Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / Private Equity Is Quietly Buying Up Auto Repair Shops
Transcript
- Lucas: Luna, I want to talk about a roll-up that's happening mostly under the radar: independent auto repair shops. We've talked about car washes, pest control, vet clinics — but this one is different because of the revenue model. Luna: Different how? I mean, auto repair feels pretty cyclical — people only come in when something breaks, right? Lucas: That's the old way. But the smart platforms are shifting toward maintenance — oil changes, tire rotations, inspections. That's recurring. And it turns out that a well-run shop can generate very predictable cash flow, which is exactly what private equity likes. Luna: So they're buying up the corner garage and turning it into a subscription-like business? That's a big shift. Lucas: Exactly. And there's a specific case that illustrates the whole trend. A platform called Drive Auto Partners, backed by a firm called Roc Capital Management, has acquired 47 independent shops since 2022, mostly in the Midwest. They're not a national chain yet — they're building it regionally, shop by shop. Luna: Forty-seven shops in four years — that's fast. What's the typical size of the shops they're buying? Lucas: Usually 2 to 5 bays, maybe 4 or 5 employees. Revenue between one and two million dollars a year. These are classic mom and pops where the owner is ready to retire, or doesn't want to deal with the administrative headache anymore. Luna: And what does Drive Auto give them in return? Aside from cash. Lucas: They centralize purchasing of parts, marketing, HR, even software. The shop keeps its local name and the same mechanics — usually the owner stays on as a manager for a couple years. But the back-office gets consolidated. That's the classic PE roll-up play. Luna: So the customer probably doesn't even notice the change. They still see the same faces, same sign. Lucas: Right. And that's the point — you don't want to disrupt the trust. Auto repair is a relationship business. People go to the same mechanic for years. If you suddenly rebrand to 'Drive Auto #17', you lose that. Luna: I remember reading that the overall automotive aftermarket is something like $300 billion in the US. How much of that is independent repair shops? Lucas: Roughly 70 percent of all vehicle service is done by independent shops, not dealerships. That's about 160,000 independent locations. And most of them are single-owner. So the addressable market for roll-up is enormous. Luna: So what's the catch? If it's so perfect, why aren't more PE firms piling in? Lucas: They are, actually. But the biggest challenge is finding good mechanics. There's a well-known shortage of certified technicians — the average age is over 40, and fewer young people are entering the trade. When you buy 47 shops, you need to keep the bays staffed. Luna: So the bottleneck is talent, not capital. Lucas: Exactly. Roc Capital and Drive Auto are also investing in training programs - they partner with local community colleges to create a pipeline. It's a long-term bet. Luna: Makes sense. Let's talk about the numbers a bit. What kind of multiples are these shops trading at? Lucas: Typically between 4 and 6 times EBITDA. For a shop doing $200,000 in EBITDA, you're paying about a million dollars. But when you add the central cost savings, the effective multiple can come down after the first year. Luna: So the PE firm is banking on synergies to justify the price. Classic roll-up math. Lucas: Precisely. And there's another angle: the shift to electric vehicles. EV maintenance is less intensive — fewer moving parts, no oil changes. That could threaten the recurring revenue model. Luna: I was just thinking that. If the fleet goes electric, what happens to the oil change subscription? Lucas: The platforms are already pivoting to tire and brake work, which EVs still need. And alignment. Plus, there will be a need for battery diagnostics and high-voltage system repairs. It's not the end of the world, but it changes the math on shop utilization. Luna: So the smart roll-ups are probably buying shops that are in communities where EV adoption is slower — like the Midwest, which is exactly where Drive Auto is focused. Lucas: That's a great point. They're building in markets where the traditional repair model has a longer runway. And if EV adoption accelerates, they can adapt centrally rather than shop by shop. Luna: This is the kind of episode I actually find useful — it gives me a framework to watch for when I see a local shop get a new sign but same owner. Lucas: Yeah, if today was useful to you, the way these stay ad-free is listener support. You can help keep the conversations like this going at buy me a coffee dot com slash fexingo. No pressure, just if it moves your work forward even a little. Luna: I second that. We're lucky to do this show, and it's listeners who make it possible. Lucas: Alright — back to the roll-up. One thing I want to highlight is the exit strategy for these PE platforms. Typically they aim for a sale to a larger strategic buyer — maybe a national chain like Monro or a tire company — or they do an IPO. Luna: But for a regional platform like Drive Auto, with 47 shops, an IPO seems like a stretch. Lucas: Probably. More likely they get acquired by a larger platform that's aggregating regions. There's a phenomenon called 'platform stacking' — one PE fund builds a regional roll-up, then sells to another PE fund that's building a national one. Luna: So the first fund makes a 2x or 3x return in five years, and the second fund rolls it into something bigger. That's the beauty of fragmentation. Lucas: Exactly. And the numbers work because the underlying asset — a good independent repair shop — doesn't require a lot of capital investment. It's not like a manufacturing plant. You buy it, optimize the P&L, and sell it. Luna: But what about the risk of overpaying? If everyone piles into auto repair, multiples could inflate, and the returns shrink. Lucas: That's a real risk. We've seen it in other sectors — urgent care centers, for example. Multiple compression happens when buyers get too aggressive. The smart firms are buying at disciplined multiples and focusing on organic growth, not just acquisition growth. Luna: So the takeaway for our listeners: watch the auto repair space if you're looking for roll-up plays. The trend is just getting started. Lucas: And if you own a shop and a PE firm calls, you now have a better idea of what they're offering — and what to ask for. Luna: I think we should do a follow-up on the technician shortage angle. There's a lot there. Lucas: Agreed. We'll add it to the list. For now, that's the buyout show.