“The era of the single store generalist body shop is coming to an end. How does that sentence make you feel? Angry? Scared? Defensive? Spoiler alert -- I think it should excite you.”
Cole Strandberg, host of The Collision Vision podcast, driven by Autobody News, recently opened a new series, “End of the Single Store Generalist Shop Era,” by presenting an overview on why he thinks this is the case -- and what single shop operators can do about it, “to not only survive in the future of collision repair, but to thrive,” he said.
In the coming weeks, the podcast will feature guests whose shops have specialized, scaled or sold in response to this very issue.
Strandberg grew up in the collision repair industry. In the late 1980s, his parents started a company supplying equipment to repairers. After college and a foray into investment banking, Strandberg joined the family business, and remained with it after it was acquired by a private equity group.
About three years ago, he joined FOCUS Investment Banking, where he works on mergers and acquisitions and raising capital within the collision repair industry.
“It's an industry I love,” Strandberg said. “I've grown up around it, but it's really been over the past maybe five or six years that I've realized my passion for the industry.”
At the 2023 SEMA Show, Strandberg participated in a panel discussion on consolidation with several other industry members. During a Q&A session with the audience at the end, Mike Anderson of Collision Advice asked why the panel had only talked about how single shop operators can sell to a consolidator, but didn’t touch on how to grow instead by using some of their same tactics.
“I realized he was 100% right,” Strandberg said. “We have some incredible high growth, massive organizations in our industry, but we also have some smaller, fast-growing ones as well. I think to educate on some of the tactics that the big national consolidators use is smart and timely.”
Why is the Single Shop Era Ending?
There are several reasons Strandberg thinks single store collision repair shops that fix all vehicles are going by the wayside -- insurance challenges, increasing vehicle complexity and OEM certification training requirements chief among them.
“This era coming to an end is not a bad thing,” Strandberg said. “I think it represents some incredibly unique opportunities…It might be a real short-term hindrance, but the opportunities and the doors that these challenges open are going to make for a very exciting future.”
After hosting The Collision Vision podcast for two years, Strandberg said his conversations with industry leaders have led him to believe there are three viable paths forward for single shop generalists -- specializing, scaling or selling.
Specializing
“We've heard it time and time again from operators that the time in this industry has come where we are not going to be all things to all people,” Strandberg said.
Shop operators can consider their options -- concentrating on exotic or luxury cars; domestic, European or Asian makes; EVs; specific brands; or trucks.
“What do you guys get the most of? What is your team really good at fixing?” Strandberg said. “If you double down on specializing in what you know and what you do well and what is commonplace in your market, you're going to increase efficiency.”
Specializing helps a shop build a reputation for excellence in its niche, and bring more services in-house, many of which are highly profitable.
It also leads to “massive efficiencies” in a shop, particularly in parts procurement, marketing and repair procedures.
It all contributes to perhaps the second-biggest benefit of specialization behind ensuring safe and proper repairs -- increased profitability.
Strandberg said on average, the shops he sees in his work with FOCUS that have specialized are 50% to 100% more profitable than their generalist counterparts.
One downside to specialization is that it can limit a shop’s potential buyers if the owner decides to eventually sell, but Strandberg said that's changing.
“Now we're seeing groups who focus on specialized body shops popping up and growing left and right,” he said. “You are not limiting yourself by specializing by increasing profitability.”
The collision repair industry has always been David vs. Goliath, Strandberg said, but specializing helps the Davids beat the Goliaths by allowing them to fight the battle in their own way.
Strandberg said the upcoming episode on specialization will take a closer look at how to choose one for your shop by looking at local market needs and your shop’s skillsets.
Scaling
The concept of scaling is misunderstood by a lot of smaller operators in the collision repair industry, Strandberg said, rooted in the simple math equation of 1+1=2.
“The magic comes in something called multiple arbitrage, where one plus one equals three or more,” he said.
As an example, he offered a hypothetical single shop doing $3 million in sales at a 10% EBITDA (earnings before interest, taxes, depreciation and amortization) margin. A national consolidator offers to purchase the shop for $1.5 million -- 50% of revenue, or five times EBITDA margin.
For the example, Strandberg used The Boyd Group, which owns Gerber Collision & Glass, as it’s a publicly traded company. In the most recent results from 2023, Gerber’s sales were $2.9 billion, and its adjusted EBITDA was $368.2 million for a 12.5% EBITDA margin.
“So just right there, above the average for a generalist, from profitability, you can see how they've been able to get some efficiencies via scale,” Strandberg said.
Based on the same 2023 numbers, The Boyd Group is worth $5.6 billion.
“It's a big company,” Strandberg said. “That valuation, depending on how you look at it, boils down to 193% of sales, or about 15 times EBITDA.
If The Boyd Group were to purchase that hypothetical shop, “in theory, as soon as that acquisition becomes a part of Gerber, they have gone from a 50% of revenue valuation to a 193% of revenue valuation, about four times, or from a five times EBITDA multiple to a 15 times EBITDA multiple, about three times,” Strandberg said.
“So as soon as this acquisition got implemented, not only is it adding that revenue in that EBITDA, the value of that acquisition has tripled to quadrupled,” he said.
That example is a “quick and dirty” explanation of multiple arbitrage.
“[Consolidators] realize that one plus one equals three, four, five, six, 10, whatever it is, but it doesn't equal two. That's the value of scale,” Strandberg said.
Multiple arbitrage is just as impactful on a small business that scales.
Strandberg said scaling offers other benefits that make scaled companies worth more than smaller ones.
“A positive side effect is you work yourself out of a job with scale,” he said. “It necessitates working more on the business rather than in the business, strategically plugging in layers of management, allowing you kind of, weirdly enough, a little more freedom with your time as you grow.”
Scaling also offers the ability to hire top talent, Strandberg said, as there is a “sweet spot” in the hiring bell curve for shops in between single store generalists and national consolidators.
First, semi-scaled businesses can pay market rate to get good people. “They're going to be able to be competitive with the bigger players in their salary and in their benefits,” Strandberg said.
Second, they can build a work culture that attracts technicians who don’t want to be perceived as “just a number,” or that they’re under pressure to simply hit production goals, whether or not the repair is done correctly.
Other benefits of scaling include increased acquisition interest when the time does come to exit, or opening up the business to private equity opportunities once it hits a certain size.
There are five options to fund scaling a collision repair business -- writing a check, which is rare outside of national consolidators; taking on investors or partnering with private equity firms; taking out a traditional bank loan; seller financing; and using programs through the federal Small Business Administration (SBA).
Strandberg talked more about private equity and the SBA.
“I can tell you there is tremendous interest in the collision repair industry for private equity buyers in 2024 alone,” Strandberg said. “I spoke with north of 100 private equity groups who are saying, ‘How do we get into collision repair? Are there any platforms available out there?’”
Those potential buyers are looking for, in general, a minimum of $2 million of EBITDA margin, which typically translates to more than $10 million in revenue.
“More private equity firms are going to have more interest the bigger you get,” Strandberg added, as platforms that large are low in supply, compared to the demand.
Striking a deal with a private equity investor also frequently offers a “second bite of the apple,” Strandberg said, which is appealing to younger, more aggressive business owners. By putting cash received in the deal back into the company, they “grow using someone else's money.”
That concept has shifted the conversation about private equity in the past three to four years from “’I'm selling to private equity’ to ‘I'm partnering with private equity,’ where we're going to do this together,” Strandberg said.
Regarding the SBA, Strandberg said its programs are underused by the collision repair industry, partly due to a lack of awareness of their existence.
The primary business-buying program is the 7(a) loan program.
“It essentially gives you, an American citizen, up to a $5 million credit limit to go out and buy a company,” Strandberg said. “This is an amazing tool. It's got strings attached. It does require a personal guarantee, so if you're going in, you're putting your skin on the line.”
The loan is government-backed, which means lower than typical financing rates and minimal down payment requirements.
“This is designed to promote small business ownership and growth,” Strandberg said of the program. “I think more body shop owners should pursue the SBA route as they look at going maybe from one to two, or two to three [shops], or anywhere in that range.”
Strandberg called it an “amazing tool short of partnering with a private equity group or giving up equity.”
Selling
The final strategy for single store collision repair shops is selling. Strandberg recommended it for owners who are ready to retire or try something new.
“The good news is there are more buyers out there than ever,” he said.
Potential buyers include national consolidators, many of which have big growth targets and matching budgets for acquisitions; regional consolidators, which often have private equity backers; and private equity groups themselves.
In 2025, Strandberg predicted, valuations on collision repair businesses will remain steady at smaller levels and continue a trend of slightly ticking up at larger levels.
“It's going to be some real fights for some premium assets in the space,” he said.
Strandberg wrapped up his overview by reminding listeners to tune in to the next three episodes for deeper dives on specializing, scaling and selling as a single shop generalist.
“The only thing you can't do, in my opinion, is nothing,” he said.
“For as negative as maybe this conversation started, I'll end on a real positive. And it's something that I believe, and I hope you believe as well,” Strandberg said. “There has never been a better time to be a business owner in the collision repair space.”
Abby Andrews