December 26, 2014 — As we enter the final days of 2014, the industry has experienced what is likely a record number of dealership buy-sells this year with more than 320 changing hands according to data compiled by The Banks Report. Although, unless there is a flurry of deals that close in the next few days, there will have been fewer deals this December than there have been in both in 2012 and 2013. (The 2014 year end update will be ready in the next couple of weeks. All of our previous reports and updates are available to subscribers here. The updates and reports provide analysis of what’s happening in the dealership buy-sell space and is often months ahead of other publications in reporting the trends. The Buy-Sell reports also include the most comprehensive list of dealership acquisitions going back to January 2013. The lists are available to subscribers as a downloadable excel file.)
When we look back in 10 years at dealership consolidation trends, analysts will likely see 2015 as a continuation of 2014 — two years that will prove to be pivotal in changing the face of dealership ownership. The industry went through a similar phase in the mid to late 90’s which brought about the creation of the public dealer group — but after Asbury was formed in the early part of the last decade, that phenomenon came to a crashing halt. Framework agreements made it difficult for dealers or investors to continue the roll up strategy that made the creation of publicly traded dealer groups possible. Also, following the initial “craze” the concept proved to be a tough sell for both manufacturers and potential investors for several reasons.
Meanwhile, the last 14 years or so, other groups began quietly adding to their portfolios and are now in position to be part of what likely will be a second round of major acquisitions. Lithia Motors began the new era with its purchase of the DCH Automotive Group last year. The day after it closed, Warren Buffet announced he was buying the Van Tuyl Group. That deal — which includes 79 dealerships — will will start 2015 off with a bang when it closes, probably within the first couple of weeks in January. We also expect Buffett and his newly formed Berkshire Hathaway Automotive Group to announce at least two more significant acquisitions in 2015.
With more than $50 billion at his disposal, Buffett has significant leverage.
It’s also likely this year that at least two — maybe three — investment groups commonly known as Family Offices (TBR was the first to report on the possible entrance of Family Offices earlier this year. It appears the manufacturers’ appetite for at least considering outside investment money to partner with dealers in acquisitions is improving. TBR wrote about two private equity groups that have begun buying stores — one which was formed in January has already acquired at least 11 dealerships this year. (Subscribers can read about the two groups in our November Buy-Sell Update).
Furthermore, conversations TBR has had recently with multiple manufacturers also indicate there is a growing willingness — or realization — that in many cases, having their dealers backed by outside capital can be a competitive advantage. But there has to be a proven operator with a long track record of running dealerships that are highly profitable sales juggernauts at the helm and who is the face of the investment group.
It will be increasingly more difficult for smaller groups — less than five — or single point stores to compete in what will be a new era of automotive retail. The investments required in facilities, software and regulatory compliance will convince many owners to exit the business. Also, turning down the money being offered for stores today is getting harder. For many dealers, 2015 will be a year of “take the money and run.”
So, while 2014 is a record year for buy-sells, it’s possible that 2015 will even be more active. The short of it is, 2015 likely will be as exciting as 2014 on the dealership buy-sell front.