IBIS speaker interview – Bradley Mewes

Taking to the stage at this year’s IBIS Global Summit in Munich, Germany is collision repair industry financial expert Bradley Mewes, principal and founder of Supplement Advisory. Here we catch pre-the event to talk global trends, money and ask just how far will consolidation go.

For those who might not yet know of Bradley Mewes and Supplement Advisory, please could you provide a brief overview of your activities.

I am the principal and founder of Supplement Advisory – which provides strategic and financial advisory services to companies across the world. Our business is set up in two key areas: the bespoke strategic consultancy side where we really focus on growth advisories – companies that wish to grow and expand and build a larger business; and the other side of the equation which is what we call the transaction advisory which is where we help companies sell or acquire, working through the transactional nature of the business. We tie it all together based on what the business owner or the client needs. Lastly, and this is the first time we’ve announced this publicly, is our Growth Capital division. We’ve been working hard on this and are excited to announce a curated and proprietary network of lenders eager to provide growth capital to business owners looking to build and expand their business.

You are presenting at the IBIS Global Summit 2018 having last take to the stage at the event in 2016. Much has changed during those two years – what has this meant for the sector?

It’s been a busy time, especially on North America where we have seen the ‘big four’ continue to grow and expand. We have also seen their growth strategy evolve – a few years back it was all about acquisition – buy, buy, buy – but now it’s far more strategic growth.

I think from a broader, global perspective we are really seeing the automotive aftermarket in general become a very hot place to invest and there have been a couple of major international transactions recently announced. I think going forward we are going to see more of a ‘global nature’ to what was really a very provincial industry. You only have to look at the activity of long term IBIS partner – Fix Auto – to see how their footprint has spread. There really now is a theme and trend towards globalisation.

How will this globalisation impact the industry as a whole and what areas are likely to be implicated?

I think when you look at the franchise models it makes a lot of sense; then consider the likes of Copart and LKQ, for example, who are large, multi-national suppliers with multi-national supply chains; then look at the vehicle parc, for example, in China and its rate of growth; and then there’s the OEMs investment into Asia… it’s simply a very interconnected, global marketplace that we are operating in.

One of the challenges, in my perspective, that we face in the US with regards to globalisation is that most US insurance providers are solely US based. Get outside the US and many of the insurance providers are of multi-national in nature. I think that plays a major role and my prediction, if you will, is that we are going to see the countries and companies leading the multi-national charge will be the ones that have a presence outside of the US rather than inside it.

The paint market has been rife with merger and acquisition activity in recent years – is this likely to continue?

For some time the paint manufacturers have all been stating there is more room for consolidation in the industry. They would like to see initial consolidation which would offer a reduction of capacity and enhanced pricing control. I recently presented at an investor luncheon organised by Instinet / Nomura, a large Japanese investment bank on exactly this subject and, very simply put, the results of that meeting were that additional consolidation needed to take place but what was uncertain was the exact path it would take.

If you look at what is going on with AkzoNobel, for example, they are effectively breaking up and spinning of parts of the company in an attempt to open up value. And there are still a number of acquisition opportunities for the large manufacturers, for example there is still talk of Axalta being a potential takeover target so I think there are lot of interesting things going on in that space.

If we dial back a notch and look at the distribution market, in North America at least, there has been a lot of private investment that has flooded into this sector and as a result, if you look at companies such as Uni-Select, parent company of FinishMaster, there has been very aggressive growth and expansion overseas.

So you see, when public companies do well, for example Uni-Select, Boyd and LKQ, it tends to attract additional investment to the space and I think that’s what we are seeing in the paint industry, within parts distribution and what will continue in collision repair.

What other factors are impacting on the sector globally?

I think the big thought in everyone’s mind right now is the role of advanced driver assistance systems (ADAS) and is this an industry which is eventually going to disappear.

I was in Las Vegas for SEMA earlier this year and got chatting to an industry colleague of mine who said, ‘Are you still working with collision repairers?’ and he then laughed then said, ‘you guys are all going to be gone in five years – what are you doing?’ I think there is this mentality that ADAS and autonomous driving is going to eliminate the need for the collision repair industry.

However, I’m certainly not as convinced that is the case. I’m not so cavalier as to say that it’s not going to have an impact – it certainly will – but I am not convinced that in the short to medium term it is going to have a material impact.

What the data shows is that as humans we are addicted to our smartphones,  we are incredibly easily distracted, and frankly, we are bad drivers.

That is going to continue to be a positive headwind for this industry.

What is likely to have the biggest impact on the industry over the next three to five years?

The biggest issue frankly is labour and I think the companies that come up with the solution to address the labour shortage will be the ones who have a competitive advantage going forward.

There is a lot of capital out there, no doubt about that, so whilst access to capital is critically important it is available whereas there is not the same with labour and that’s a big challenge. The companies that can identify the solutions, I think, will have a big advantage and that goes back to the scale that we talked about at IBIS in 2016 the companies that are going to win in our industry are the ones who have the ability to reinvest.

You see the problems are always going to change. There will always be a challenge and that will change over time but the companies that are able to systematically reinvest in their business are the ones who are who are going to create that win. So whether that’s reinvesting in training, labour, equipment, growth or whatever it is… the key theme is reinvestment. In my opinion that is what is separating the winners from the losers right now.

Interesting how we are surrounded by all this evolution in access to finance and technology yet ultimately it all boils down to the human asset…

Absolutely, and shameless plug here but that’s really what we are here to do to work with companies and identify areas where they should or could reinvest right now. Because the challenge will always be there – I’ve never meet a businessman who has said ‘I have no challenges’. There is always something there which is always a challenge so that’s what we help business owners think through – how do you systematically think through that investment decision.

We are in a market now with some large, well known entities but, at the same time, there are some very big brand names making inroads into the sector eg Amazon selling and delivering cars now. Will we see those names become further embedded within the market any time soon?

Interestingly I had a conversation recently with an owner of a specialist, European parts distribution business and we were talking about this very subject – is Amazon a threat?

There are two thoughts on this. One is that Amazon is a threat to every business – the idea of online retailing is very disruptive to brick and mortar type establishments but the flip side of that, and this business owner’s point was, is our industry big enough to warrant Amazon’s attention? In his opinion, his industry was not big enough. Which I think is a legitimate viewpoint because the larger the company, the larger the investment fund and the larger the investment checks they have to write. So collision is a niche market, we are still a relatively small area, and I think that will create a bit of a barrier around the sector.

That said, US investor Carl Icahn is heavily investing in the automotive aftermarket with assets in service, maintenance, repair and parts and obviously Warren Buffet has invested through his investments in Berkshire Hathaway Automotive which owns one of the largest repairer network in North America… so the ‘big names’ are here but this part of their business portfolio is relatively small.

But that’s not to say that either of those will not acquire a collision repair business tomorrow, they may – unfortunately, I don’t get invited to their board meetings so I’m not sure – but there are plenty of other very smart and very aggressive and talented owners and investors out there who may disrupt the industry.

What can we expect from Bradley Mewes in IBIS this year?

I am very excited to be back, presenting at IBIS this year – it’s a great line-up and a fantastic opportunity to get infront of a global audience. We’re going to be talking about the evolution of the industry and how it has developed in the past couple of years and where it might go. I’m actually going to take a couple of slides from my 2016 presentation and highlight where I was right and where I was wrong.

The title is ‘Is Consolidation Dead’ and that really is the key thing, it’s more than just buying to build now and there has to be some logic and strategy behind it, so the idea is look at how that growth has changed over the past few years. Also, take something like ADAS, just two years ago not many people were talking about it and now it’s one of the hottest topics across the globe. A lot has changed so it’s going to be compare, contrast and future forecast.

Quick fire Q&A:

What one question do you most often get asked?

I would say it’s probably ‘what’s going to happen next?’ Will the big consolidators keep buying, will they stop, will one of the big guys merge, will they not – so it really is ‘crystal ball’ type stuff. In response I tell them two things: ‘my crystal ball is a bit foggy today’ and secondly ‘this advice is worth what you paid for it’. All joking aside, this is what we try and help people with and seek to find the answers using data.

How can any business add ‘instant’ value?

This might sound a bit wishy-washy but simply embrace the growth mentality. I think when you embrace that mentality with the idea that the business will be here in the next five to 15 years then that changes the perspective of the business owners and management team. We all get caught up in the day-to-day mindset but the moment we think about lengthening that time horizon, suddenly investments make a lot more sense. If you just worry about the next month, six weeks, quarter or year then that can be a slippery slope.

We see it often when I’m teaching my financial statement analysis course when we are talking about public equity or quarterly reports and we see it from management teams who get caught up in just making sure they hit the next quarter’s numbers and cut back on investments, capital expenditure, and research and development. Ultimately, that can create some difficult situations for any management team. So quite simply – embrace a growth mentality.

What one piece of advice would you give any business?

I think especially within privately held businesses build a board of advisors around you. Whether it’s a formal board or an informal board, having advisors around you is so powerful. It’s something that we do a lot of in our advisory practice – putting boards together of other business owners. Some call them mastermind groups or performance groups, but having a board whether for sounding ideas or a formal structured board that provides an alternative perspective, oversight, guidance, holds you accountable – key for business owners and entrepreneurs – is key. Having that group/network can be very, very powerful.

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