What You Need to Consider Before Selling Your Collision Repair Business

A panel at the most recent Collision Industry Conference discussed everything from corporate structure to handling the emotions that come with a sale.


John Walcher of Veritas Advisors has a question he usually asks first when a collision repair business owner approaches him about helping them sell their business: “Can you take a vacation?” 

“Not just a weekend or a long weekend, not even one week," Walcher said. "Can you take two or three weeks? You’ve got to be able to go at least a full payroll cycle, hopefully two, separated from your business. If you can, you might be ready to sell.”

Walcher was one of a panel of consultants involved in mergers and acquisitions within the industry discussing consolidation during the Collision Industry Conference (CIC) in Las Vegas during SEMA week. Walcher said the shop's corporate structure is another thing owners need to consider well ahead of a sale.

“Some people have C corps, and with C corps, if you sell, there’s going to be double taxation,” Walcher said. “So you might want to convert to an S corp, but if you do, it’s got to bake for 10 years to get the full tax benefit. So one of the key messages that I’m sure we all have to our clients is: plan ahead. It’s not something that you want to find out about just months before you want to close a deal. Sometimes it takes years before you’re really ready to hit the market.”

A panel of merger and acquisition consultants talked about industry consolidation during the most recent Collision Industry Conference.

Walcher said while purchase prices are sometimes referenced in terms of multiples of EBITDA (earnings before interest, taxes, depreciation and amortization), looking at multiples of annual revenues offers “a little better apples-to-apples type comparison.”

“So watch out when those multiples of EBITDA conversations come up,” Walcher said. “They’re negotiating tools, but I assure you nobody who values and does a lot of deals on the buy side is buying based on multiples of EBITDA.”

Retaining Your Team

Several panelists spoke of the importance of building and retaining not just a good management team but the production team as well.

“The consolidators, or the private equity firm, are buying the people,” said Laura Gay of Consolidation Coach. “They can get a box anywhere. They can’t get the people.”

Cole Strandberg of Focus Investment Banking agreed.

“They care about where the business is today, certainly, but they care even more about where the business can go, and that management team is the engine that’s going to get them there,” he said. “A big part of selling your business is the story, and the management team is the focal point of that story.”

Panel moderator Frank Terlep asked if there was any truth to what he sometimes hears in the industry: that within months of a collision repair business being sold, as much as 50% of the staff have left the company.

“It really depends on the buyer,” Gay said, saying 50% of her staff were gone within four months after she sold her shops in 2015. “The harsh truth is that it does happen. But there are also some consolidators out there that really are very much focused on retention. They’re using retention bonuses and other strategies to try to keep the staff, because they realize how important it is. If they don’t have the people, they can’t turn the revenue.”

Walcher of Veritas Advisors said he, too, has seen large turnover of staff after a company is sold.

“Sometimes it’s because the buyer is overwhelmed,” he said. “They’ve got too many deals going, and integration doesn’t go as smoothly as it could. Sometimes it’s a cultural shift. If you are a fiercely independent shop…and now you sell to a company that’s DRP focused, there’s going to be a cultural change in that shop. It’s going to affect your valuation, and it’s going to affect how many people stick around.”

David Roberts of Focus Advisors said almost without exception, sellers want to do what’s best for their employers. 

“But just be careful what you’re promising people, because you can’t guarantee your employees what’s going to happen afterwards,” he said. “There’s some things you can’t control. But what you can do is incent your employees to give it a shot. You can have retention bonuses. You can say, look, I know this may not be what you want, but there will be more opportunities within a larger entity that owns [the company]. So whether 50% leave or whether a very small percentage leave, a lot of it is individual decisions. But if you’re a seller, you can actually influence that before you do a transaction.”

It Can Be Emotional

Strandberg pointed to another aspect of the process.

“Selling your business is emotional too,” Strandberg said. “Going through that process is very much like dating. If you have a team that has a strong culture, you care about their future, and you’re going to want to make sure your values are shared with your next partner or buyer. I think that’s something to keep in mind. The numbers are very, very important, but so is that aspect.”

Terlep, who said he has sold multiple businesses through his career, agreed. “It’s your baby, right,” Terlep said. “But at the same time, you go into business, in my opinion, to sell a business over time. Hopefully you don’t plan on dying in your business.”

“And that’s a very logical way of looking at it,” Strandberg responded. “But the truth is, especially in industries like collision repair, many owners started without an end in mind. In my instance, my family sold their business. I grew up around the business, viewed it as my big brother. So when you talk about it in those terms, you realize the level of emotion that goes into that.”

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