What Does The AutoWorks and Catastrophe Solutions Merger Mean For Your PDR Business?
Lessons from the Collision Repair Market Consolidation
The PDR world is somewhat fragmented as compared to similar industries like collision repair. The very nomadic nature of storm chasing is a large part of this fragmentation. But there is a definite trend developing among PDR companies that could directly have an impact on your business, just ask any auto body shop owner who lived through the early days of consolidation.
About ten years ago in the collision repair world, investment companies who were looking for new markets to enter stumbled upon collision repair. The model for an investment company is to find a fragmented industry with high demand, good cash flow, and unlimited opportunity for growth through consolidation. The plan for all these investment firms is to pick a company, buy it low, build it up then dump it to the next tier of investment firm.
What attracted the private equity firms to the collision market was the fact that most shops were regional even if they owned more than one location, insurance companies paid the bills, so cash flow was a non-issue, and with no stand-out market leader, it was prime for consolidation.
Consolidation, if you are unfamiliar with the term, means smaller businesses with a strong brand and coverage in the desired market get approached to sell the business. If a sale is made, the employees stay on board, and locations stay the same, but the name changes. In the early days of consolidation, larger markets are locked up first, and then typically, more purchases happen in areas where the insurance companies feel that there is demand without ideal coverage from independent operators.
Caliber collision was one of the first to begin consolidation in the collision repair business, and now they operate over 1,000 locations across the U.S.
Typically, when you see consolidation happening, that means deals have been made with insurance companies. As with the Caliber merger, insurance companies locked-in contracts with Caliber in exchange for their increasing footprint across the country.
For the PDR world, AutoWorks Paintless Dent Repair and Catastrophe Solutions International announced they had closed on a merger that would offer “unprecedented resources to our insurance, collision repair and fleet partners.”
The merger between Autoworks and Catastrophe solutions creates a new single entity, a PDR, and claims handling company that will be known as “SolutionWorks” in the U.S. and Catastrophe Solutions International in Canada. The CEO’s will remain in charge of both entities.
“Consolidation makes a lot of sense to serve our industry better. We are confident that the merger creates a new company in SolutionWorks that is stronger than its legacy businesses were individually and will provide unparalleled customer service to both its insurance and collision repair partners,” co-CEOs Tim Walsh and Darris McClure said in a statement. “This combined strength in people and resources is now more important than ever in light of the challenges being presented by COVID-19.”
SolutionWorks will offer industry-leading hail catastrophe management, day-to-day claims handling, and paintless dent repair services. Other services will include overspray mitigation, repair scheduling, and call center, and customer contact resources.
What does this mean for smaller PDR companies and hail chasers?
First of all, you will have fierce competition in the heavy hail markets but this time from a large competitor. The size of this new company, combined with its streamlined operations, will allow them to operate at a very competitive price that will be favored by insurance companies.
Second, although illegal, Insurance companies will do their best to steer as much work as possible to this new company.
Co-CEO Darris McClure (formerly head of CSI) said in a statement, “Our new company will have significant market representation in all of the key hail-prone North American markets.”
If you own a PDR location in one of the areas that SolutionWorks operates in, then you are going to see increased competition for the work in your market. Their sales team will come calling on all your wholesale accounts, so now is the time to really lock in commitments from them.
“The merger provides unprecedented resources to our insurance, collision repair, and fleet partners as we offer solutions to assist them in driving revenue and improving the customer experience,” co-CEO Tim Walsh (formerly head of AutoWorks) said in a statement.
This could be good for your exit strategy. If you have built up a solid retail presence with some great accounts and have been considering doing something else, you might be able to sell to SolutionWorks in the next couple of years. Caliber and Abra grew through acquisition. They bought shops from owners who were looking to exit the business, and then Abra bought Caliber and kept the Caliber name. This created the largest single auto body repair shop chain in the U.S. with over 1,000 locations, and they continue to buy shops to increase their footprint.
When consolidation started happening in the collision repair industry, it took a lot of shop owners by surprise. For those shops who relied on their DRP contracts to keep the shop fed with work, some lost those contracts when Caliber came into their market and it really put a strain on those businesses. Some shops lost their valuation and couldn’t sell, and others had to find ways to increase business without the DRP. The message here is to keep your eye on the consolidators in the market. They have changed auto salvage, collision repair, and are now beginning to affect Paintless Dent Repair.
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