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Wednesday, 14 September 2016 20:30

MSO Symposium Looks at International Business Models, Slow-Down in Consolidation

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Consolidation of the industry by the so-called “Big 4” multi-shop operators (MSOs) slowed significantly in the first seven months of this year, but that isn’t a sign that such consolidation is ending, a speaker at this year’s NACE predicted.

Industry consultant Vince Romans of The Romans Group kicked off the half-day “MSO Symposium” during NACE with a statistic-laden summary of the state of consolidation in the collision repair industry.

Romans said MSOs and the industry as a whole enjoyed a very good 2015 in terms of the growth of the overall market. He estimated 14.5 million accidents resulted in 11.3 million repairable vehicles in 2015, with total repairer revenue (insurer- and customer-pay combined) topping $34.1 billion. That’s a nearly 5 percent jump over 2014, “and 2016 could also remain the same,” he said.

To gauge the rate of MSO growth, Romans looked at the total sales of the shops that the “Big 4” MSOs – ABRA, Caliber, Service King and Boyd Group / Gerber – acquired in each of the last four years. Those acquisitions transferred $300 million in sales to the Big 4 in 2012, $265 million in 2013, and a whopping $964 million in 2014. But that dropped to $535 million in 2015, and totaled only $188 million in the first seven months of this year. While the Big 4 combined added 178 locations last year, they added just 61 this year (as of the end of July). ABRA in particular, he said, has “taken a breather,” not making any multiple location acquisitions in the first half of 2016, after being very aggressive in the two prior years.

Romans said he didn’t know what that decline means, other than things have clearly slowed down.

In terms of combined total revenues, the Big 4 have grown from $500,000 million in 2006 to $3.7 billion last year. Multi-location franchise networks (such as CARSTAR and Fix Auto USA) have seen much more modest sales growth in that time, going from $1.1 billion in 2006 to $1.3 billion last year. When other MSOs with annual sales of $10 million or more are also added into the mix, the MSO market as a whole has almost tripled its sales from $3.8 billion in 2006 to $10.2 billion last year. That means that large MSOs captured about 30 percent of the industry’s total revenue last year.

That said, Romans noted that the Big 4’s 1,400 shop locations is still a small percentage of the total number of shops, which he pegged at nearly 33,000.

“There’s still a lot of independents out there,” he said. “In my opinion, there’s still a lot of opportunity for the shops that not part of this consolidation group, or even part of a multi-location operator group.”


Future MSO Growth Gauged


But Romans looked forward as well as back in terms of consolidation, offering two projections for what he sees the industry looking like in terms of MSOs in 2020.
In terms of the “Big 4,” Romans forecasts they will grow from their current annual sales $3.7 billion and 10.9 percent market share to about $6.5 billion and a 17 percent market share by 2020. In a second, “more aggressive forecast” he said he based on “some claims that a couple of consolidators have made recently about where they might be,” he said the Big 4 may hit $7.5 billion or 19.7 percent market share by 2020.
When the franchise networks are added in, along with other MSO with annual sales of more than $10 million, Romans predicts this segment of the market will have 2020 sales totaling between $15 billion and $18 billion for as much as 47 percent market share.
Romans said whether that figure sounds startling or not “depends on your perspective.”
“For 4.5 years from now, I don’t think that’s a big deal,” Romans said. “I think it will start to be a big deal when those segments start to represent 60 percent or 65 percent of the market. That kind of structural change will be even greater than we experience today.”
In the even shorter-term, Romans said maybe the industry will be talking about the “Big 5” rather than the “Big 4.”
“I suspect maybe we’ll see maybe a fifth consolidator somewhere in the next 12-18 months that could come into this market and really mix it up,” Romans said. “It could be an international entity, or it could be another aggressive [U.S.] entity funded by private equity or some other financial channel.”


International Perspectives Shared


This year’s MSO Symposium was open not just to those from MSOs but also larger single-location shops (those with annual sales in excess of $3 million) as well.

The event included a panel discussion on collision industry business models around the world. Panelists were asked, for example, for countries where they see insurers and collision repairers working particularly well together. Jonas Gunnarsson, a vice president of Car-o-Liner, said his home country of Sweden would fit that description, but also the Middle East country of Dubai.

“If you have a collision in Dubai, you come to a place where you have sort of a supermarket: the police are there, insurers are there, workshops are there, inspections are there, rentals are there,” Gunnarsson said. “A one-stop shop. It’s working very well.”

As insurance increasingly becomes a global enterprise, the panel was asked how they see the collision repair industry responding.

Dan Hogg, the chief financial officer for Fix Auto World, said he sees increasing interest among insurers for expanded partnerships.

“Conversations we’re having with some of the European insurers indicate they are interested in us expanding into other countries so they can take advantage of the benefits of the network in those countries where they don’t feel they’re getting an adequate solution,” Hogg said.

He noted that Fix Auto has expanded into four new countries in the last 18 months.

“Our problem is we can’t expand fast enough,” he said. “It does take time to ramp up.”

The Fix network hasn’t signed a global arrangements with any insurer, but Hogg said that is a long-term objective. The network in each country operates somewhat autonomously – each chooses its own management system, for example – but data from all such Fix shops is fed into “the Fix hub.”

“So from an insurer perspective, we’ll be able to report on a consolidated [global] basis,” Hogg said.

He also voiced a concern often discussed within the United States but that he sees in most markets in which Fix operates.

“From a network perspective, our shops pursue OEM shop certification where it makes sense for their business, but I tend to think that the remuneration for obtaining those certifications is lagging behind the actual cost of doing so,” he said.

 

 

John Yoswick, a freelance writer based in Portland, Oregon, who has been writing about the automotive industry since 1988, is also the editor of the weekly CRASH Network (for a free 4-week trial subscription, visit www.CrashNetwork.com). He can be contacted by email at jyoswick@SpiritOne.com.

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