Kaizen is a leading full-service collision repair provider with locations in the Southwest. Harris Williams recently advised Kaizen on its growth-equity partnership with LNC Partners. Here, three members of our Transportation & Logistics Group discuss what makes collision repair a compelling subsector of the automotive aftermarket. They also explore why Kaizen is a particularly attractive asset and what other buyers should know about this space.
What is appealing to buyers about the automotive aftermarket?
Conner: Although institutional capital has invested in auto body, car washes, quick lubes, tire outlets, and general repair locations for years, the space remains highly fragmented.
Within the automotive aftermarket, collision repair may be one of the ripest for investment. Increasing adoption of technology is changing the makeup of vehicles on the road, but not changing the need for collision repair services. And with increasing vehicle sophistication, the training requirements for technicians and required equipment, as well as the requirements for repairing these vehicles, increase. This dynamic favors larger operators, who have the capabilities to invest in their business to meet the rising market demands.
Jones: Between 30,000 and 35,000 shops exist in the United States.1 Many of these locations are single, mom-and-pop style stores that struggle to make these types of investments. This scenario means that more and more work will continue to be funneled to larger, more sophisticated operations with brand-specific training and certifications.
Conner: We see a massive opportunity to build out the next phase of regional operators. These companies will not only have economies of scale — they’ll be able to build relationships with OEMs, insurers, dealerships, and more. They can invest in the certifications required to work on both high-end and high-tech vehicles, because they’ll see enough of them each year to justify the upfront expenses.
Yousefian: Those insurance-company opportunities are especially important. Regional collision repair operators can build relationships where insurers constantly fill their funnel with work, since they know the job will be finished on time and at a high quality level.
What makes Kaizen a particularly attractive asset?
Conner: Kaizen has a great story: Jake Tilzer founded the company when he was only 24 and expanded it in a relatively short time. Jake took a single collision repair shop and built a regional operator. From 2014 – 2019, Kaizen had over 150% compound annual growth.
Yousefian: Jake has the vision. He sees the opportunity. From the beginning, Kaizen was creative in which opportunities it pursued. It embraced fleet repair and built a relationship with Tesla well before most of its competitors. It also prioritizes operations; in addition to being equipped to do high-tech repairs, it does the job right and commits to safety.
Conner: By focusing on expanding its locations, serving insurers, and earning OE certifications, Kaizen drove organic growth in shops within its markets, as well as adding new geographies. Now, the partnership with LNC will enable Kaizen to accelerate its M&A program. Kaizen will become a large, regional player much faster than it could have on its own.
What should other prospective buyers know about this subsector?
Conner: Pay attention to the smaller collision repair companies that excel at what they do. You don’t need 50 locations to make these investments very successful. Instead, some of the greatest opportunities lie with local or regional shops that have strong operations and technology, talented leadership, and a growth vision.
Yousefian: Investors can help create the next wave of consolidation platforms and seize those economies of scale. With outside capital, the right operators can quickly grow and become real players within their regions.
Conner: One final detail to consider: These investments can be structured as minority transactions and be highly interesting investment opportunities. Jake Tilzer still owns the majority of Kaizen. But with LNC’s current growth investment, as well as the ability to provide ongoing capital support, Kaizen is poised for an exciting next chapter of growth.
To learn more about the automotive aftermarket sector, please contact our senior bankers.
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Published April 2021