Colonnade Releases Whitepaper on M&A in the $35 billion Vehicle Service Contract Industry

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Jan 22, 2019, 09:00 ET

CHICAGO, Jan. 22, 2019 /PRNewswire/ -- The vehicle service contract (VSC) industry continues to attract significant interest among investors and consolidators. Macro fundamentals are compelling, and the industry demonstrates growth, strong margins and recurring cash flow. In 2018, the industry was $35 billion at retail with significant opportunity for expansion; there were 132 million vehicles that did not have a VSC but were eligible. Since 2010, more than 60 companies in the VSC industry have changed ownership, and we expect sellers to continue to benefit from strong demand among financial investors and strategic buyers for well-run businesses in the sector. New entrants and consolidators should enjoy industry tailwinds for several years.

The VSC industry is benefitting from compelling macro trends:

The attachment rate of VSCs on new cars sales continues to increase
Used cars sales are growing
The market size of for post-OEM warranty VSC sales will continue to grow to 109 million vehicles by 2024 from an estimated 87 million vehicles in 2018
Consumer demand for VSCs is significant: an estimated 40% of Americans do not have cash on hand to pay for an emergency expense of $400 or more. As the average age of vehicles increases and drivers hold their cars longer, the need for protection plans is increasing
Dealership margins remain under pressure, and F&I products provide significant profitability

Although the industry is growing, there has been increased risk for individual F&I products companies due to dealership consolidation. Since 2008, there are 2,855 fewer dealership owners and 1,675 fewer rooftops.

Colonnade predicts several trends in F&I industry acquisition targets:

Administrators with a strong book of house accounts
Administrators and F&I agencies with a specialty in captive reinsurance solutions
F&I agencies with enterprise value, diversified clients and long-term relationships
Companies that address owners after the purchase of the vehicle

In its latest industry commentary, Colonnade Advisors explores in depth the trends, growth drivers and M&A in the U.S. Vehicle Service Contract industry. For the full industry commentary, see www.ColAdv.com.

CONTACT: Gina Cocking, [email protected]

SOURCE Colonnade Advisors