existing shop. "The brownfield development does not provide entry into new insurance relationships," Walcher says. "With a brownfield, you are simply leveraging your existing book of business. If you are doing an acquisition, you have an opportunity to diversify your business."
In the case of an acquisition, it's important for both parties to have a good perspective on pricing. For instance, Walcher says that EBITDA (earnings before interest, taxes, depreciation and amortization) and multiples are not always the best way to look at the price of a potential acquisition.
"At this level, when you're dealing with mostly privately owned shops that are not audited, you don't have reliable information anyway," Walcher says. "To compare two companies apples to apples, you need to have access to their financials to be able to make adjustments and get down to true EBITDA numbers. You may not have access to that information."
There are more important factors to consider. For instance, two shops may have the same level of sales, but different levels of profits. One company might sell for a higher multiple than another of the same size for various reasons.
"Insurance relationships are one factor," Walcher says. "A buyer might pay a premium for those relationships. If the city is no longer issuing permits within their jurisdiction, then a buyer might pay more for the competitive advantage of having that existing license."
Conversely, in metro areas where there is excess body repair capacity, premiums on available shops would be much lower.
Overall, Walcher said it was important to follow the types of deals being made in your own market so that you are well informed when it comes time to buy or sell. "There is a lot going on in the industry right now," he said. "It's an interesting time from any perspective."
Even for shops that aren't actively trying to expand, Walcher says that learning the ins and outs of the acquisition process is a good idea.
"Not everyone is going to be a buyer, but at some point most shops owners are going to be a seller," he said. "Everyone should have an understanding of the process so that when it comes time to sell their own business, they will know what to expect and be able to see things from the buyer's perspective."
