Why Private Equity is Investing in the Collision Repair Market

The collision repair industry has transformed significantly, evolving into a $36 billion market experiencing rapid growth fueled by private equity (PE) investments. Once dominated by independent operators, the sector is now increasingly controlled by large, multi-shop operators (MSOs) with strong financial backing. Over the past two decades—and especially in the last four year —private equity firms have accelerated consolidation, reshaping the industry landscape.

Major players like Caliber Collision, Boyd Group, and Crash Champions have emerged, propelled by PE capital and expertise. These large consolidators now hold over 30% of the market, with analysts predicting this could rise to over 50% in the next seven years. As consolidation continues, real estate owners leasing properties to collision centers stand to benefit from the stability and growth driven by these larger, well-capitalized businesses.

Several factors make the collision repair industry attractive to private equity investors:

• Complexity of Modern Vehicles: Today’s vehicles require sophisticated repairs due to advanced technology. This has increased the cost of labor, parts, and calibration, boosting revenue potential for repair shops.
• Strong Partnerships: Shops with direct repair program agreements with insurance companies are particularly appealing because they operate efficiently and complete repairs quickly.
• Inflation Hedge: The rising complexity and cost of repairs act as a hedge against inflation, increasing the industry’s profitability over time.
• Economic Resilience: Car accidents occur regardless of economic conditions, ensuring stable cash flows. This makes the industry attractive to investors seeking reliable returns, even in uncertain times

Private Equity’s Strategic Approach: Beyond Simple Buyouts

Private equity involvement has evolved from smaller buyouts to larger, more strategic investments:

• Initial Phase: Smaller PE firms acquired single operators or small MSOs to build a platform.
• Current Trend: Larger firms like Roark Capital and TPG Capital have entered the space, bringing substantial capital and resources. They focus on aggressive mergers and acquisitions, achieving economies of scale and driving operational efficiency. This shift has led to the creation of industry giants, such as the merger between ABRA and Caliber Collision. These firms not only aim for growth but also for improved EBITDA margins. They acquire smaller MSOs at lower multiples, scale them rapidly, and eventually sell at higher valuations or take them public—exemplified by Roark Capital’s successful IPO of Driven Brands in 2021.

Strategic Advantages of Private Equity Backing

Private equity offers collision repair companies:

• Capital Infusion: Today’s vehicles require sophisticated repairs due to advanced technology. This has increased the cost of labor, parts, and calibration, boosting revenue potential for repair shops.
• Operational Expertise: Shops with direct repair program agreements with insurance companies are particularly appealing because they operate efficiently and complete repairs quickly.
• Strategic Insights: Direction on market trends and consolidation strategies.

Firms like TGP and Summit Partners provide resources to scale businesses rapidly, while firms like Garnett Station help build foundational platforms. These investments allow companies to:

• Expand geographically.
• Improve operational efficiencies.
• Capitalize on rising labor rates and vehicle repair complexity.

What’s the Opportunity?

For Owner/Operators

• Maximizing Exit Value: Selling to an MSO allows for an organization to exit, often maximizing the value of both the business and real estate.
• Appreciation of Real Estate: Owners who acquired or built properties decades ago may see significant appreciation, especially when leasing to large tenants backed by private equity.
• Premium Valuations: Investors pay premiums for properties with consistent cash flows secured by strong lease guarantees from large, PE-backed companies.

For Landlords

• Increased Property Value: Those who acquired these properties 5-10+ years ago likely benefited from rent escalators and the
  surge in consolidation, leading to healthy property value appreciation.
• Market Demand: Investments are now more attractive due to increased brand awareness and investor interest.
• Evaluating Positions: As leases approach expiration, it’s worth assessing your current position to explore other net lease products that may better serve your needs for the next 5-10+ years.

Challenges to Consider: Auto-Related Property Issues

Properties like gas stations and older collision centers may face challenges not prevalent in other retail sectors, potentially leading to difficulties in future sales as they age