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Analysis of the Caliber Acquisition of ABRA by Brad Mewes

Source: Brad Mewes, Supplement Advisory

The long-awaited deal between Caliber Collision and ABRA Auto Body has finally been announced. The combined company now boasts over 1,000 stores with combined estimated revenues near $3.5 billion.

This should come as little surprise to long term readers of my insights, and I suggested as much here and here, and here. It was only a matter of time.

This is a great deal for Caliber. Geographically, it is very synergistic. The majority of ABRA’s locations were in states in which Caliber previously had no presence. Of the 28 states ABRA operated in, Caliber operated in only 10 of those states. Caliber now has beachheads in 18 additional states and now operates in 37 states (plus the District of Columbia) nationwide.

From a competitive standpoint, Caliber now has significant market presence in each of the primary markets of its main competitors, Service King and The Boyd Group. In each state, with the exception of Michigan and a few less populous states, Caliber now has either the most stores, or a comparable number of stores relative to its competitors.

From a revenue basis, Caliber now accounts for about 10% market share, or about three times the market share of either Service King or Boyd. The increase in market share and true national footprint will likely allow Caliber to drive additional efficiencies through its supply chain.

Integration of an acquisition this large will require dedicated resources and potentially distracting. But Caliber historically has been an effective integrator. Additionally, the level of integration effort will likely be mitigated due to the fact there is relatively little geographic overlap between the organizations. Regardless, re-imaging 400 stores and ensuring continuity of operations at each location is no small feat.

What does it mean:

Regional MSOs: Expect increased competitive pressure as the deal is integrated. If not already, it is highly likely Caliber now competes directly against your business. If you are one of the few without direct competition, plan for that to change soon. Updside: this is a big deal to integrate. Take advantage of the uncertainty to take add locations, take market share, recruit technicians, and attract new customers. Position your business to DRP and referral sources as a way to mitigate customer concentration risk, especially in markets where Caliber has greater than 40% market share. Get your balance sheet in order and arrange financing to take advantage of growth opportunities

Small MSOs and Single Shops: Expect market disruption. There will be disruption to existing DRP referral relationships. Seek out new DRP and referral relationships where Caliber has greater than 40% market share. Tooling and equipment will be both a challenge, and a key differentiator. Understand how to affordably finance that investment to maintain your competitiveness.

Distribution: Expect additional pricing pressure as distribution fights to retain control of existing business. This pricing pressure will likely spill over into adjacent areas of the markets. For national distributors – now is the time to back fill the holes in your distribution network. For regional and smaller distributors – expect increased pricing pressure and increased consolidation in distribution as national players race to keep up with the geographic needs of their larger customers. Identify customers that pose less of an acquisition risk.

Manufacturing: Expect more deals to be done direct, e.g. bypassing manufacturing. Much of the low hanging fruit has been squeezed from the supply chain – expect additional pricing pressure at the manufacturer level. Evaluate the impact this may have on your distribution network.

M&A and Growth Strategy: Caliber has developed a core competency in new location development, leveraging developers and real estate investors to expand. While Caliber will continue to grow through acquisitions, expect more greenfield and brownfield site development and expect others to follow suit.

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