What the Caliber-ABRA Merger Means for Collision Repair Business Owners
In February, ABRA and Caliber (two of the four largest collision repair companies in existence) completed a merger to consolidate both companies under the Caliber brand. The result was the creation of a behemoth firm that instantly became the largest in the industry.
“The combined company,” according to the press release, is “now operating more than 1,000 centers in 37 states and the District of Columbia.”
That’s roughly 400 more locations than the industry’s previous heavyweight, CARSTAR, had operated before the merger. In other words, the competitive landscape of the collision repair industry has drastically changed.
Of course, this wasn’t unexpected. Consolidation across the collision repair industry has been a major ongoing trend for nearly a decade now, and most analysts agreed that it was only a matter of time until a major merger like this took place. Now, though, industry insiders are moving from realm of hypothetical probability into the practical process of dealing with the results.
What will that look like? And how will industry changes impact business owners?
Here’s what to expect.
1. More consolidation is coming.
While the Caliber-ABRA merger was a huge step into large-scale consolidation, it almost certainly wasn’t the last. One likely result of this massive merger? More mergers. These will be enacted at levels small and large across the industry, from local MSOs all the way up to the biggest companies.
To understand how larger firms are approaching the aftermath of the merger, it’s instructive to read an interview Michael Macaluso (the current President at CARSTAR) recently offered to Body Shop Business:
“We remain completely dedicated and focused on our vision towards our 1,000-store goal and $2 billion in sales by 2021, but this merger will likely accelerate those plans just because the market dynamic has certainly changed. This should… really pique additional interest for more independent collision centers to be part of a network. This deal… cements the importance of scale within the business today.” (emphasis added)
In other words, people were planning for consolidation already, but this event has expedited the process. Now, the pressure is on for companies large and small to consolidate or get left behind – especially because more consolidation is coming.
“In the collision repair space, I really do feel that that within the next 18 to 24 months, there will be some other large deals,” says Macaluso. “For example, some regional MSOs being acquired by the larger players. I feel it will go down to the Big Two plus CARSTAR at some point.”
“This is nowhere near the end.”
Whatever the next several years hold for the industry, that much, at least, seems certain.
2. Cost structures will continue to increase.
While consolidation speeds up, cost structures will continue to rise.
Thanks to increasing economies of scale and the increasingly favorable relationships that the biggest companies are developing with insurers and other vendors, functioning as a local business owner is becoming more and more difficult.
Automotive News notes as much in its coverage of the ABRA-Caliber merger: “This is an industry whose cost structure is going to continue to increase,” the publication quotes from consultant Bradley Mewes. “It will become more difficult for smaller operators to compete in that environment, because the larger companies are going to have an investment advantage.”
As bigger companies drive down margins at scale, cost structures will only grow.
3. There’s more urgency than ever for regional MSOs to make a selling decision.
For local collision repair business owners, the upshot is this: there’s more urgency than ever to make a selling decision.
The bottom line is that the traditional mode of business simply isn’t sustainable in the long run. Seeing as Caliber now functions in 37 states with plans to expand further, there’s a high chance that local businesses are now competing directly against the industry’s new heavyweight – and if they are, they’ll struggle to go head-to-head with the firepower funded by capital and compounded by scale.
If they aren’t, they’re almost certainly competing against one of the other major industry players, and as we’ve seen from CARSTAR, those players are highly motivated to grow quickly, which will only put more pressure on independent collision repair organizations.
The good news is that the industry’s urgency to consolidate can lead to valuable returns on a merger or acquisition.
And that’s what has to happen now. The only path forward is aggressive growth, almost certainly through incorporation with other businesses. Otherwise, business owners must be prepared to sell outright at a low value down the road, or eventually close down. In the aftermath of the merger, the space between a rock and a hard place just became much tighter. The time to act is now.
Considering a Merger or Acquisition?
The aftermath of the ABRA-Caliber merger represents a time-dependent opportunity to maximize value for local collision repair business owners. Admittedly, navigating the process of an acquisition or merger isn’t easy. But having experience on your side helps.
At Kingsmoor Advisors, we’ve completed over 100 transactions totaling over $5 billion. We understand the difficulties – logistical and sentimental – in successfully selling a business, and we help owners to navigate them in a way that maximizes value and legacy.
Are you considering selling your business? Are you questioning what your next move should be as the industry undergoes massive consolidation?