What’s Fueling the MSO Fire?
Published in New Jersey Automotive – Thomas Greco Publishing
Running a collision repair shop is a tough gig – between contending with customers’ expectations, insurers’ demands and rising costs of, well, everything, many owners report struggles to turn a profit. Yet, for over a decade, consolidation has been ballooning forth in markets from coast to coast!
How did the MSO boom begin, and are there any indications of implosion?
Repairers first noticed an increase in consolidation in the late 1990s and early 2000s when Caliber, Gerber and Service King entered the market in California and Texas, purchasing independent shops and converting them to their brands. But beginning in 2013, more consolidators have entered the scene yearly, even as the more established MSOs continue expanding their footprints.
In 2024, larger operators acquired over 450 locations, according to Focus Advisors’ “2024 Year in Review: Some Excel on a Bumpy Road.” The “Big Five” (Caliber Collision, Classic Collision, Crash Champions, Gerber Collision and Joe Hudson’s) added 319 shops last year, comprising more than $15.6 billion in annual revenue – approximately 30 percent of the industry’s market share. Add in the eight “Accelerators” identified in the report, whose $1.5 billion in annual revenue accounts for three percent of market share, and these 4,214 locations generated one-third of market share in 2024.
“Consolidation began for many reasons, but it all comes down to money,” Laura Gay (Consolidation Coach) weighs in. “Financial investment entities recognize that collision businesses generate a lot of revenue, and as the industry has changed to focusing on becoming more efficient, they realize that one way to do that is by scaling the business. In a small shop, the owner wears many hats, but in a corporate structure, specific individuals can address the needs of multiple shops. With vehicles becoming more difficult to repair, shops must invest in expensive tools and equipment, and in a MSO environment, some of these can be shared across multiple shops.
“At the same time, customers’ focus has changed from quality to speed and transparency,” she continues. “Insurers have also driven the MSO boom since a corporate structure allows them to have fewer points of contact, instead of communicating with 20 different shop owners, which allows them to control costs more. Add in labor shortages which make it difficult for independent shops to meet all of these demands, and the industry is ripe for consolidation.”
Still, the industry is very demanding, so what makes collision repair shops such an attractive acquisition, despite the many challenges faced by operators?
“Private equity continues to be attracted to the collision repair industry for several reasons,” Focus Advisors indicates, listing those reasons as “the increased complexity of the car parc [all registered vehicles in a geographic region] and a rising TCOR [total cost of risk] and a rising TCOR [total cost of risk], significant economies of scale, specialization opportunities, resilience in times of economic hardship and EBITDA [earnings before interest, taxes, depreciation and amortization] multiple expansion.”
“The collision industry is recession and internet proof,” suggests Michael LeVasseur (Precision Automotive Calibration Experts), who sold Keenan Auto Body to ABRA in 2015. “That was proven during the COVID-19 pandemic. Even when things were horrible and barely anyone was driving, cars still needed to be repaired. And those repairs require people – you cannot repair today’s complex vehicles at home. There’s also guaranteed money through the vehicle owner or the insurer…even if a shop doesn’t necessarily receive the amount requested, payment is coming from a source with reliable money. As far as dealing with short pays and other challenges, the investors don’t care about that. They hire people who deal with the business end; as long as they see money when they look through the peephole, they’re happy with the investment.”
Auto Body Association of Texas (ABAT) President Burl Richards, who sold three of his shops to Classic Collision last year, agrees. “The collision industry has a lot of cash flow, and typically, we get paid for services within 30 days. There’s also a lot of stability. Large MSOs know how to invest and manage their money differently than the typical shop owner who relies on the revenue for their personal income. Private equity firms have a lot of experience in the financial arena, and they know when something is profitable.”
The concept of “economies of scale” also plays a large role in creating a lucrative situation for MSOs. “With an expanded network, these companies can negotiate better deals with suppliers for parts, tools and equipment,” Gay adds. “They can also streamline administrative functions like billing, marketing and customer service, reducing costs and improving efficiency.”
“MSOs have more leverage with vendors and insurers because of their volume,” LeVasseur acknowledges, but he also offers hopeful advice for independent shops. “There’s definitely a way to counter that. Smaller shops can still offer an occasional discount, but there comes a time when too much volume, too many discounts, is not a solution. Some of the larger consolidators are pushing back on the discounts they’ve been giving now because it’s impossible to sustain an environment where you’re fixing lots of cars for bare bones.”
This is exactly the situation that some consolidators have found themselves in. “If a MSO owns 1,000 shops and a particular insurer agrees to direct all their customers to those facilities in exchange for some concession, it’s common business sense to agree,” Gay notes, “But we all know insurers will continue squeezing everything they can, and some of these consolidators have had enough and are starting to push back.”
That’s not the only thing that’s changing in the consolidation world. While the vast majority of consolidators have been focused on DRP-centric acquisitions in the past, “Consolidators are just as diverse as human beings; they also have their own personalities,” Gay points out, explaining that some consolidators, such as VIVE Collision and Quality Collision Group, seek out shops known for high quality repairs and OEM certification.
MSOs tend to make acquisitions in waves, Gay explains. “They’ll converge on a specific market for a year or two until they develop that area. Once they’ve built up their footprint, they’ll move to the next market, then rinse and repeat. That means shop owners need to be aware of where this development is taking place. You can’t take your shop to market anytime – you want to sell it when the buyers are investing in your market to realize the maximum/best terms for the sale of your business. You only sell once; timing is key, and you do not want to leave money on the table.”
“It’s all about timing,” Richards agrees as he shares some thoughts on the process, “There are many layers and steps with definitive ebbs and flows. There are a lot of negotiations from day one when you agree to a price, until the end where you are negotiating until literally the last week or day before it’s official, but all-in-all, it was a very positive experience. I still have other shops, but this sale allowed me to be able to take care of my immediate family, in the event that something happened to me. It also has opened doors for other opportunities for me.”
LeVasseur was very conscientious of timing when he decided to sell as well. “When I first began considering the possibility in 2012, experts indicated the peak time for consolidation in my market would be mid-2015, so I waited to get the most value out of the business.”
Before selling, he advises shops to prepare for the sale by organizing their books and making sure their process is replicable. “You need to have a proven production system and people who know that system. Your finances need to be in order.”
Selling his shops allowed LeVasseur to alleviate a lot of stress in dealing with the day-to-day operations, but there was a downside too. “They take over, and you don’t own it anymore. They start implementing their processes, and even if you don’t agree, you have to deal with it. The night of the sale is great; they deposit a large amount of money in your account, and that feels amazing, but over the next few days, you feel like someone ripped your kids from your arms. You’ve worked hard to build your business for years or even decades, and then BOOM! It’s over; it’s not yours anymore. You know what’s coming, but I wasn’t expecting how it would make me feel.”
That’s one of the main reasons Gay insists that no one should ever feel like they have to sell. “Sell your shop because you want or need to. Don’t do it because you feel like you’re being forced out. If you’re struggling, there are solutions. Shops cannot be successful if you are running them the same way you did 20 or 30 years ago. You need to look at ways to become more effective by attending training, developing your own niche and figuring out what sets you apart from the competition. You should always be looking at how things are done today and how they’re going to change tomorrow. Be willing to put the work in and change, or you’ll have a very negative outcome. Complacency is the worst thing you can do in any business!”
It’s undeniable that consolidators are leading the charge for change, but will that continue to be the case…or is the MSO bubble destined to burst?
“Consolidation is here to stay, but with that being said, I wouldn’t be surprised if some of them don’t make it,” Richards indicates. “Just like an individually-owned business, some are better at operating and managing than others. New players enter the market all of the time, but I still believe there is plenty of room for individual-owned shops as well.”
“The bubbles never burst; they just get smaller, go behind the scenes and then come back,” LeVasseur theorizes. “The industry sees periods of heavier trading at times, but more recently, there’s less of a market for smaller shops trying to get out. Consolidators are becoming more particular about the shops they purchase because those investments require a lot of effort for smaller returns. If anyone in that market is looking to sell to a MSO, I’d suggest joining a franchise, ‘advantage network’ (like CCG or 1Collision) or working with colleagues in a similar situation to put a package together to make the sale more attractive. So, consolidation is changing, but private equity investors continue to enter the space, so I don’t see it stopping anytime soon.”
Gay concurs. “There are still lots of markets that need to be built out. Some of the more mature consolidators have built their footprint as far as buying up shops and are now looking at brown and green fields, which means taking existing buildings and converting them or building new shops altogether. Newer MSOs are full-speed-ahead on buying up shops. So, who is doing what is changing, but they all seem to be a lot more methodical about their purchases now.
“Will consolidation slow down or even stop?” she ponders. “Possibly at some point, but it’s definitely not going to happen in the next three years. I’d have to reassess at that time, but for now, I’m confident the bubble isn’t going to burst anytime soon.”
