Caliber issued new debt to refinance existing debt and fund large dividends to current shareholders. Clash Champions is refinancing some short-term debt and raising additional equity to fund further acquisitions. VIVE Collision’s original private equity sponsor, Garnet Station Partners, was sold to Greenbrier Equity Group, a larger private equity firm with a significant stake in the automotive aftermarket space.
Similarly, CollisionRight’s original private equity sponsor, Center Oak Partners, sold CollisionRight to Summit Partners, a much larger private equity firm.
And Kinderhook Industries became Kaizen Collision’s lead investor, along with Kaizen’s existing investors, reflecting its upfront investment in the collision repair industry. Kinderhook previously invested in Procare and helped invest in Austin Motormile, which it subsequently sold to Classic Collision.
Less than five years after partnering with primary sponsor New Mountain Capital, Classic Collision has announced a capital increase with new sponsor TPG Capital. TPG Capital is the private equity arm of TPG, a publicly traded global asset management company with $220 billion in assets under management.
Total investment over the past five months is estimated to be over $9 billion.
Investor: Rotation of sponsors from small to large
To put all this into perspective, today’s private equity sponsors in the collision repair industry have over $400 billion in assets under management, including both exiting and new sponsors.
Private equity sponsors that have recently entered the industry or increased their positions have largely replaced smaller private equity firms. His most recent transaction, the acquisition of Classic Collision by TPG Capital, introduced him to the industry as one of the world’s largest alternative investment funds.
Why now?
Why is so much new capital flowing into the industry now that interest rates are significantly higher than they were a year ago? Very high interest rates encourage companies to raise capital faster? It seems counterintuitive. what happened?
Large private equity firms see an opportunity to accelerate growth as the availability and cost of capital significantly outpaces smaller businesses and independent shops. Another reason is that higher labor costs and higher revenue due to adjustments have had a positive impact on EBITDA margins, making them attractive to lenders and new investors. And arbitrage acquisitions also have continued appeal. By acquiring strong mom-and-pop stores and small MSOs at 5-7x EBITDA while raising capital at 12-14x valuations, this new capital effectively leverages superior capital to You can aim for rapid growth.
Early investors are more willing to take higher risks
Early private equity investors take on more risk when acquiring a platform and bolting on to additional MSOs or single shops. They support management teams that may not have the proven ability to develop much larger operations or acquire and integrate multiple targets in a short period of time. The strategy for these early investors is almost the same with a few variations.
VIVE was founded by industry veteran Vartan Gerian Jr. He sold the independent MSO to his Caliber and then honed his executive talents within that organization. After leaving Caliber, he partnered with two private equity sponsors and two alumni from other private equity firms who had spent years researching the industry.
CollisionRight was sponsored by Center Oak Partners, a relatively small private equity firm with extensive experience in the automotive aftermarket. They backed Rich Harrison, an experienced leader who ran platform and rollup strategies at TruRoad Holdings. Collision Right started with a modestly sized platform in Ohio and Kentucky and has grown to over $300 million in revenue in just four years.
New Mountain Capital supported an experienced management team of former ABRA executives, led by Toan Nguyen, ABRA’s former Chief Information Officer and Chief Strategy Officer. His team acquired Atlanta-based Classic Collision as its first platform and grew it to over $1 billion in revenue within just four years.
Successor investors have a lower risk appetite and need to make larger investments
As early investors successfully launch platforms and roll-up strategies with attractive exit multiples, acquirers are buying in the hope that risk has been reduced. Increased cash flow predictability. The management team has a better track record. Acquisition and greenfield costs are more stable and the overall direction of integration is clearer. And very large private equity firms can write much larger checks. In fact, they have to write bigger checks given the size of the fund.
More private equity investors on standby
Focus Advisors tracks more than 120 private equity firms that have studied the collision repair industry. Our team has had direct conversations with over 100 of them over the past 12 months. Some people already have enough information. Others are rapidly descending the learning curve.
Why are so many private equity firms considering entering this industry? Successful growth and exits by other PE firms have increased interest from new investors. At his recent MSO Summit hosted by Focus Advisors, a large PE firm in attendance asked, “Is it too late to start entering?”
For many of these prospective investors, the nuances of the industry are often surprising. Collision repair presents very different challenges than traditional platform/add-on strategies that have worked well in other industries. In many of these successful roll-up strategies, individual consumers make purchasing decisions. However, in the collision repair industry, third-party intermediaries, insurance companies, have a significant impact on the flow of business through direct repair programs. Additionally, the technical skill sets needed to generate superior gross margins and EBITDA exist in the technical workforce, which has been in short supply for a generation.
Focus Advisors has identified more than 80 MSOs with 5 or more stores in our proprietary database, giving us plenty of potential targets for our platform depending on the PE investor’s appetite. There are relatively few platforms with revenues of $30 million, but there are many platforms with revenues of $15 million or more. What is truly missing is a management team that can grow the unit rapidly and attract the skilled technicians needed to staff the platform.
conclusion
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More private equity firms will make initial investments.
Focus Advisors expects the industry to see a number of new private equity firms enter the market over the next five years. Some people invest to build and flip. Some buy and build for the long term.
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Independent MSOs will find attractive partners.
Independent MSOs with strong management teams will continue to find willing capital partners at attractive prices. Targets with a stable and growing tech base will attract more attention and capture higher value.
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There will be more opportunities for exits with larger sponsors.
Well-developed private equity sponsored platforms will continue to attract large-scale investors, either through consolidators growing through mergers or through very large private equity firms seeking to acquire early private equity investors. will continue to find suitable acquirers.
About Focus Advisor:
Focus Advisors Automotive M&A is a leading M&A advisory firm in the collision industry that partners with MSOs with annual revenues of $10 million to $100 million to help owners achieve maximum value through strategic growth and exits. . Unlike traditional business brokers and large investment banks, Focus Advisors specializes exclusively in collision repair, providing owners with unparalleled insight into value, interest and timing of opportunity. With more than 25 years of industry experience, Managing Director David Roberts has over 40 transactions totaling over $500 million in transaction value and 325 projects including Pride Auto Body, Quant’s Auto Body, Mills Body Shop, and Master Collision Group. He has led a collision repair shop that exceeds. .
Investment banking services and securities are provided through Independent Investment Bankers Corp., a broker-dealer that is member FINRA/SIPC. Focus Advisors is not affiliated with Independent Investment Bankers Corp.
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