Established and profitable 40 year old salvage operator and used car seller

Our client is a significant vehicle salvage business based in South Wales. Primary revenue streams are from the sale of car, motorbike and commercial vehicle parts, the supply of hire cars to Fire Service training organisations and the sale of used cars. Established in 1982, the company was purchased by its current directors in 2005 and has operated profitably since.

Activities

The company sources cars, motorbikes and commercial vehicles from the public, contracts with vehicle scrapping websites, a network of local garages, auction platforms and regional independent vehicle assessors. At most times, it has 1,500 cars for breaking whose parts, panel and scrap metal are then sold on to a wide range of personal and business customers. The remaining 100 vehicles on site are either sold as intact cars, motorbikes and commercial vehicles or are being de-polluted awaiting classification.

Our client’s revenue is derived from three primary sources which are as follows:

·       SALE OF PARTS (50% of revenue) include engines, engine parts, transmissions, axles, brake parts, interior parts, wheels, tyres, and more taken from cars, motorbikes and vehicles acquired by our client.

·       INTACT CARS (25% of revenue) - at most times, there are around 50 intact cars for sale or hire which, following initial inspection, have been deemed as roadworthy and for which there is a demand.

·       SCRAP METAL (25% of revenue) - from cars due for breaking, scrap metal from alloy wheels, radiators, engine blocks, exhaust systems, catalytic converters, doors, hoods and frames are sold.

Financial performance and marketplace

In its last full financial year, the company turned over £850,000 making a net profit before tax of £55,000 (6.5%)/adjusted EBITDA £145,000 (17%). Gross margins across the business have improved since the decision to refocus the business away from working direct with insurance companies (41.73% in 2019 to 52.97% in 2021). At the same time, the staff has been rationalised which has reduced overhead costs by a further £50,000.

The United Kingdom vehicle recycling market reached a value of £1.28bn in 2021. Industry analyst IMARC Group expects the market to reach £1.86bn by 2027, exhibiting at a CAGR of 6.3% during 2022-2027.

The sector is expected to benefit from emerging technologies such as electric vehicles and autonomous driving. Electric vehicles will require more specialised parts and services, while autonomous driving will require more sophisticated vehicle diagnostics. This could create new opportunities for salvage companies to provide these services and parts.

Employees and management structure

There are two directors, one who manages the business and the other who is and always has been a silent partner. Both directors are responsible for the strategic and investment decisions made by the business however this is frequently done with the consultation of the parts and yard manager and the bookkeeper. The active director is in charge of hiring & firing and negotiating contracts with customers and suppliers.

The company has a flat management structure in that, except for the decisions take at board level, staff have discretion in many areas from deciding which vehicles to purchase, setting prices for intact vehicles and parts and the decision on when to bail a car. On issues of pricing, there is an internal formula the owners and staff use.

Other staff including a parts manager with two colleagues, a yard manager with three colleagues, a vehicle sales person, two lorry drivers and a bookkeeper.

The active director does not need to be at work on a daily basis for it to operate correctly and profitably and he frequently takes long holidays.

Land and assets

The company operates from a 7-acre site containing office structures, stores and storage buildings, de-pollution bays, a main engine shed and multiple yard areas.

Our client owns multiple assets and vehicles that are required for the business to function. All are fully owned with the exception of a crane which has a finance agreement remaining on it.

In summary

Our client is a well-established car dismantling and sales business that has built a great reputation with personal, commercial and public sector customers in its catchment area and beyond. There is plenty of scope to generate more revenue and profit from the business under new ownership.

The last 2 years has seen the business streamline to reduce fixed costs and cease working on unprofitable direct insurer jobs. As a result, net and gross profitability has benefited and there has been a marked improvement in its already-tight cash flow management. The new owner will be the business’s third and we look forward to seeing what they will achieve by bringing fresh vision and drive to the company.

To discuss this company and to arrange a meeting with its owners, please call 0800 634 9679 or email [email protected].