Inside the race to consolidate the auto-collision repair business

The biggest names in finance are battling to roll up thousands of car-repair shops. Quebec’s Fix Auto thinks it has a winning strategy

Pile of wrecked cars

(Photoillustration by Niki de Goey and Gerrit de Jonge; iStock)

Every year, several hundred members of the collision repair industry, a niche subsector of the North American auto market, descend on Detroit for an event called the International Autobody Congress and Exposition. For three days, owners and operators of the 33,000 autobody shops that populate the continent take in lectures and symposiums—about how aluminum is replacing steel in vehicle bodies, for example—and gawk at computer-controlled cloud-based painting tools and sophisticated Italian-made clean rooms for welding. At the most recent expo, held in August, there were bona fide industry legends on convention floor, such as Jon Kosmoski, the ponytailed, self-described “solvent head” who helped kick off the custom car craze back in the 1960s.

As fascinating as these topics are (for those in the business, anyway), the subject on everyone’s minds is the remarkable wave of consolidation sweeping through the industry. Autobody repair shops are primarily mom-and-pop operations, although some proprietors may run small regional chains. Those baby boomer owners are getting older, however, and starting to look at cashing out. “It’s all anyone can talk about,” says one of the attendees. “How much can I sell out for?”

That’s where Steve Leal comes in. Amid the gearheads and paint techs on the convention floor in Detroit, the nattily dressed Leal stands out in a tailored suit, shoes buffed to an impeccable shine. He has the aura of big finance. At just 38 years old, he’s the CEO of a Quebec-based chain called Fix Auto. His is goal is to become the leading consolidator of collision repair businesses and create a global brand in the process.

It helps that he has a bit of a head start. Fix Auto has already stitched together a chain of autobody shops that, in addition to the 229 locations in Canada, stretches across the United States, the United Kingdom, France and Turkey. (Leal travelled across Australia last winter, scouting potential acquisition opportunities.) Recently, the company allied with the private equity arm of Caisse de dépôt et placement du Québec, which will help finance the roll-up strategy.

The challenge is that Leal is not alone. Over the past couple of years, some of the biggest financiers on Bay Street and Wall Street— including the Ontario Municipal Employees Retirement System and Carl Icahn—have jumped into the race to create a truly national (even international) collision repair brand. Some in the industry even expect Warren Buffett to get involved. His Berkshire Hathaway bought up the Van Tuyl Group in 2014, the largest privately owned auto dealer in the U.S., and it wouldn’t be too difficult for that chain to branch into the collision space.

Just as the Home Hardware and Ace Hardware brands rolled up all the independent stores in the ’80s and ’90s, the big money is betting it can do the same thing with collision repair. Tying autonomous shops into a corporate structure is a great way to make a big return on investment. Interest rates are low, which makes financing cheap. And a recognizable consumer brand put a glossy sheen on an industry that hasn’t entirely shed its slightly dodgy reputation.

“There is a huge opportunity right now,” says Leal. He’s refreshingly immodest in his prediction that the Fix Auto chain will win the race and expand well beyond the 430 stores it operates globally today. Leal will do that through a cheeky (and borderline profane) advertising campaign, a franchise strategy and, well, just by being hungrier than anyone else. “I want us to be the next big Canadian franchise chain after Tim Hortons,” he says. “I know that sounds aggressive, but I am an aggressive guy.”

Despite the big-finance gleam to Lean, he has a deep affinity for cars. While working on an economics degree at Western University, he had the chance to take over an existing Fix Auto operation in Ontario. (The chain itself was founded in 1992 by an entrepreneur in Quebec named Jean Delisle.) Operating the shop not only helped Leal pay for school but also made him realize he loved running a business. He bought another shop after graduating, and eventually acquired the company’s Ontario operations. In 2012, Leal took over as president of Fix Auto Canada. He’s currently chairman of the board, too.

The collision repair industry itself blossomed alongside North America’s suburban car-centric culture. As the number of automobiles on the road grew, tens of thousands of family-run shops popped up to fix twisted fenders and busted tail lights. But as vehicles have become more complex, so too have repair jobs. It’s no longer about banging metal back into shape. Owners have to keep abreast of new tools and technological developments, manage dozens of employees and deal with insurance companies. The added complexity is part of the reason the industry is well-suited to corporate ownership, and why some small-time founders are looking to cash out.

The mechanics of Leal’s strategy are fairly straightforward: Buy up independent shops, refresh them with glossy makeovers, slap on Fix’s contemporary logo and integrate the back-end systems. The baby boomer founders can retire in luxury while Fix Auto exploits economies of scale.

So compelling is the story that last summer, after months of negotiation, Fix Auto scored an $8.5 million investment from the Caisse. The amount may be a miniscule component of the pension fund’s $248-billion assets under management, but the investor is taking an active role in Fix Auto. Stéphane Léveillé, a senior director of private equity at the pension fund, joined Fix Auto’s board of directors in November. “That the Caisse has invested in us is a great vote of confidence in our model,” Leal says. “It says that they see real potential in us.”

But it’s not just Leal who spies an opportunity here. OMERS Private Equity is backing an operation out of Dallas called Caliber Collision, which it purchased in 2013. In an interview last year with Collision Repair magazine (yes, there’s a magazine), Tim Patterson, a director at OMERS Private Equity, outlined the rapid acquisition activity Caliber is pursuing. “We added 77 new sites in 2014 and 58 new sites in the first five and half months of [2015] alone,” he said. “And we expect to continue growing at this pace for the next few years at a minimum.” The chain has ballooned to 300 stores and produced a 23% return on investment for OMERS, according to Patterson. Meanwhile, Winnipeg-based Boyd Group, which operates two autobody and glass repair banners, surpassed $1-billion in annual revenue last year, and ballooned to 342 shops in North America.

The race is getting heated—that’s clear. But there is still a long way to go. The pace of acquisition over the past two years has been “aggressive and fast,” according to Vincent Romans, founder of the Romans Group, a collision repair industry consulting firm based in Chicago. The Canadian market is actually pretty much rolled up; banner chains such as Fix Auto control about 60% of the playing field. The U.S., however, still represents a huge opportunity. “If you ask me where we are in this race, to use a baseball analogy, I would say we’re in the fourth inning,” Romans says. In 2014, collision repair chains acquired 261 shops worth $964 million in revenue, while the action slowed down a bit last year. Valuations are up, for one thing, and some acquirers have paused to digest recent buys.

Romans estimates only 6% of the U.S. market has been consolidated by banner chains. There are literally thousands of independent shops waiting to be scooped up. The question is not only whether Leal can get to them first but also how he’ll attract consumers to the Fix Auto name.

It’s a good thing for drivers—but bad news for collision repair shops—that people only ever need to visit an autobody operation every seven years or so. When drivers get into accidents and call their insurance companies, the representatives ask if they have a preferred repair shop. It’s unlikely anyone will have a name in mind, which presents a big challenge for Leal in getting the Fix Auto brand name out to consumers.

But the chain took a major step forward with a cheeky advertising campaign that began in 2014. Fix Auto hired Cundari Montréal, which put together a series of television ads built on “redefining the F-word.” Each spot follows the same format. A driver gets into a minor fender-bender and, with a look of exasperation, starts to curse: “Fff—!” The scene cuts to a Fix Auto representative, who somewhat nervously completes the sentence: “Fffix Auto!” Print ads and billboards feature irate drivers, a Fix Auto logo plastered over their mouths. The series has won three marketing awards. It also boosted year-over-year sales by 7% during the first five months of 2015, according to Strategy magazine, while national brand awareness jumped to 8.3% from 3.5%.

“We’ve become the number one consumer brand in collision repair nationally,” says Carl Brabander, the company’s vice-president of marketing. “This is important because we want the consumer to choose Fix when their insurer asks if they have a preferred shop.” The company has sponsored NASCAR driver Jeff Gordon too—his race car features a prominent Fix Auto logo—and it has even purchased digital billboards in the popular video game series Need for Speed. Fix Auto has to make its name known with not just consumers but insurance companies as well, who end up footing most of the repair bills. Leal is taking steps to make it easy for insurers to deal with Fix Auto. Consolidating operations at head office means insurers have to deal only with one client, rather than thousands of independent shops. The company added Jorge Arruda, a 30-year insurance industry veteran, to its board last year, no doubt for his experience. Some insurers, for example, have created standards for the repair industry, and shops that meet the criteria are put on a preferred service provider list. “We want to work closely with major insurers to align our operations,” Leal says.

At the shops themselves, Fix Auto wants to keep experienced owners in place when possible. “I think we have something no one else has,” Leal says. “It’s the way we structure our business.” Unlike its major competitors, Fix runs on a franchise model. This is essential because there is a big service component in the repair industry. Having an owner on site is key in a business where customers prefer to deal with someone face to face. It’s also the best way to ensure customer needs are met and complaints are dealt with properly. (When bills run into the thousands of dollars, objections are not uncommon.) “The places that are just corporately run stores, managed from far away—they will be at a disadvantage,” boasts Leal.

The Fix Auto business model is part of the reason Dave Miller joined the chain. His story is a typical one in the industry. Based in Abbotsford, B.C., Miller learned the repair trade from his grandfather and started fixing cars at age 16. He set up his first collision repair shop (complete with a paint booth) in an old chicken barn and did work for friends and family. Today, decades on, he’s the owner of eight Fix Auto shops in British Columbia and two in Alberta. His stores now do “$21 or $22 million in business each year,” he says casually.

The Fix brand has helped with that. “Most people in this industry don’t understand what a brand is,” Miller says. “It doesn’t take much to figure out that people want consistency and something familiar.” He calls the banner his company used to operate under (H&R Collision) a “miniscule operation that no one knows.” Miller is particularly enthused about Fix Auto’s courtesy vehicles, which shuttle customers to and from the shops while their own rides are repaired. “That’s 100 branded cars out there preaching the name,” he says. “Now you’re someone.”