A founder's rush to capitalize on a Wall Street penchant for industry roll-ups may have brought CARA Collision and Glass to a screeching halt.
The business: Car-repair-shop consolidator Opened: 1996 Closed: June 2000 Cause of death: Overhead bloated by hasty acquisitions
Rollie Benjamin vividly recalls the departure of his partner, Randy McPherson, from ABRA Auto Body & Glass in June 1996. The two men went their separate ways after McPherson bid unsuccessfully to buy out the auto-body chain that he and Benjamin had cofounded in 1984 and built into a $25-million company. Three months after leaving ABRA, McPherson, intent on swiftly acquiring auto-body shops nationwide and cashing out with an initial public offering, started CARA Collision and Glass. Getting to an IPO quickly was "driving his thinking," says Benjamin. The very name of the company said it all: CARA stood for Collision Auto Repair of America.
If McPherson was in a rush, he had his reasons. His plan called for consolidating dozens of mom-and-pop car-repair shops under CARA's professional management in order to ratchet up sales. McPherson believed that he had to "move quickly," he says, while Wall Street had a large appetite for roll-ups like CARA's.
He wasted no time. By mid-1998 CARA, based in Minneapolis, had acquired 26 shops in five states. McPherson's hell-bent-for-leather strategy, however, meant that he had to scoop up many shops that were struggling financially -- and those shops proved to be a maddening burden. The company "lacked the internal management structure" to tame the octopus of far-flung, marginal shops, says Dennis Kennealy, the company's former director of operations. The result, says Kennealy, was soaring overhead costs and "chaos."
The company's first steps, in contrast, had looked orderly. Digging into his own pocket and calling on private investors, McPherson had had no trouble raising $5 million to get CARA up and going. After all, he had a solid background in the auto-body business, having apprenticed in his father's shop in Eden Prairie, Minn., and having helped to turn ABRA into a powerhouse with 68 shops in 10 states.
In the first quarter of 1997, CARA was producing a small profit on sales from the first eight outlets, which were all located in the Twin Cities area. To continue the shopping spree at a rapid pace, McPherson ventured farther afield, buying shops in such cities as Denver and Las Vegas.
To help in managing the "hubs," as he envisioned the far-flung shops, he bulked up his headquarters staff with blue-chip executives. For example, Stephen Viau, who had been a regional operations manager at the national car-service chain Pep Boys, assumed the title of chief operating officer at CARA.
Of course, a hub strategy of that scale didn't come cheap. CARA had to bankroll road trips by executives like Viau while shelling out travel money to trainers who shuttled from shop to shop. "The fact that it's located halfway across the country means you have to spend additional money," Viau now says.
Unfortunately, McPherson discovered that many of the less promising outlets that the company had taken over continued to perform poorly. He moved quickly, time and again, to replace shop managers who didn't deliver the numbers. The turnover caused a host of problems. For example, a manager whom McPherson parachuted into a hub often wasn't familiar with the insurance-claims process peculiar to that region, leading to a nightmare of improperly filed forms and delays in collecting payments.
Although CARA's revenues peaked in 1998 at nearly $40 million, its overhead was a hefty 11% of sales -- twice the industry average, according to Jim Keller, the company's former vice-president of human resources. In August 1999, CARA's board pressed McPherson to step aside as CEO. His successor, Jim Hawley, sold all but about a dozen shops. Still, CARA lost $2 million for 1999 and filed for Chapter 7 liquidation last June.
Looking back on his experience, McPherson acknowledges that in his drive toward an IPO, he expanded the company too aggressively. "The bottom line is, I danced with Wall Street and got burned," he says.