Consolidation slowdown predicted

Consultants The Romans Group has published a white paper which predicts a slowing down of consolidation within the North American collision repair market.

Its 11th annual Advancing Our Insights into the 2016 Collision Repair Marketplace report says, ‘Consolidation within the collision repair industry is slowing and we now have at least one ‘category killer’ among the four largest multiple‐location consolidators.

‘Multi-location operators (MLO) have altered their market development and growth strategies from primarily acquiring large multiple‐location operators, MLOs, as a quick way to enter new markets and shore up and expand existing first‐tier markets.

‘Their network development strategy now includes a combination of continued aggressive organic growth and selectively building out and expanding existing markets to include ‘cluster and tuck ins’ which are based more on single‐location acquisitions, brownfields, and Greenfields.’

The report continues, ‘Industry contraction has stabilized. As a result, we see a temporary market equilibrium resulting in a slowdown in the rate of loss of collision repair facilities nationally.

‘The current encouraging health of the collision repair market is due in part to an increase in accident frequency and the upward trend in vehicle repair severity. Nevertheless, we remain certain of the path forward involving the continued long‐term, multi‐segmented market’s structural transformation throughout the entire auto physical damage ecosystem for all companies providing products, services, software, and technology that in any way touches cars in the US and Canada.’

The report added that the four segments it tracks – four independent consolidators, ≥$20 million multiple‐location operators, MLOs, franchise and banner groups, and $10‐$19 million MLOs – have grown from $3.8bn to $11.7bn in market share.

It said, ‘Although the US has seen an increase in consolidation within the multiple location operator segments, Canada remains significantly more consolidated in the revenue generated by the combined franchise and banner and ≥$10 million MLOs. In Canada, this combined segment group represents a market share more than double that of the same US segments.

‘Within the US market, the ≥$20 million independent and dealer MLO segment is the largest while the franchise and banner network MLOs remain the dominate business model in Canada. When ranking all repairers for the US and Canada, and consolidating those that operate in both countries, four operate in both the U.S and Canada while five are in the U.S. only and one is solely in Canada.

‘These top 10 US and Canada combined repair organizations have experienced a $3.3bn revenue increase since 2012, generated through 1,049 more locations than in 2012.

‘Since 2010, Canada has lost just over 50% of its collision repair locations, dwindling from 10,000 to 4,750. Compared to the US, Canadian average annual repair revenue in 2016 was $485,474 per location, 55.9% lower than the US average of $1,101,852. As a sign of ongoing consolidation, the average revenue per repair facility for both Canada and the US has been steadily increasing over the last few years.’

However, it added that the pace of collision industry consolidation and contraction has shown signs of slowing down over the past 18 months.

‘We believe that the market segments profiled within our report will continue to gain share within the collision repair industry and expand their revenue base. This will be accomplished with growth coming from acquisitions, brownfields and Greenfields and by adopting a diversification strategy that leads them to incorporate both new competitively advantaged collision repair process models, and/or extended differentiated lines of business services.’