fbpx
Wednesday, 03 February 2021 21:42

Forecast: Expect More Private Equity Coming Into the Industry

Written by
Neal Sahney and Jonathan Seiffer, representatives of two private equity firms, said investors like the stability and scale opportunities they see in collision repair. Neal Sahney and Jonathan Seiffer, representatives of two private equity firms, said investors like the stability and scale opportunities they see in collision repair.

Index

Share This:

 

During the MSO Symposium in November, industry consultant Vincent Romans said there are a dozen private equity firms with investments in U.S. collision repair organizations, including Caliber, Gerber, Service King, Crash Champions and Classic Collision.

“Just a decade ago, there was one, when ONCAP acquired Caliber,” Romans said.

 

Collision repair businesses with private equity investments currently produce about $10.9 billion of revenue, or more than 28% of the total market, according to Romans, who foresees more investment in the industry forthcoming.

 

“I believe that we will see at least two or three more private equity firms settling down with investments in MSOs within the U.S. in the next six months,” Romans said.

 

Neal Sahney is a principal at one such company, Frontenac Company, a Chicago-based private equity firm looking to invest in the collision repair sector for the first time.

 

During an MSO Symposium panel discussion, Sahney said three things make the industry appealing to investors.

 

First, it’s “a highly stable space,” he said, less influenced than other industries by economic shifts, and with insurance reducing some of the “risks related to being paid.”

 

Second, though MSOs now have significant market share, “this is still a really fragmented market relative to many others” where consolidation has played out more, Sahney said.

 

Lastly, he said, “Scale presents a real advantage in this space,” given the investment needed because of vehicle technology, and the requirements of direct repair programs and OEM certifications.

 

“The players who continue to generate scale will have a real advantage over the smaller players,” Sahney predicts.

 

Another panelist, Jonathan Seiffer of Leonard Green and Partners, a private equity firm invested in Caliber, said scale can also help address the long-standing human resources challenge in the industry in that “people can find advantages and security working for larger organizations.”

 

Seiffer and Sahney, speaking a month before the first COVID-19 vaccine had received Food and Drug Administration approval, said the pandemic and its impact on...


...vehicle miles traveled and auto claims haven’t deterred investors’ interest in acquiring shops.

 

“I think there was bit of hesitation, as it relates to figuring out the deals, at the start of COVID,” Sahney said. “I think we’ve [since] shifted now to, ‘OK, this is the new reality that we’re going to live in for a while. So how do we adapt our deal-thinking to the reality we’re in.’

 

"And I think folks have become very creative in finding ways to look at where businesses were pre-COVID, what happened during COVID and what do you believe about the future," Sahney continued." There’s all sorts of hypotheses about where we will land. I think we will land in a new normal that may look different than where this industry was before COVID, but it’s going to look something closer to that than where we’ve been the last six months.”

 

Seiffer agreed COVID is likely not a long-term negative in this industry.

 

“Even if it lingers, people’s behaviors have adapted,” he said, acknowledging resumption of traffic has rebounded to varying degrees around the country. “If you’re looking for a platform, you’re presumably looking to build something much bigger over time. So a short-term blip shouldn’t really change your view on the opportunity.”

 

He said there will no doubt be permanent changes that will negatively affect other parts of the economy, but there may actually be some upsides to the pandemic in the medium-term for collision repairers.

 

“There will  be some subset of people who will be slow to return to mass transit and other forms of transportation, and I don’t think working from home is going to be an option forever,” Seiffer said.

 

How does private equity view the potential longer-term impact of advanced driver assistance systems (ADAS) and autonomous vehicles? Sahney noted it takes a long time for...


...new technologies to be in place in a large percentage of the vehicle population on the roads.

 

“The feeling on it is we’re still decades away from that truly hammering away at the industry,” Sahney said.

 

In addition, he said, MSOs are going to be in a much better position than a single-shop operation to make the investments in being able to service those technologies.

 

Seiffer agreed, saying he sees ADAS as likely to have a bigger impact on personal injury claims than collision claims.

 

“So we pay attention to it, but people tend to overestimate how quickly the world will change,” Seiffer said. “We pay attention to it, but view it a little bit as noise, and try to focus on the bigger picture.

 

"There are going to be a lot of cars in the U.S. for a long time, and those cars are going to get into accidents because of weather, congestion and distraction. Cell phones have been a huge benefit for the industry.”

 

Even if collision repair work declines over time, he said, well-run MSOs will find other ways to use a network of bays with skilled workers.

 

“If you have talented folks, and a distribution network with points of access, there will be new business opportunities that arise if others start to go down,” Seiffer said.

 

Autonomous vehicles may result in a larger population of cars rather than smaller, and those vehicles will have service and repair needs beyond collision repair.

 

“The infrastructure that’s built may move a bit over time,” Seiffer said. “You may not need city center locations, or Main Street locations, but I think [shops] will still have tremendous value to the automotive transportation infrastructure.”

 

Share This:
 

Read 2503 times