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Publisher’s Corner: New spotlight on aftermarket opportunities for investors, private equity

Schwartz Advisors and Piper Sandler just co-hosted their first investor conference, the Automotive Service Symposium in New York City, focused on the DIFM aftermarket. While closed to the media, I caught up with Schwartz Advisors CEO and managing partner Rick Schwartz to chat about the event, M&A in the aftermarket and more.

Why launch an investor conference?

“We wanted to put together a different program that just addressed repair and service topics, because it’s so relevant in today’s world, from the different segments in the service industry to aftermarket companies and investors.”

How did you structure the Symposium?

“We wanted to make it a mix of panel and one-on-one discussions, and hit a lot of different topics so it wasn’t repetitive. We tried to do something a little different between presentations, and had three industry disruptors from companies who have unique business models that could change how things are done in the aftermarket and address the audience.

Who were the disruptors?

“One of those companies was Predii, which is doing some fascinating work with artificial intelligence. I remember growing up when my dad owned a WD, and figuring out how to know what to stock. Well, Predii has some phenomenal interpretation of what’s going on in terms of repair incidents. Big Data is increasingly coming into play in the aftermarket, whether it’s predictive work for repair orders, diagnosing vehicles or doing a better job at stocking inventory and management.”

“Another disruptor, RoboTire, could change how tire service operates. And Repairify, which simplifies automotive maintenance and repair, also presented. Using technology to diagnose vehicles is fascinating. Those are the kinds of things we wanted to present to the investors, if it was something that they wanted to get behind.”

Are electric vehicles going to be a disruptor?

“Electric vehicles are coming, but we think it’s going to be a slower ramp for a lot of reasons, though it’s time for any individual business to start thinking about them today in order to be ready — even if they’re 5, 10, 15 years down the road. And that’s whether you’re a supplier, WD or you run a shop. What do you need to be thinking about? The investment community has been very successful in the aftermarket and continues to look for opportunities. The private equity world looks for businesses they can help grow.”

The collision repair market is often in industry news for the amount of M&A and consolidation it’s experiencing, but why doesn’t the aftermarket see more it in the mechanical segment?

“It’s happening, it just hasn’t been big deals like Caliber or Service King. You’re going to see some people over the next couple of years who are going to have the same type of scale as some of the collision guys. It’s just that the undercar and mechanical side is behind, but we’re seeing it with tires, such as Mavis Tires & Brakes, which has gone through a tremendous amount of M&A. It’s extremely well run.

“And Les Schwab, another example, was bought by a private equity firm. Wherever there’s fragmentation — whether its tires or mechanical — that represents an opportunity for M&A and for well-run private equity firms to help build strong platforms. It creates jobs and business. At Schwartz Advisors, we think there’s going to be a lot more M&A in the coming years. There are a couple really good regional guys who are backed by private equity firms who are doing some really good work.

“With collision, they are able to standardize operating systems from one location to the next and have good working relationships with the insurance companies. Also, collision repair is a repair that has to get done because there’s been an accident, but sometimes with mechanical repair there isn’t always the consumer need to get a big job done. That’s one of the challenges. A collision repair order can be in the thousands of dollars, which is something that private equity firms have gotten behind. While a brake job isn’t always cheap, it just doesn’t have the same scale or return as collision. But when private equity sees some of these mechanical guys who are able to take 20 locations and scale it up to 100, that’s when they get excited.”

What does the road ahead look like?

“Generally speaking, there was a sense among all the different speakers that the aftermarket is always evolving. And when you look at the vehicles on the road, and the technology that’s changing things, the aftermarket is going to be ready for whatever will come. All the speakers are very bullish on the aftermarket.”

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