Sector Report

Motor Service & Repair Industry

Paul Whitney

Corporate Finance Director

Overview of the Market

In the UK, the Motor Repair and Service Industry has an estimated market size of £27.3bn in 2018, a 3% increase on the previous year. The industry has benefitted from a strong compound annual growth rate (CAGR) of 3.2% through the five years to 2019. Industry operators provide essential and non-essential repair and maintenance services to private and commercial customers. The number of registered cars in the United Kingdom has increased, driven primarily by an increase in new car sales. Although new cars tend to require fewer repairs, the greater number of cars on the road has stimulated continued demand for industry services over time.

Technological advances have lengthened the life and improved the safety of vehicles over the past five years. Additionally, car parts have become more durable over the past decade, lengthening their replacement cycles. The number of collisions and serious accidents is also declining which has reduced demand for post-collision repair work. Furthermore, although the number of cars in the United Kingdom has risen, car usage levels have been falling for several years due to higher running costs and car sharing schemes. These trends are expected to continue through the coming five years.

Growth is forecast to continue through 2023-24, with an expected CAGR of 2.0%. New cars sales are expected to fall in the short term which is likely to benefit demand for maintenance and repairs and offset slowing demand for discretionary options like bodywork services. Fuel prices are forecast to increase over the next five years, which could provide a further incentive for customers to use public transport, to the detriment of industry operators. In addition, reduced car usage is expected to weigh on industry performance over the next five years. Expansionary demand effects are likely to outweigh contractionary effects, as evidenced by the forecasted growth rate.

Motor Service & Repair Companies

A profitability analysis on the sector from a pool of 655 leading UK-based Garage Services companies revealed the following points:

  • 288 companies in the industry increased in value over the last year, 113 of these increased by more than 25%
  • 218 companies decreased in value, 88 of these decreased by more than 25%
  • The most profitable 248 companies made an average profit margin of 4.5%
  • The least profitable 407 companies made an average profit margin of 0.0%; the industry average was 1.5%

Based on analysis, companies were rated on their ‘likelihood of continued performance or ‘Strength’; a total of 273 companies were given the highest available rating, ‘Strong’. 154 received the lowest rating, ‘Danger’. Despite the large amount of companies in danger, there were 112 companies that were highlighted as ‘highly attractive’ takeover prospects with a further 507 companies that are ‘worth considering’.

M&A Activity in the Sector

Market IQ data indicates a total of 204 significant deals in the industry from January 2011 to October 2018, with UK targets. Deals are only reported over a certain value threshold (c.£500k), therefore, it is likely that not all deals have been captured. Data consists solely of Acquisitions, Management Buy-outs, Management Buy-ins, Secondary Buy-outs and Mergers.

Upon breaking down the deal type, M&A activity within the sector is mainly categorised by acquisitions, with 180 since January 2011. There were also 15 MBOs, 5 MBIs and a single merger. A geographical breakdown of the deal shows that the South East dominates M&A activity with 29 deals, however the North West contributes a sizable chunk, with 26 deals. The remaining deals are spread through the U.K.; slowly declining in number to Northern Ireland, with only one deal.

Deal flow has been significant in each year, with a somewhat volatile trend through 2011-2017 and a significant spike in 2016, this could be attributed to the aggressive strategies of the major players, as they look to expand market share. The subsequent dip in 2017 is likely characteristic of the uncertainty effect of the UK’s exit from the EU. Without the clarity that a deal will bring, UK businesses are highly likely to be risk adverse. With 22 deals through October 2018, forecasting the same rate to the end of the year gives 26 deals, a noticeable difference to 2017 which achieved 33 deals.

Industry Benchmarking Information - October 2018

Hallidays’ client base consists of small to lower mid-market enterprises. Our benchmarking analysis reflects businesses with turnover below £20m, in line with the majority of our clients in this sector.

Marketing Agency Benchmarking Data Mean Median Lower Quartile Upper Quartile
Turnover Growth/Decline (%) (0.85) 1.96 (8.82) 9.57
EBIT Margin (%) 3.05 4.03 0.69 9.24
EBIT Growth/Decline (%) (1.62) (7.02) (57.90) 46.39
EBITDA Margin (%) 7.10 5.89 2.18 13.51
EBITDA Growth/Decline (%) (9.40) (4.98) (46.64) 31.63
Total Net Assets Growth/Decline (%) 10.24 5.99 (9.34) 19.61
Current Ratio 3.39 1.25 0.82 2.55
Acid Test 2.77 0.94 0.57 1.86
Motor Service & Repair Benchmarking

Using full company accounts filed in the last two years under the search criteria, SIC-Code “452 - Maintenance and repair of motor vehicles”.

M&A Activity Source

Experian Market IQ (October 2018) Search Criteria: : SIC-Code “452 - Maintenance and repair of motor vehicles” and keywords concerning motor servicing.

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